SPS INFRASTRUCTURE P. LTD., Jaipur V. ACIT, Jaipur

ITA 138/JPR/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5103 (ITAT-JAIPUR)
• Duration Of Justice: 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 15-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MUKESH VERMA CIT DHK
• Assessee Lawyers: O P AGARWAL CAS
• Keywords: Unexplained investment; Depreciation; Income from undisclosed sources; Document seized; Earning of tax free income; Documents seized
• Section: 40A(3); 143(3); 133A; 14A; 131

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH HKKXPUN] YS[KK LNL; ,OA JH DQY HKKJR] U;KF;D LNL; DS LE{K BEFORE: SHRI BHAGCHAND, AM AND SHRI KUL BHARAT, JM VK;DJ VIHY LA-@ ITA NO. 138/JP/2016 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2012-13. M/S. SPC INFRASTRUCTURE PVT. LTD., C-74, AMBA BARI, JAIPUR. CUKE VS. THE ACIT, CIRCLE-4, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AAFCS 8079 K VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA-@ ITA NO. 328/JP/2016 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2012-13. THE ACIT, CIRCLE-4, JAIPUR. CUKE VS. M/S. SPC INFRASTRUCTURE PVT. LTD., C-74, AMBA BARI, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AAFCS 8079 K VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI MANISH AGARWAL & SHRI O.P. AGARWAL (CAS) JKTLO DH VKSJ LS@ REVENUE BY : SHRI MUKESH VERMA (CIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 19.08.2016. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 05/09/2016. VKNS'K@ ORDER PER SHRI KUL BHARAT, JM. THESE TWO APPEALS BY THE ASSESSEE AND REVENUE ARE D IRECTED AGAINST THE ORDER OF LD. CIT (APPEALS)-2, JAIPUR DATED 01.01.20 16 PERTAINING TO A.Y. 2012-13. BOTH THE APPEALS ARE TAKEN UP TOGETHER AND ARE BEIN G DISPOSED OFF BY WAY OF A CONSOLIDATED ORDER, FOR THE SAKE OF CONVENIENCE. FI RST, WE TAKE UP THE ASSESSEES 2 ITA NO. 138 & 328/JP/2016. M/S. SPC INFRASTRUCTURE PVT. LTD. APPEAL IN ITA NO. 138/JP/2016. THE ASSESSEE HAS RAI SED THE FOLLOWING GROUNDS OF APPEAL :- 1. THAT THE LD. CIT (A) HAS ERRED IN SUSTAINING AN NP RATE OF 10% (AGAINST 11.50% APPLIED BY THE AO) ON THE CONTRACT RECEIPTS. SHE HAS FAILED IN NOT FOLLOWING ORDERS OF THE HONBLE I TAT PASSED IN THE CASE OF THE APPELLANT FOR THE ASSTT. YEAR 2005-06. 2. THAT THE LD. CIT (A) HAS ERRED IN SUSTAINING AN ADD ITION OF RS. 80,00,000/- MADE BY THE LD. AO ON ACCOUNT OF ALLEGE D UNDISCLOSED INVESTMENT U/S 69B OF THE INCOME TAX ACT, 1961. SHE HAS FURTHER ERRED IN SUSTAINING AN ADDITION OF RS. 1,39,000/- O N ACCOUNT OF INTEREST ALLEGED TO HAD BEEN EARNED BY THE ASSESSEE ON SUCH UNACCOUNTED INVESTMENT. 3. THAT THE LD. CIT (A) HAS ERRED IN SUSTAINING THE DI SALLOWANCE OF RS. 29,63,480/- MADE BY THE LD. AO U/S 40A(3) EVEN AFTE R INVOCATION OF PROVISIONS OF SECTION 145(3) OF THE INCOME TAX ACT, 1961. SHE HAS FAILED TO FOLLOW THE BINDING DECISION OF THIS HONB LE BENCH OF ITAT RENDERED IN SIMILAR MATTER. 4. THAT THE LD. CIT (A) HAS ERRED IN GRANTING RELIEF O NLY TO THE EXTENT OF RS. 64,207/- OUT OF TOTAL ADDITIONS MADE BY THE LD. AO FOR RS. 5,64,773/- ON ACCOUNT OF ALLEGED EXPENDITURE RECORD ED ON VARIOUS PAPERS FOUND AND IMPOUNDED DURING SURVEY OPERATION. 2. BRIEFLY STATED THE FACTS ARE THAT THE CASE OF TH E ASSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT UNDER SECTIO N 143(3) OF THE IT ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VID E ORDER DATED 27.03.2015. WHILE FRAMING THE ASSESSMENT, THE AO REJECTED THE BOOKS O F ACCOUNTS AND ESTIMATED THE NET PROFIT @ 11.5% THEREBY MADE AN ADDITION OF RS. 3,22,94,264/-. THE AO ALSO MADE DISALLOWANCE BY INVOKING PROVISIONS OF SECTION 14A OF RS. 7,84,190/-. THE AO MADE FURTHER DISALLOWANCE AND MADE ADDITION OF RS. 29,63,480/- BY INVOKING PROVISIONS OF SECTION 40A(3) OF THE ACT. FURTHER, T HE AO MADE ADDITION OF RS. 80,00,000/- BY INVOKING PROVISIONS OF SECTION 69B A ND RS. 1,39,000/- INTEREST 3 ITA NO. 138 & 328/JP/2016. M/S. SPC INFRASTRUCTURE PVT. LTD. ACCRUED THEREON. THE ASSESSEE AGGRIEVED BY THIS OR DER, FILED AN APPEAL BEFORE LD. CIT (A), WHO AFTER CONSIDERING THE SUBMISSIONS, PAR TLY ALLOWED THE APPEAL. WHILE PARTLY