M/s Radhe Renewable Energy Development Pvt. Ltd., RAJKOT-GUJARAT V. The Asstt. Commr. Income Tax, Circle-5, RAJKOT-GUJARAT

ITA 139/RJT/2015

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 9170 (ITAT-RAJKOT)
• Duration Of Justice: 7 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-07-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 12-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Sale consideration of property below Jantri Value; Capital asset; Revision of order; Earning of tax free income; Proportionate interest; Question of law; Third party statement; Accommodation entries; Assessment record; Rule 8D; Set aside; Capital Gains
• Section: 68; 37; 263; 143(3); 50C; 14A; 133(6); 143(1); 208; 43

Judgement Text

आयकर अपील य अ धकरण, राजकोट यायपीठ, राजकोट । IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER And SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER Sr. No. ITA No. Asstt. Year Name of Appellant Name of Respondent 1. No.139/Rjt/2015 2011-12 M/s Radhe Renewable Energy Development Pvt. Ltd., Plot No.2621/22, Lodhika GIDC, Metoda, Rajkot. PAN: AACCR7723E ACIT, Circle-5, Rajkot 2. No.156/Rjt/2015 2011-12 DCIT, Circle-1(1), Rajkot M/s Radhe Renewable Energy Development Pvt. Ltd., Plot No.2621/22, Lodhika GIDC, Metoda, Rajkot. PAN: AACCR7723E 3. No.322/Rjt/2017 2012-13 DCIT, Circle-1(2), Rajkot M/s Radhe Renewable Energy Development Pvt. Ltd., Plot No.2621/22, Lodhika GIDC, Metoda, Rajkot. PAN: AACCR7723E 4. No.110/Rjt/2022 2017-18 M/s Radhe Renewable Energy Development Pvt. Ltd., Plot No.2621/22, Lodhika GIDC, Metoda, Rajkot. PAN: AACCR7723E The Principal Commissioner of Income Tax, Rajkot-1, Rajkot. 2 ITA No.156/Rjt/2015 A.Y.2011-12 and others (अपीलाथ /Appellant) . . ( यथ / Respondent) अपीलाथ ओर से / Appellant by : Shri Sanjeev Jain, CIT. D.R यथ क ओर से/Respondent by : Shri Mehul Ranpura, A.R स ु नवाई क तार ख / D a t e o f H e a r i n g 28/06/2022 घोषणा क तार ख /D a t e o f P r o n o u n c e m e n t 08/07/2022 आदेश / O R D E R PER BENCH: The above appeals have been filed by the Revenue and the assessee against the orders of the Ld. Commissioner of Income-Tax (Appeals), Rajkot, arising in the matter of the Assessment Order passed u/s 143(3) of the Income Tax Act 1961 (here-in-after referred to as "the Act") relevant to the Assessment Years 2011-2012 & 2012-2013. ITA No.110/Rjt/2022, an appeal by the assessee, is against the order of Learned Principal Commissioner of Income Tax, Rajkot, arising in the matter of Assessment Order passed u/s 263 of the Income Tax Act 1961 relevant to the Assessment Year 2017-18. Since issues involved in all these appeals are identical, we proceed to dispose of all the appeals by this common order for the sake of convenience and brevity. First we take ITA No. 139/Rjt/2015, an appeal by the Assessee for AY 2011-12. 2. The assessee has raised the following grounds of appeal:- “(1) The order of the learned CIT(A) partly confirming the order of the AO is bad in law and contrary to the facts of the case. (2) The learned CIT(A) has erred in confirming the action of the AO disallowing the provision for liabilities for performance guarantees /warrantees amounting to Rs. 1,84,77,348/- considering it as contingent liability 3 ITA No.156/Rjt/2015 A.Y.2011-12 and others (3) The order of the learned CIT (A) is illegal, unjustified and against the principles of natural justice. (4) Without prejudice to the above, your appellant craves leave to add amend, alter, vary or withdraw all or any of the grounds on or before the hearing of appeal.” 3. The only issue raised by the assessee is that the ld. CIT(A) erred in confirming the disallowance made by the Assessing Officer for Rs. 1,84,77,348/- representing the provisions for guarantee/warrantee. 4. The facts in brief are that the assessee in the present case is a private limited company and engaged in the manufacturing business of Gasifier Machines and its Spare parts. The assessee in the year under consideration has claimed the deduction against the sales made by it on account of provision for guarantee/ warranty for Rs. 1,84,77,346/- being 10% of the sale value. The assessee contented that it has been creating provision for guarantee/warrantee @ 10% on the amount of sales consistently which has been accepted in the earlier assessment years. Thus, as per the assessee, the provision made in the year under consideration was based on the past experience and on certain fair and unbiased estimate. 4.1 The assessee further submitted that the provision made in the earlier year is reversed in the year under consideration. The amount of provision created in the earlier year stands at Rs. 2,57,85,618 /- which was offered to tax in the year under consideration. Thus, it was the contention of the assessee that it has offered an income of Rs. 68,08,270/- by way of reversing the provision of the earlier year which is more than the provision made for the year under consideration. 