ALLOWING THE APPEAL, THE LD. CIT (A) APPLIED THE NET PROFIT @ 11.5% SUBJECT TO DEPRECIATION AND ALSO DELETED THE ADDITION WHICH WA S MADE BY INVOKING PROVISIONS OF SECTION 14A OF THE ACT. HOWEVER, THE LD. CIT (A) CO NFIRMED THE ADDITION OF RS. 80,00,000/- AND RS. 1,39,000/- WHICH WERE MADE BY I NVOKING PROVISIONS OF SECTION 69B AND INTEREST ACCRUED THEREON. THE LD. CIT (A) ALSO CONFIRMED THE ADDITION OF RS. 29,63,480/- WHICH WAS MADE BY INVOKING PROVISIONS O F SECTION 40A(3) OF THE ACT. HOWEVER, OUT OF DISALLOWANCE OF RS. 5,64,773/- MADE ON ACCOUNT OF ALLEGED EXPENDITURE RECORDED ON VARIOUS PAPERS FOUND AND IM POUNDED DURING THE COURSE OF SURVEY, SUSTAINED AN ADDITION OF RS. 3,30,000/-. 3. NOW BOTH THE ASSESSEE AND THE REVENUE HAVE CHALL ENGED THE ORDER OF LD. CIT (A) BY FILING THE APPEALS. 4. FIRST GROUND OF THE ASSESSEES APPEAL IS AGAINST ADOPTING THE NET PROFIT OF 10% ON THE CONTRACT RECEIPTS. 4.1. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THA T THE AO WAS NOT JUSTIFIED IN ADOPTING THE NET PROFIT @ 11.5%. HE SUBMITTED THAT IN ASSESSEES OWN CASE THE COORDINATE BENCH OF THIS TRIBUNAL HAD ADOPTED THE N ET PROFIT @ 7% ON MAIN CONTRACT AND 4% ON SUB CONTRACT RECEIPTS BY PASSING REASONED ORDERS FOR SEVERAL YEARS. THE LD. COUNSEL REITERATED THE SUBMISSIONS AS MADE IN T HE WRITTEN BRIEF. HE SUBMITTED THAT ADOPTING THE RATE OF 11.5% AND SUSTAINING THE SAME AT 10% IS HIGHLY EXCESSIVE UNDER THE FACTS AND CIRCUMSTANCE OF THE CASE. LD. COUNSEL SUBMITTED THAT THE AUTHORITIES BELOW HAVE ADOPTED THE SAME RATE AS WAS ADOPTED BY THE COORDINATE 4 ITA NO. 138 & 328/JP/2016. M/S. SPC INFRASTRUCTURE PVT. LTD. BENCH IN EARLIER YEARS. HE SUBMITTED THAT THERE IS NO MATERIAL ON RECORD THAT SUGGEST ESTIMATION OF NET PROFIT @ 11.5%. HE SUBMITTED THA T THE AO APPLIED THE NET PROFIT OF 11.5% ON GROSS CONTRACT RECEIPTS AMOUNTING TO RS. 4 9.19 CRORES. HE SUBMITTED THAT THERE WERE TWO COMPONENTS OF THESE RECEIPTS (1) C ONTRACT RECEIPTS FROM THE AWARDER DIRECTLY EXECUTED BY THE ASSESSEE OF RS.17. 09 CRORES AND (2) CONTRACT RECEIPTS FROM THE WORKS EXECUTED AS SUB CONTRACTOR OF RS. 32.10 CRORES. THE LD. COUNSEL SUBMITTED THAT ASSESSEES MAIN WORK IS OF R OAD CONSTRUCTION WHERE BITUMEN IS AN EXPENSIVE AND BASIC RAW MATERIAL, PRICE OF WH ICH IS FULLY DEPENDENT ON THE INTERNATIONAL MARKET AND IT IS HIGHLY IMPOSSIBLE AN D IMPROBABLE TO HAVE A MATCHING ESTIMATION OF COST AT THE TIME WHEN TENDER IS SUBMI TTED AND WORK IS AWARDED. AT THE TIME OF ASSESSMENT, THESE FACTS WERE BROUGHT TO THE KNOWLEDGE OF THE AO THAT PRICE OF BITUMEN HAD INCREASED SHARPLY AND THE ROYALTY RA TES ON CHEJA STONE WAS ALSO SUBSTANTIALLY INCREASED BY STATE GOVERNMENT AND SI NCE THESE ARE BASIC RAW MATERIAL IN ROAD CONSTRUCTION WORK, SUCH INCREASE HAS AFFECT ED THE PROFITABILITY ADVERSELY. THESE FACTS HAVE NOT BEEN CONTROVERTED NOR HAVE BEE N COMMENTED UPON BY THE AO IN THE ASSESSMENT ORDER BEFORE DISBELIEVING THE NET PROFIT RATE DECLARED BY THE ASSESSEE NOR ANY ATTEMPT WAS MADE TO APPRECIATE THE FACTS BY LD. CIT (A) BEFORE UPHOLDING THE PROFIT RATE OF 10%. THE LD. COUNSEL SUBMITTED THAT OUT OF TOTAL RECEIPTS OF RS. 49.19 CRORES, RECEIPTS WORTH RS. 32 .10 CRORES WERE FROM SUB-CONTRACT ACTIVITY WHERE ASSESSEE EXECUTED THE WORKS AWARDED TO IT BY SOME OTHER CONTRACTORS AND IN THIS ACTIVITY THE PROFIT RATE IS MUCH LOWER THAN THE MAIN CONTRACTS. THE LD. COUNSEL SUBMITTED THAT THE LD. CIT (A) AND THE AO H AVE NOT GIVEN ANY REASON TO DEVIATE FROM THE PROFIT RATE AS APPLIED BY THE COOR DINATE BENCH OF THE TRIBUNAL. THE 5 ITA NO. 138 & 328/JP/2016. M/S. SPC INFRASTRUCTURE PVT. LTD. LD. COUNSEL SUBMITTED THAT NO SUCH DISCREPANCIES AR E FOUND, MORE THAN RS.5.5 LACS WERE ADDED BACK SEPARATELY ON THE DISCREPANCY. THE LD. COUNSEL SUBMITTED THAT ONLY FOR A MEAGER AMOUNT OF RS. 5.5 LACS, TRADING A DDITION OF MORE THAN RS. 3.25 CRORES WAS MADE. HE SUBMITTED THAT THE AO HAS RELI ED UPON THE JUDGMENT OF THE HONBLE RAJASTHAN HIGH COURT RENDERED IN THE CASE O F JAIN CONSTRUCTION CO., 245 ITR 527 (RAJ.). FACTS OF THE CASE IN JAIN CONSTRUCTION CO. (SUPRA) AND THE FACTS IN THE INSTANT CASE UNDER CONSIDERATION ARE ENTIRELY DIFFE RENT. HE SUBMITTED THAT IN EARLIER YEARS ALSO THE BOOK RESULT OF THE ASSESSEE WAS REJE CTED AND NET PROFIT RATE WAS APPLIED WHICH WAS SUBSEQUENTLY REDUCED BY THE HONB LE ITAT. HE FURTHER SUBMITTED THAT THE AUTHORITIES BELOW HAVE FAILED TO APPRECIAT E THE FACT THAT OUT OF TOTAL RECEIPTS, 65% RECEIPTS ARE FROM SUB-CONTRACT AND FROM SUCH RE CEIPT THE PROFIT RATE WOULD BE SUBSTANTIALLY LOWER. FURTHER, THE AO HAS NOT TAKEN INTO ACCOUNT THE INCREASE IN THE PRICE OF THE BASIC RAW MATERIAL AND HAS ONLY ESTIMA TED THE PROFIT ON THE BASIS OF CONJECTURES AND SURMISES. THE LD. COUNSEL SUBMITTED THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, THE FINDINGS OF THE AUTHORITIES BELOW ARE CONTRARY TO THE SETTLED PRINCIPLES OF LAW, HENCE DESERVES TO BE REVERSED. 4.2. ON THE CONTRARY, THE LD. D/R VEHEMENTLY OPPOSE D THE SUBMISSIONS OF THE LD. COUNSEL AND SUBMITTED THAT ADMITTEDLY THE ASSESSEE IS IN CONSTRUCTION BUSINESS AND THE HONBLE RAJASTHAN HIGH COURT HAS SUSTAINED THE ESTIMATION @ 11.5%. HE SUBMITTED THAT THE ASSESSEE HAS NOT CHALLENGED THE REJECTION OF BOOKS OF ACCOUNT. HE FURTHER SUBMITTED THAT EVERY ASSESSMENT YEAR IS AN INDEPENDENT YEAR. THEREFORE, PROFIT RATIO RELATED TO ANY OTHER YEAR CANNOT BE AP PLIED TO THE YEAR UNDER CONSIDERATION. THE LD. D/R SUBMITTED THAT THE AO H AS BROUGHT ON RECORD THE GLARING 6 ITA NO. 138 & 328/JP/2016. M/S. SPC INFRASTRUCTURE PVT. LTD. DISCREPANCIES IN THE BOOKS OF ACCOUNT. THE ASSESSE E HAS ACCEPTED THE REJECTION OF BOOKS OF ACCOUNT. UNDER THESE FACTS, HE SUBMITTED THAT THE PROFIT RATE AS ADOPTED BY THE AO BE SUSTAINED. 4.3. WE HAVE HEARD RIVAL CONTENTIONS, PERUSED THE M ATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELO W. THE AO AFTER REJECTING THE BOOKS OF ACCOUNT ESTIMATED THE NET PROFIT RATE AT 1 1.5%. THE AO DREW SUPPORT FROM THE JUDGMENT OF THE HONBLE RAJASTHAN HIGH COURT RE NDERED IN THE CASE OF JAIN CONSTRUCTION CO. AND ALSO THE DECISION OF THE COORD INATE BENCH OF THE TRIBUNAL RENDERED IN THE CASE OF CHOUDHARY BROTHERS IN ITA N O. 1177/JP/2010. THE ISSUE NOW TO BE EXAMINED IS WHETHER THE ESTIMATION MADE B Y THE AO @ 11.5% AND SUSTAINED BY LD. CIT (A) SUBJECT TO DEPRECIATION IS JUSTIFIED OR NOT. THE ASSESSEE HAS NOT CHALLENGED THE REJECTION OF BOOKS OF ACCOUNT. HOWEVER, THE ASSESSEE HAS SUBMITTED THAT WHEN THE BOOKS OF ACCOUNTS ARE REJEC TED, THE AO IS DUTY BOUND TO ESTIMATE THE PROFIT ON THE BASIS OF MATERIAL AVAILA BLE BEFORE HIM AND ALSO KEEPING IN MIND THE PAST HISTORY OF THE CASE. THERE IS MERIT I NTO THIS CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. WE FIND THAT THE AO HA S APPLIED RATE OF 11.5% NOT ON THE BASIS OF THE FACTS AND MATERIAL AVAILABLE BEFOR E HIM BUT ON THE BASIS THAT 11.5% NET PROFIT RATE HAS BEEN APPLIED IN OTHER CASES REL ATED TO THE OTHER ASSESSES. THE AO HAS ALSO NOT BROUGHT ON RECORD THAT THE FACTS OF TH E PRESENT CASE AND THE FACTS OF THE CASE LAWS AS RELIED UPON BY HIM ARE IDENTICAL. THE LD. CIT (A) ALSO HAS NOT GIVEN A FINDING AS TO HOW THE DISCREPANCY AS NOTED BY THE A O IS SUFFICIENT TO ESTIMATE THE NET PROFIT @ 11.5%. THE LAW IS WELL SETTLED THAT W HILE ESTIMATING THE PROFIT, THE AO IS REQUIRED TO ESTIMATE THE PROFIT NOT MERELY ON TH E BASIS OF CONJECTURES AND 7 ITA NO. 138 & 328/JP/2016. M/S. SPC INFRASTRUCTURE PVT. LTD. SURMISES BUT ON THE BASIS OF MATERIAL GATHERED BY H IM DURING THE COURSE OF ASSESSMENT PROCEEDINGS. IN THE CASE OF THE APPELLA NT, IN EARLIER YEARS THE COORDINATE BENCH OF THIS TRIBUNAL UNDER THE IDENTIC AL FACTS PERTAINING TO A.Y. 2003- 04 AND 04-05 UPHELD THE NET PROFIT RATE OF 7% SUBJE CT TO ALLOWABILITY OF DEPRECIATION. NEITHER THE LD. CIT (A) NOR THE AO HAS BROUGHT ANY CONTRARY MATERIAL THAT THE FACTS OF THE PRESENT CASE ARE DIFFERENT FROM EARLIER YEAR S. THEREFORE, TAKING A CONSISTENT VIEW OF THE MATTER, WE HEREBY DIRECT THE AO TO COMP UTE THE NET PROFIT @ 7% SUBJECT TO DEPRECIATION IN THE YEAR UNDER APPEAL. THIS GRO UND OF THE ASSESSEES APPEAL IS PARTLY ALLOWED. 