5. However, the assessing officer was not satisfied with the contention of the assessee on the reasoning that the assessee has not claimed any expense against the provisions made by it in the earlier assessment years. Thus, it was concluded 4 ITA No.156/Rjt/2015 A.Y.2011-12 and others that the provision made by the assessee is not based on scientific calculation and therefore the same represents contingent liability. 6. The principles laid down in one year cannot necessarily be followed in the subsequent years as per the principles of res-judicata which does not apply in the income tax proceedings. Likewise, the provision made in the earlier year was offered to tax in the year under consideration which evidences that the provision made by the assessee represents the contingent liability. Therefore, the assessing officer disallowed the same and added to the total income of the assessee. 7. Aggrieved assessee preferred an appeal to the ld. CIT(A). The assessee before the ld. CIT(A) submitted that the performance guarantee has been given to the buyers of the product supplied by it which is 10% of the contract price. Such guarantee is given for 365 days. The amount of guarantee vis-à-vis sale of the product has direct nexus and therefore the same should be identified in the year of sale of the product. 8. The contention of the assessing officer that there was no claim made by the assessee against the provisions made in the earlier years is based on wrong assumptions of facts. It is for the reasons that the assessee have been receiving complaints from his customers and to resolve these complaints, it is providing after sale services, repair and maintenance and replacement services wherever necessary. These expenses were claimed under the respective heads of incomes instead of adjusting against the provision for guarantee/warranty. 9. The assessee with regard to the rate of provision being 10% of the contract price submitted that it has been accepted in the earlier years by the Revenue, therefore, the same should be allowed in the year under consideration as well on account of consistency. 5 ITA No.156/Rjt/2015 A.Y.2011-12 and others 10. If there is no claim against the provision, the same is reversed in the subsequent year and therefore there is no loss to the Revenue except shifting the income from one year to another. However, ld. CIT(A) disregarded the contention of the assessee by observing as under:- “7.3 I have carefully considered the contention of the appellant. There is no dispute about the facts. The appellant does offer a 10% warranty for a period of 365 days of sale. The warranty is unconditional. Only question which requires to be answered is whether this is a contingent liability or not. The appellant is providing flat 10% warranty for 365 days on the sale value. The main contention of the appellant that because the liability has been quantified' the same is ascertainable and thus is not in the nature of contingent liability. However, the appellant has not been able to demonstrate as to how this figure of 10% has been arrived at. There is no scientific method or basis for the same. Secondly, it is very relevant to consider that since 2007-08, i.e. the date from which the production was started by the appellant. no warranty has been paid by the appellant. In other words, the machines manufactured by the appellant are of such high quality that there has not been a single occasion in three years requiring payment of warranty. In the case of Rotork Controls India P. Ltd. 314 ITR 62 relied upon by the appellant, the Hon'ble Supreme Court itself has mentioned that - 'from analysis of the various decision of the supreme court, in which a similar issue was decided, the principle which emerges is that if the historical trend indicates that a large number of sophisticated goods were being manufactured in the past and if the facts established show that defects existed in some of the items manufactured and sold, then the provision made for warranty in respect of the army of such sophisticated goods would be entitled to deduction from the gross receipts under section 37. It would all depend on the data systematically maintained by the assessee.’ 