5. GROUND NO. 2 OF THE ASSESSEES APPEAL IS AGAINST CONFIRMATION OF ADDITION OF RS. 80,00,000/- MADE BY THE AO ON ACCOUNT OF ALLEGE D UNDISCLOSED INVESTMENT AND FURTHER SUSTAINING AN ADDITION OF RS. 1,39,000/- ON ACCOUNT OF INTEREST ALLEGED TO HAD BEEN EARNED BY THE ASSESSEE ON SUCH UNACCOUNTED INV ESTMENT. 5.1. THE LD. COUNSEL FOR THE ASSESSEE HAS REITERATE D THE SUBMISSIONS AS ARE MADE IN THE WRITTEN BRIEF. THE LD. COUNSEL SUBMITTED THA T THE AO AS WELL AS THE LD. CIT (A) HAS NOT BROUGHT ANY MATERIAL ON RECORD SUGGESTING T HAT THE NOTINGS MADE IN THE PAPER BOOK WERE ACTUALLY IN PURSUANCE OF THE TRANSA CTIONS EFFECTED. THE LD. COUNSEL SUBMITTED THAT SHRI GHANSHYAM PARIHAR HAS GIVEN A S WORN IN AFFIDAVIT. THE CONTENTS OF THE AFFIDAVIT ARE NOT CONTROVERTED BY THE REVENU E BY PLACING ANY MATERIAL ON RECORD. THE LD. COUNSEL PLACED RELIANCE ON THE JUD GMENT OF THE HONBLE SUPREME COURT RENDERED IN THE CASE OF MEHTA PARIKH & CO., 3 0 ITR 181 (SC) THE LD. COUNSEL SUBMITTED THAT THE HONBLE SUPREME COURT IN THE CAS E OF ORISSA CORPORATION PVT. LTD., 159 ITR 78 (SC) HAS HELD THAT WHEN THE ASSESSEE FURNISHES NAMES AND 8 ITA NO. 138 & 328/JP/2016. M/S. SPC INFRASTRUCTURE PVT. LTD. ADDRESSES OF THE ALLEGED CREDITORS, THE BURDEN SHIF TS TO THE DEPARTMENT TO ESTABLISH THE REVENUES CASE AND IN ORDER TO SUSTAIN THE ADDI TION THE REVENUE HAS TO PURSUE THE INQUIRY AND TO ESTABLISH THE LACK OF CREDITWORT HINESS AND THE MERE ISSUE OF NOTICE U/S 131 IS NOT SUFFICIENT. THE LD. COUNSEL SUBMITTED THAT THE DOCUMENTS ARE UNSIGNED AND AS SUCH HAS NO EVIDENTIAL VALUE. HE S UBMITTED THAT MERELY NOTING ON A PIECE OF PAPER WOULD NOT BE SUFFICIENT EVIDENCE TO MAKE THE ASSESSEE LIABLE FOR THE TRANSACTION. THE LD. COUNSEL PLACED RELIANCE ON THE JUDGMENT OF HONBLE SUPREME COURT RENDERED IN THE CASE OF JAIN DAIRY. 5.2. ON THE CONTRARY, THE LD. D/R OPPOSED THE SUBMI SSIONS AND SUBMITTED THAT UNDISPUTEDLY A PIECE OF PAPER WAS FOUND DURING THE COURSE OF SURVEY. THE EXPLANATION GIVEN BY THE ASSESSEE IS AN AFTER-THOUG HT AND CANNOT BE ACCEPTED. 5.3. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. AS PER ANNEXURE-20 IMPOUNDED DURING THE COU RSE OF SURVEY, STATEMENT OF ACCOUNT OF SHRI GHANSHYAM PARIHAR WAS IMPOUNDED WHI CH IS PLACED AT PAGE 52 OF THE PAPER BOOK. AS PER THIS PAPER, THERE ARE THREE DIFFERENT ENTRIES FOR RS. 30 LACS, RS. 15 LACS AND RS. 35 LACS TOTALING RS. 80 LACS. IN THIS WORKING ALSO, INTEREST IS GIVEN AT DIFFERENT RATES I.E. ON RS. 30 LACS @ 1% R S. 30,000/-, ON RS. 15 LACS @ 2% RS. 30,000/- AND ON RS. 35 LACS @ 2.25% RS. 79,000/ -. IN THIS PAPER THERE ARE OTHER NOTINGS ALSO RELATED TO SOME OTHER PERSONS OF RS. 2,00,000/-, RS. 50,000/-, RS. 15,000/- AND RS.65,000/-. THIS PIECE OF PAPER SHOW S ONLY WORKING AND SOURCE OF INTEREST AT DIFFERENT RATES. THERE IS NO SIGNATURE BY THE BORROWER OR THE LENDER. THERE IS NO OTHER DOCUMENT CORROBORATING THESE ENTR IES. ADMITTEDLY, THE AUTHORITIES BELOW HAVE RAISED THE ENTIRE ADDITION ON THE BASIS OF THIS PIECE OF PAPER. THIS IS 9 ITA NO. 138 & 328/JP/2016. M/S. SPC INFRASTRUCTURE PVT. LTD. NEITHER ACKNOWLEDGEMENT OF FACT NOR A DOCUMENT NOR AN AGREEMENT ENFORCEABLE UNDER THE LAW. THIS ONLY REFLECTS THE WORKING OF TH E INTEREST AT DIFFERENT AMOUNTS. THE AUTHORITIES BELOW HAVE DISCARDED THE EXPLANATIO N AND HAVE NOT ACCEPTED THE AFFIDAVIT OF THE BORROWER ON THE GROUND THAT THE BO RROWER IS NOT PRODUCED BY THE ASSESSEE. THE AO HAS NOT ISSUED ANY SUMMON TO SHRI GHANSHYAM PARIHAR. IT IS NOW WELL SETTLED THAT MERELY ON THE BASIS OF A PIEC E OF PAPER IMPOUNDED DURING THE COURSE OF SURVEY, IT IS NOT A SUFFICIENT EVIDENCE T O MAKE THE ADDITION. THE REVENUE HAS TO BRING ON RECORD CORROBORATIVE EVIDENCE. WE DRAW SUPPORT FROM THE DECISION OF HONBLE DELHI HIGH COURT RENDERED IN THE CASE OF CIT VS. KULWANT RAI, 291 ITR 36 (DEL.). RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HONBLE DELHI HIGH COURT, SUPRA, WE SET ASIDE THE ORDER OF LD. CIT (A) AND DELETE TH E ADDITIONS ON ACCOUNT OF ALLEGED UNDISCLOSED INVESTMENT AND ALLEGED INTEREST THEREON . THE GROUND OF THE ASSESSEE IS ALLOWED. 6. GROUND NO. 3 OF THE ASSESSEE IS AGAINST SUSTAINI NG THE DISALLOWANCE OF RS.29,63,480/-. 6.1. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE AUTHORITIES BELOW HAVE FAILED TO APPRECIATE THE FACTS IN RIGHT PERSPE CTIVE. HE SUBMITTED THAT THE DOCUMENTS IMPOUNDED AS PAGE 1-13 OF ANNEXURE-23 WAS A REGISTER, PREPARED BY THE SITE ACCOUNTANT OF ONGOING PROJECT OF THE APPELLANT COMPANY AT UJJAIN WHICH WAS EARLIER SUBLET TO ONE M/S. ARC INFRA, HOWEVER, WHEN THE SAID FIRM LEFT THE WORK INCOMPLETE, THE APPELLANT COMPANY WAS EXECUTING THE WORK. THE LD. COUNSEL SUBMITTED THAT THE REGISTER WAS BEING MAINTAINED BY THE STAFF OF THE APPELLANT AT UJJAIN PROJECT WHEREIN ALL INWARDS AND OUTWARDS OF THE MONEY WERE BEING RECORDED 10 ITA NO. 138 & 328/JP/2016. M/S. SPC INFRASTRUCTURE PVT. LTD. FOR HIS MEMORANDA PURPOSE ON MONTHLY BASIS WHICH IS EVIDENT FROM THE PAPERS ITSELF. ON PERUSAL OF THESE PAPERS, IT IS EVIDENT THAT THE VARIOUS PAYMENTS HAVE BEEN MADE TO SHRI O.P. CHOUDHARY, VIJENDRA AND SANJAY WHO ALL WERE LOOKING AFTER THE WORK SITES AND MONEY WAS SENT TO THEM FOR FURTHER SPENDI NG. ALL THESE PERSONS USED TO SEND THEIR DETAILS OF SPENDING FROM TIME TO TIME WH ICH WERE INCORPORATED IN THE BOOKS. SINCE THE MONEY SENT TO THEM IS IN THE NATUR E OF ADVANCE, THE SAME IS NOT COVERED BY THE PROVISIONS OF SECTION 40A(3) OF THE ACT. THEREFORE, HE SUBMITTED THAT THE DISALLOWANCE DESERVES TO BE DELETED. THE LD. CO UNSEL FURTHER SUBMITTED THAT WITHOUT PREJUDICE AND IN THE ALTERNATIVE, THE AO HA S REJECTED THE BOOKS OF ACCOUNT. HE SUBMITTED THAT RESULTS DECLARED BY THE APPELLANT ARE REJECTED AND INCOME IS ESTIMATED BY APPLYING NET PROFIT RATE, NO FURTHER A ND SEPARATE DISALLOWANCE SHOULD BE MADE OUT OF THE EXPENSES CLAIMED U/S 29 TO 43 OF THE ACT. THE LD. COUNSEL PLACED RELIANCE ON THE JUDGMENT OF HONBLE ALLAHABA D HIGH COURT IN THE CASE OF CIT VS. BANWARI LAL BANSHIDHAR (1997) 19 DTR 305 (ALL.) WHEREIN THE HONBLE HIGH COURT HELD THAT ..WHEN THE INCOME OF THE ASSESSEE WAS COMPUTED A PPLYING THE GROSS PROFIT RATE AND WHEN NO DEDUCTION WAS ALLOWED IN RE GARD TO THE PURCHASES OF THE ASSESSEE, THERE WAS NO NEED TO LOOK INTO THE PROVIS IONS OF SECTION 40A(3) AND RULE 6DD(J) . THE LD. COUNSEL FURTHER PLACED RELIANCE ON THE DEC ISION OF COORDINATE BENCH RENDERED IN THE CASE OF ITO VS. NARDEV KUMAR GUPTA (2013) 22 ITR (TRIB.) 273 (JAIPUR). THEREFORE, HE SUBMITTED THAT THE ADD ITION OF RS. 29,63,480/- MAY PLEASE BE DELETED. 6.2. ON THE CONTRARY, THE LD. D/R SUPPORTED THE ORD ERS OF THE AUTHORITIES BELOW. 11 ITA NO. 138 & 328/JP/2016. M/S. SPC INFRASTRUCTURE PVT. LTD. 6.3. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE LD. CIT (A) HAS DECIDED T HE ISSUE IN PARA 7.3 AS UNDER :- 7.3. I HAVE PERUSED THE FACTS OF THE CASE, THE ASS ESSMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT. DURING THE COURSE OF SURVEY UNDER SECTION 133A OF THE I.T. ACT, 1961 SOME INCRIMINATI NG DOCUMENTS WERE FOUND AND ANNEXED AS ANNEXURE A-23, THIS SHOWED PAY MENTS OF VARIOUS AMOUNTS WHICH ALSO INCLUDED SOME AMOUNTS EX CEEDING RS. 20,000/-. WHEN ASKED BY THE ASSESSING OFFICER TO EX PLAIN THE SAME THE ASSESSEE SUBMITTED THAT THESE RELATED TO A PROJECT AT UJJAIN WHICH WAS BEING EXECUTED BY A PARTY M/S. ARC INFRA BUT WHO LE FT THE PROJECT IN BETWEEN AND THEN THE SAME WAS LOOKED AFTER BY THREE PEOPLE OF THE ASSESSEES CONCERN. IT WAS FURTHER CLAIMED THAT THE SE WERE ADVANCES FOR FURTHER SPENDING TO THESE PERSONS AND SO SHOULD NOT BE CONSIDERED UNDER SECTION 40A(3) OF THE I.T. ACT, 1961. HOWEVER , THE APPELLANT COULD NOT PRODUCE ANY EVIDENCE IN SUPPORT OF ITS CL AIM NEITHER SHOW ANY ACCOUNTS FROM THESE PERSONS FOR THE AMOUNT SAID TO HAVE BEEN RECEIVED AS ADVANCE. IN THIS CASE AS THE DOCUMENTS ON THE BASIS OF WHICH ADDITION ARE MADE WERE FOUND AND IMPOUNDED DU RING PROCEEDING UNDER SECTION 133A AND COULD NOT BE SATI SFACTORILY EXPLAINED BY THE ASSESSEE. IN VIEW OF THE ABOVE, TH IS GROUND OF THE ASSESSEE IS DISMISSED. FROM THE ABOVE FINDING OF LD. CIT (A) IT IS EVIDENT THAT THE LD. CIT (A) HAS CONSIDERED THE CONTENTION OF THE ASSESSEE THAT WHERE BOOK RESU LTS HAVE BEEN REJECTED AND PROFIT IS ESTIMATED BY THE AO, NO DISALLOWANCE CAN BE MADE UNDER SECTION 40A(3) OF THE ACT. THE CONTENTION OF THE ASSESSEE BEFORE THE AUT HORITIES BELOW WAS THAT THE AMOUNT WAS IN THE NATURE OF ADVANCE TO ITS OWN EMPL OYEES TO INCUR EXPENDITURE OUT OF THESE AMOUNTS IN DAY TO DAY WORKING AT THE SITE. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE BOOKS OF THE ASSESSEE HAS BEEN REJECTED. THE ASSESSEE HAS RELIED UPON THE JUDGMENT OF HONBLE ALLAHABAD HIGH COURT RENDERED IN THE CASE OF CIT VS. BANWARI LAL BANSHIDHAR (1997) 19 DTR 305 (A LL.) WHEREIN IT HAS BEEN HELD THAT WHEN INCOME OF THE ASSESSEE WAS COMPUTED BY AP PLYING THE GP RATE AND WHEN 12 ITA NO. 138 & 328/JP/2016. M/S. SPC INFRASTRUCTURE PVT. LTD. NO DEDUCTION WAS ALLOWED IN REGARD TO THE PURCHASES OF THE ASSESSEE, THERE IS NO NEED TO APPLY PROVISIONS OF SECTION 40A(3). FURTHE R, RELIANCE HAS BEEN MADE ON THE DECISION OF COORDINATE BENCH RENDERED IN THE CASE O F ITO VS. SADHWANI BROTHERS, 58 DTR 368 AND IN THE CASE OF DCIT VS. SHRI NARENDRA M ITHAILAL AGARWAL IN ITA NO. 811/PUNE/2010. THE COORDINATE BENCH IN THE CASE OF DCIT VS. SHRI NARENDRA MITHAILAL AGARWAL, SUPRA, HAS HELD AS UNDER :- 5.7. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES. IT IS NOT IN DISPUTE THAT PROVISIONS OF SECTION 40A (3) WERE INTRODUCED AS A DETERRENT FOR CHECKING UNACCOUNTED BUSINESS TRAN SACTIONS. HOWEVER, ASSESSEE IN THE INSTANT CASE WAS SUBJECTED TO SEARC H AND SEIZURE ACTION TO BRING OUT UNACCOUNTED INCOME AND ASSESSEE ADMITT ED SUCH UNACCOUNTED INCOME BASED ON SEIZED DOCUMENTS. INCOM E ADMITTED BY THE ASSESSEE WAS ACCEPTED BY THE DEPARTMENT AND NO DOUBT WAS RAISED IN RESPECT OF GENUINENESS OF PURCHASES OR SALES AS ASSESSING OFFICER ADOPTED FIXED PERCENTAGE AS GROSS PROFIT. THE ASSES SING OFFICER HAVING ACCEPTED SUCH UNACCOUNTED INCOME IN ASSESSMENT HAS RESORTED TO DISALLOWANCE U/S.40A(3) WHICH IN OUR OPINION WAS NO T IN ACCORDANCE WITH PRINCIPLES LAID DOWN BY VARIOUS HIGH COURTS. A S DISCUSSED ABOVE, IT HAS BEEN HELD BY VARIOUS HIGH COURTS AND BENCHES OF THE TRIBUNAL THAT NO DISALLOWANCE U/S.40A(3) IS CALLED FOR WHEN INCOM E WAS ESTIMATED APPLYING GROSS PROFIT RATE. WE ARE AWARE THAT HONB LE GUJARAT HIGH COURT IN HYNOUP FOOD AND OIL INDUSTRIES (SUPRA) HAS TAKEN A VIEW CONTRARY TO THE VARIOUS DECISIONS OF OTHER HIGH COU RTS AND ONCE THERE IS A DIVERGENT VIEW, THE VIEW IN FAVOUR OF THE ASSESSE E HAS TO BE FOLLOWED AS HELD BY THE HONBLE SUPREME COURT IN CIT VS. VEG ETABLE PRODUCTS LTD. (1973) 88 ITR 192 (SC). IN VIEW OF THIS, THE C IT(A) IN OUR OPINION WAS FACTUALLY AND LEGALLY JUSTIFIED IN HOLDING THAT DISALLOWANCE OF RS.69,07,964/- U/S.40A(3) WAS NOT CORRECT IN PRESEN T FACTS OF THE CASE AND SAME WAS RIGHTLY DIRECTED TO BE DELETED. THIS R EASONED FACTUAL AND LEGAL FINDING OF THE CIT (A) NEEDS NO INTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 13 ITA NO. 138 & 328/JP/2016. M/S. SPC INFRASTRUCTURE PVT. LTD. THEREFORE, TAKING A CONSISTENT VIEW OF THE MATTER, WE HEREBY DIRECT THE AO TO DELETE THE DISALLOWANCE. THE GROUND OF THE ASSESSEE IS ALL OWED. 7. GROUND NO. 4 IS AGAINST SUSTAINING AN ADDITION O F RS. 5,64,773/- ON ACCOUNT OF ALLEGED EXPENDITURE RECORDED ON VARIOUS PAPERS FOUN D AND IMPOUNDED DURING SURVEY OPERATION. 7.1. THE LD. COUNSEL FOR THE ASSESSEE REITERATED TH E SUBMISSIONS AS ARE MADE IN THE WRITTEN BRIEF. IT IS SUBMITTED THAT THE ADDITI ONS WERE MADE ON THE BASIS OF IMPOUNDED MATERIAL OF VARIOUS ANNEXURES, DETAILS OF WHICH HAVE BEEN RECORDED BY AO AT PAGES 24-25 OF THE ASSESSMENT ORDER. IN RESP ECT OF AMOUNT OF RS. 3,30,000/-, IT WAS SUBMITTED THAT THIS PAPER DOES NOT BELONG TO THE APPELLANT COMPANY AND THE APPELLANT IS UNAWARE OF THE AMOUNT OF RS. 3,30,000/ -. IT IS THE SAME PAGE BASED ON WHICH AN ADDITION OF RS. 81,39,000/- IS MADE AS CHA LLENGED IN GROUND NO. 2. 7.2. THE LD. D/R HAS SUPPORTED THE ORDERS OF THE AU THORITIES BELOW. 7.3. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. SINCE WE HAVE DECIDED GROUND NO. 2 IN FAVO UR OF THE ASSESSEE BY FOLLOWING THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. KULWANT RAI (SUPRA), FOR THE SAME REASONING, THE AO IS DIRECTED TO DELETE THE ADDITION. 