7.4 It can be seen here that the historical trends in respect of the assessee refer to no warranty be paid in the earlier years. Thus, there is no basis of any kind for estimating the liability @ 10%. It is true that the appellant is offering this as a warranty. However, in case the warranty is paid in the subsequent year, the appellant would definitely be entitled for a deduction in that year on the amount paid. However, it cannot be said that 10% of the entire sale value is a definite liability that has occurred to the appellant. The liability is purely contingent in nature. In the case of Renowed Auto Products Mfgs. P. Ltd. vs. ITO 354 ITR 127 the Hon'ble Madras High Court while deciding an exactly identical issue has held as under:- "The Tribunal pointed out that the Assessing Officer has not at all examined the aspect with regard to the admissibility of the sum shown as provision for warranty cost. It further also pointed out that the method as projected by the assessee in their reply, in showing the warranty provisions under the categories of after market (AM) and original equipment (OE) by debiting the account by passing a journal voucher, was never explained before the Assessing Officer nor was it examined by him. Thus, the Tribunal held that liability is only an unascertained contingent liability. When such being the factual findings of the authorities below, and when such non-consideration or omission by the Assessing Officer is found to be an 6 ITA No.156/Rjt/2015 A.Y.2011-12 and others erroneous one and prejudicial to the interests of the revenue, there was no reasons to interfere with such factual findings. [Para I l] Further the Commissioner as well as the Tribunal categorically found that the assessee had not proved the provision of warranty expenses based on any scientific method in such circumstances, the assessee cannot place reliance on the decision of the Supreme Court in Rotork Controls India (P.) Ltd. v. CIT [2009] 314 ITR 62/180 Taxman 422 as the facts are totally distinguishable. Even otherwise the assessee has to pass through the triple test as declared therein in order to succeed in his claim on provision for warranty. In the absence of any such finding in its favour satisfying the said triple test, the assessee cannot rely on the said decision of the Apex Court. [Para 13] " 7.5 Respectfully following the decision of the Hon'ble Madras High Court cited above and the fact that no warranty payment was required to be made in the earlier years, it is held that this provision for warranty of Rs.1,84,77,348/- is a contingent liability, and thus correctly disallowed by the A.O. This ground of appeal is dismissed.” 11. Being aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us. 12. The ld. A.R. before us filed a paper book containing pages from 1 to 372 and contended that assessee has been claiming provision for guarantee/warranty consistently which was also allowed by the Revenue in the earlier year, therefore, the provision made for the year under consideration should also be allowed as deduction. 13. On the contrary, the ld. DR vehemently opposed the contention of the assessee and relied on the order of the authorities below. 14. We have heard the rival contentions of both the parties and perused the materials available on record. In the current business scenario, when a productive is sold by the company to the customers, the company provides guarantee/warranty for a certain period of time to the buyer generally. The companies provide such guarantee/warranty to maintain its reputation in the market. In the competitive market, it is absolutely necessary to give warranty for its 7 ITA No.156/Rjt/2015 A.Y.2011-12 and others products and meet the expenses over repair, replacement of defective parts and even in some cases replacement of the entire product. 14.1 Admittedly the guarantee/warranty is provided to the customer as per the scheme designed by the company. Accordingly, the guarantee/warranty is subject to various terms and conditions provided in the scheme. Such scheme is always made available to the buyers. If there arises any defect any product supplied to the customer, it (the customer) can always approach the company either for the replacement of the product or repair of the product, as the case may be. Indeed, the sales made by the assessee is the income in the hands of the assessee but the same is subject to liability which may arise to it by virtue of the guarantee/warranty provided by it to the customers. Thus when the assessee is making sales of its product with the guarantee/warranty, the question arises whether the assessee is required make the provision for the guarantee /warranty against the sales made by it. The answer stands in positive. It is for the reason that there is correlation between the sales and the guarantee/warranty extended by the assessee. Once a revenue has been recognized in the books of accounts on account of sales, the corresponding liability which may arise to the assessee on account of guarantee/warranty against such sale should also be recognized in the books of accounts. 