7.4. IN RESPECT OF ADDITION OF RS. 56,450/- AND RS. 1,34,116/- SUSTAINED BY LD. CIT (A), THE LD. COUNSEL SUBMITTED THAT WHEREVER THE EX PENSES HAVE BEEN INCURRED BY THE APPELLANT, THE SAME HAVE BEEN DULY RECORDED IN THE BOOKS OF ACCOUNTS. HOWEVER, IN SOME OF THE CASES, EXPENSES HAVE BEEN DIRECTLY P AID AND BORNE BY THE EMPLOYEES, WHICH HAVE NOT BEEN RECORDED IN THE BOOKS AND SOME OF THE ENTRIES ARE MERELY ROUGH ENTRIES. THE LD. COUNSEL SUBMITTED THAT WITH OUT PREJUDICE TO ABOVE AND IN 14 ITA NO. 138 & 328/JP/2016. M/S. SPC INFRASTRUCTURE PVT. LTD. ALTERNATIVE, EVEN IF IT IS PRESUMED THAT ENTRIES UN DER CONSIDERATION REPRESENTS THE EXPENSES OF THE APPELLANT NOT RECORDED IN BOOKS, IT IS CONTENDED THAT SINCE THE INCOME IS ESTIMATED BY APPLYING NET PROFIT RATE ON ENTIRE GROSS CONTRACT RECEIPTS BY INVOKING PROVISIONS OF SEC. 145(3), FURTHER ADDITIO N ON ACCOUNT OF THE EXPENSES WOULD TANTAMOUNT TO DOUBLE ADDITION. HE PRAYED DELE TION OF ADDITION. 7.5. THE LD. D/R SUPPORTED THE ORDERS OF THE AUTHOR ITIES BELOW. 7.6. WE FIND FORCE IN THE CONTENTION OF THE LD. COU NSEL FOR THE ASSESSEE. SINCE THE INCOME HAS BEEN ESTIMATED BY APPLYING NET PROFIT RA TE ON ENTIRE GROSS CONTRACT RECEIPTS, NO FURTHER ADDITION IS CALLED FOR. THE AO IS DIRECTED TO DELETE THE ADDITIONS OF RS. 56,450/- AND RS. 1,34,116/-. THIS GROUND OF THE ASSESSEE IS ALLOWED. ITA NO. 328/JP/2016 : 8. WE NOW TAKE UP THE APPEAL OF THE REVENUES APPEA L. 9. GROUND NO. 1 OF THE REVENUE READS AS UNDER :- (I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (APPEALS) HAS ERRED IN RESTRICTING THE N.P. RATE TO 10% AS AGAINST N.P. RATE OF 11.5% APPLIED BY THE AO IGN ORING THE FACT THAT THE AO MADE ADDITION BY REJECTING BOOKS OF ACCOUNTS POINTING OUT SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNTS AND DOCUM ENTS FOUND AND IMPOUNDED DURING THE COURSE OF SURVEY. 9.1. APROPOS THIS GROUND, BOTH THE RESPECTIVE REPRE SENTATIVES OF THE PARTIES HAVE ADOPTED THE SAME ARGUMENTS AS MADE IN THE ASSESSEE S GROUND NO. 1. 9.2. WE HAVE HEARD RIVAL CONTENTIONS. SINCE THE FA CTS ARE IDENTICAL AS IN GROUND OF THE ASSESSEE, AND WE HAVE DECIDED THE GROUND IN THE ASSESSEES APPEAL PARTLY IN FAVOUR OF THE ASSESSEE BY DIRECTING THE AO TO ADOPT THE NET PROFIT RATE @ 7% INSTEAD 15 ITA NO. 138 & 328/JP/2016. M/S. SPC INFRASTRUCTURE PVT. LTD. OF 11.5% AS APPLIED BY THE AO, FOR THE SAME REASONI NG, WE FIND NO MERIT IN THE GROUND RAISED BY THE REVENUE. THE SAME IS REJECTED. 10. GROUND NO. 2 IS AGAINST DELETION OF DISALLOWANC E U/S 14A WITHOUT CONSIDERING DEPARTMENTS CIRCULAR NO. 5/2014 DATED 11.02.2014. 10.1. THE LD. D/R SUPPORTED THE ORDER OF THE AO AND SUBMITTED THAT LD. CIT (A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE. 10.2. ON THE CONTRARY, LD. COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF THE LD. CIT (A) AND ALSO SUBMITTED THAT THE ISSUE IS COVERE D IN FAVOUR OF THE ASSESSEE. 10.3. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED T HE MATERIAL ON RECORD. THE LD. CIT (A) HAS DECIDED THIS ISSUE BY OBSERVING AS UNDE R :- 5.3. I HAVE PERUSED THE FACTS OF THE CASE, THE ASS ESSMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT. THE ASSESSING OFF ICER HAD MADE A DISALLOWANCE UNDER SECTION 14A OF THE I.T. ACT, 196 1 OF AN AMOUNT OF RS. 7,84,190/- APPLYING RULE 8D OF I.T. RULES 1962. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS INCURRED EXPEND ITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRE CTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPTS. THE ASSESSING OF FICER THUS SHOW CAUSED, THE ASSESSING OFFICER AS TO WHY DISALLOWANC E UNDER SECTION 14A OF THE I.T. ACT, 1961, SHOULD NOT BE MADE. AFTE R CONSIDERING THE CONTENTIONS OF THE ASSESSEE, THE ASSESSING OFFICER CONCLUDED THAT SINCE THE ASSESSEE HAD FAILED TO PROVE EXPLICITLY THAT TH E SAID INVESTMENTS WERE OUT OF INTEREST FREE FUNDS, INTEREST DEBITED T O THE PROFIT & LOSS ACCOUNT WAS NOT CLEARLY ATTRIBUTABLE TO INVESTMENT6 IN SHARES OR BUSINESS PURPOSE. FURTHER, HE OPINED THAT IN THE A BSENCE OF DIRECT NEXUS BETWEEN LOANS TAKEN AND INVESTMENT MADE, IT C AN BE CONCLUDED THAT ASSESSEE HAD MADE INVESTMENT FROM INTEREST BEA RING FUNDS (AS ONUS IS ON ASSESSEE TO PROVE THAT INVESTMENT IN SHA RES WAS MADE OUT OF FREE FUNDS). AS REGARDS NO EXEMPT INCOME HAVING BEEN EARNED DURING THE