14.2 In holding so, we draw support and guidance from the judgment of Hon’ble Supreme Court in the case of Rotork Controls India (P.) Ltd. v. Commissioner of Income-tax, Chennai reported in 314 ITR 62 wherein it was held as under: “13. In this case we are concerned with Product Warranties. To give an example of Product Warranties, a company dealing in computers gives warranty for a period of 36 months from the date of supply. The said company considers following options : (a) account for warranty expense in the year in which it is incurred; (b) it makes a provision for warranty only when the customer makes a claim; and (c) it provides for warranty at 2 per cent of turnover of the company based on past experience (historical trend). The first option is unsustainable since it would tantamount to accounting for warranty expenses on cash basis, which is prohibited both under the Companies Act as well as by the Accounting Standards which require accrual concept to be followed. In the present case, the Department is insisting on 8 ITA No.156/Rjt/2015 A.Y.2011-12 and others the first option which, as stated above, is erroneous as it rules out the accrual concept. The second option is also inappropriate since it does not reflect the expected warranty costs in respect of revenue already recognized (accrued). In other words, it is not based on matching concept. Under the matching concept, if revenue is recognized the cost incurred to earn that revenue including warranty costs has to be fully provided for. When Valve Actuators are sold and the warranty costs are an integral part of that sale price then the appellant has to provide for such warranty costs in its account for the relevant year, otherwise the matching concept fails. In such a case the second option is also inappropriate. Under the circumstances, the third option is most appropriate because it fulfils accrual concept as well as the matching concept. For determining an appropriate historical trend, it is important that the company has a proper accounting system for capturing relationship between the nature of the sales, the warranty provisions made and the actual expenses incurred against it subsequently. Thus, the decision on the warranty provision should be based on past experience of the company. A detailed assessment of the warranty provisioning policy is required particularly if the experience suggests that warranty provisions are generally reversed if they remained unutilized at the end of the period prescribed in the warranty. Therefore, the company should scrutinize the historical trend of warranty provisions made and the actual expenses incurred against it. On this basis a sensible estimate should be made. The warranty provision for the products should be based on the estimate at year end of future warranty expenses. Such estimates need reassessment every year. As one reaches close to the end of the warranty period, the probability that the warranty expenses will be incurred is considerably reduced and that should be reflected in the estimation amount. Whether this should be done through a pro rata reversal or otherwise would require assessment of historical trend. If warranty provisions are based on experience and historical trend(s) and if the working is robust then the question of reversal in the subsequent two years, in the above example, may not arise in a significant way. In our view, on the facts and circumstances of this case, provision for warranty is rightly made by the appellant-enterprise because it has incurred a present obligation as a result of past events. There is also an outflow of resources. A reliable estimate of the obligation was also possible. Therefore, the appellant has incurred a liability, on the facts and circumstances of this case, during the relevant assessment year which was entitled to deduction under section 37 of the 1961 Act. Therefore, all the three conditions for recognizing a liability for the purposes of provisioning stands satisfied in this case. It is important to note that there are four important aspects of provisioning. They are - provisioning which relates to present obligation, it arises out of obligating events, it involves outflow of resources and lastly it involves reliable estimation of obligation. Keeping in mind all the four aspects, we are of the view that the High Court should not to have interfered with the decision of the Tribunal in this case.” 14.3 From the above judgment, there remains no ambiguity to the fact that the assessee has to provide the provision for the guarantee and warranty as the case may be in the books of accounts corresponding to the sales made by it. 14.4 The next question arises what should be the basis of calculating the provision to be provided against the sales made with warranty /guarantee. The amount of provision must be adjudged in the light of accepted commercial practice and trading principles. In the regard, we have referred the copies of the purchase 9 ITA No.156/Rjt/2015 A.Y.2011-12 and others agreement placed in the paper book and note that the assessee stands as the guarantor/warrantor at the rate of 10 percent for a period of 365 days. Based on this clause, the