YEAR THE ASSESSING OFFICER PLACED RELIAN CE ONCIRCULAR NO. 5/2014 OF CBDT AS ALSO THE CASE LAW IN THE CASE OF RAJENDRA PRASAD MOODY OF THE APEX COURT. ASSESSING OFFICER PLACED R ELIANCE ON THE CASE OF RAJENDRA PRASAD MOODY TO HOLD THAT THERE IS NO N ECESSITY OF EARNING INCOME DURING THE YEAR FOR ATTRIBUTING EXPENSES REL ATABLE TO SUCH EXEMPT INCOME. HE FURTHER RELIED ON 265 ITR 250 (RA J.) BUT THE SAME 16 ITA NO. 138 & 328/JP/2016. M/S. SPC INFRASTRUCTURE PVT. LTD. IS ON THE ISSUE ALLOWABILITY OF INTEREST UNDER SECT ION 36(1)(III) OF THE I.T. ACT, 1961. THE ASSESSEE HAS INVESTED IN SHARES OF M/S. SPC CHE TAK TOLLWAYS (P) LTD. NO EXEMPT INCOME IN THE FORM DIVIDENDS HAS BEE N EARNED BY THE ASSESSEE DURING THE YEAR. THE ASSESSEE RELIED ON CI T VS. SHIVAM MOTORS (P) LTD. ITA 88 OF 2014 (05.05.2014) AND LAK HANI MARKETING ITA NO. 970 OF 2014 AND CHEMINVEST LTD. VS. CIT (37 8 ITR 33) DATED 2.09.2015 FOR THIS PROPOSITION. APPELLANT FURTHER S UBMITTED THAT MAJOR PART OF INTEREST WAS OF RS. 18,68,760/- WAS PAID TO FINANCING COMPANY WHOM THE APPELLANT HAD TAKEN LOAN FOR ACQUIRING PLA NT AND MACHINERY. FURTHER, THE APPELLANT HAD INVESTED RS. 5.12 CRORES FOR ACQUISITION OF SHARES DURING THE YEAR WHEREAS IT HAD RAISED LOANS OF RS. 16,04,383/- AND HENCE INTEREST FUNDS COULD NOT HAVE BEEN DIVERT ED TO NON INCOME EARNING ASSETS OR SECURITIES. I HAVE PERUSED THE FACTS OF THE CASE AND THE CASE L AWS RELIED BY THE ASSESSEE AND THE ASSESSING OFFICER. THE ASSESSEE HA S PLACED RELIANCE ON THE CASE OF M/S. CHEMINVEST LTD. VS. CIT FOR THE PROPOSITION THAT SECTION 14A OF THE I.T. ACT, 1961 ENVISAGES THAT TH ERE SHOULD BE AN ACTUAL RECEIPT OF AN INCOME WHICH IS NOT INCLUDIBLE IN TOTAL INCOME, HENCE SECTION 14A OF THE I.T. ACT, 1961 WILL NOT AP PLY WHERE NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING RELEVANT PR EVIOUS YEAR. IN THE CASE OF CHEMINVEST LTD. VS. CIT, THE CASE OF RAJEND RA PRASAD MOODY ON WHICH THE ASSESSING OFFICER HAS PLACED RELIANCE, HAS BEEN DISCUSSED AND DISTINGUISHED BY THE HONBLE HIGH COURT. THE FA CTS OF THE CASE BEING SIMILAR TO THE CASE OF ASSESSEE, THE DISALLOW ANCE MADE UNDER SECTION 14A OF THE I.T. ACT, 1961, IS DELETED, THE RELEVANT PORTION OF THE JUDGMENT IS REPRODUCED BELOW : IN THE CONTEXT OF THE FACTS ENUMERATED HEREINBEFO RE THE COURT ANSWERS THE QUESTION FRAMED BY HOLDING THAT THE EXP RESSION DOES NOT FORM PART OF THE TOTAL INCOME IN SECTION 14A OF THE ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME, WHICH IS NOT INCLUDIBLE IN THE TOTAL INCOME, DURING THE RELEVANT PREVIOUS YEAR FOR THE PURPOSE OF DISALLOWING ANY EX PENDITURE INCURRED IN RELATION TO THE SAID INCOME. IN OTHER W ORDS, SECTION 14A WILL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 17 ITA NO. 138 & 328/JP/2016. M/S. SPC INFRASTRUCTURE PVT. LTD. THE CONTENTION OF THE ASSESSEE IS THAT IT HAS NOT E ARNED ANY EXEMPT INCOME DURING THE YEAR UNDER APPEAL. THEREFORE, NO DISALLOWANCE C AN BE MADE BY APPLYING SECTION 14A OF THE ACT. ON THE CONTRARY, THE LD. D/R RELIE D ON THE JUDGMENT F HONBLE KARNATAKA HIGH COURT IN THE CASE OF PRADEEP KAR VS. CIT, 319 ITR 416 (KAR.). THE LD.CIT (A) HAS RELIED UPON THE JUDGMENT OF THE HON BLE DELHI HIGH COURT RENDERED IN THE CASE OF CHEMINVEST LTD. VS. CIT, 378 ITR 33 (DE L.). RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HONBLE DELHI HIGH COURT, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF THE LD. CIT (A), THE SAME IS HEREBY AF FIRMED. THE GROUND OF THE REVENUE IS REJECTED. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED WHEREAS APPEAL OF THE REVENUE IS DISMISSED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 05/09/20 16. SD/- SD/- ( HKKXPUN ( DQY HKKJR ) ( BHAGCHAND) ( KUL BHARAT ) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 05/09/2016. DAS/ VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- M/S. SPC INFRASTRUCTURE PVT. LTD ., JAIPUR. 2. THE RESPONDENT THE ACIT,CIRCLE-4, JAIPUR. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. ITA NO. 138 & 328/JP/2016 ) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR 18 ITA NO. 138 & 328/JP/2016. M/S. SPC INFRASTRUCTURE PVT. LTD.