assessee accordingly has adopted the rate of the provision at the rate of 10% which was also accepted by the revenue in the earlier years in the assessment framed under section 143(3) of the Act. However, we note that the revenue has not allowed the provision made by the assessee in the year under consideration on the reasoning that the provisions made by the assessee in the earlier years was not adjusted against any expenses. Accordingly, it was doubted that the provision for the warranty is not required. However, we are not in agreement with the view taken by the authorities below. It is for the reason that the liability arising upon the assessee against the sales made by it cannot be taken at nil value merely it has not been crystallized in the earlier years. As per the purchase agreement, the assessee was exposed to such liabilities on account of warranty/guarantee provided by it. 14.5 At this juncture, it is also important to note that the assessee before the learned CIT-A has contended that it is providing satisfactory services to its clients from time to time in the form of maintenance and repairs of the products sold by it. As such the assessee was receiving the complaints from its clients about the technical defects, breakage, under capacity which were timely handled by it. The corresponding expenses were debited under the respective heads. The relevant submission made by the assessee before the learned CIT-A reads as under: After goods are sold the appellant has to provide various after sales service, supervision, maintenance and repairs from time to time. No guarantee in invoked because of the satisfactory performance of the machinery and satisfactory after sales service and support. It does not mean that there is no liability for your appellant towards the claim. Your appellant did receive complains from the customers regarding performance, output, technical defects, breakage, under capacity etc. E mail communication between customers and Appellant are there on record which evidence these complains. Your Appellant attended these complain, rectified the mistakes, carry out the repairs, deputed the technical personnel, replaced the defective parts etc. The expenses incurred for these issues are debited under the respective head of expenses. With these steps, your appellant could avoid warranty claims and therefore no claims were raised by the customers. 10 ITA No.156/Rjt/2015 A.Y.2011-12 and others 14.6 It is also significant to note that the provisions made in one year was reversed in the next year by offering the same as income. Therefore, it is not the case of the assessee that it has been claiming deduction on account of the provisions made against the sales of each year consistently without giving effect of the opening balance of the provision for the guarantee/warranty. In view of the above and after considering the facts in totality, we do not find any infirmity in the claim made by the assessee in its books of accounts for the provisions against the sales made in the year under consideration. Thus we reverse the order of the authorities below and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. 14.7 In the result the appeal filed by the assessee is allowed. Now we take up ITA No. 156/Rjt/2015, an appeal by the Revenue for the AY 2011-12. 15. The Revenue has raised the following grounds of appeal: 1. The Hon’ble CIT(A)-3, Rajkot has erred in law and on fact of the case in deleting the addition made by the Assessing Officer of Rs.3,17,50,000/- on account of unexplained cash credits u/s.68. 2. The Hon’ble CIT(A)-3, Rajkot has erred in law and on fact of the case in deleting the addition made by the Assessing Officer of Rs.1,35,00,000/- on account of unexplained cash credits u/s.68. 3. The Hon’ble CIT(A)-3, Rajkot has erred in law and on fact of he case in deleting the addition made by the Assessing Officer of Rs.9,05,000/- made on account of estimated commission. 4. It is, therefore, prayed that the order of the CIT(A) be set aside and that of the Assessing Officer. 16. The interconnected issue raised by the Revenue is that the Ld.CIT(A) erred in deleting the addition made by the Assessing Officer for Rs. 3,17,50,000/- and Rs. 1,35,00,000/- representing the share application money and the loans as well as commission expenses of Rs. 9,05,000/- only. 11 ITA No.156/Rjt/2015 A.Y.2011-12 and others 17. The assessee in the year under consideration has received loan and share application money from the company namely M/s RNG Fin Lease Pvt. Ltd., Kolkata, amounting to Rs. 1,35,00,000/- and Rs. 3,17,50,000/- respectively. The assessee in support of its impugned share capital and loan has furnished the proof of identity and credit worthiness of the parties and genuineness of the transaction by verifying the bank statement and availability of the fund in the hands of the company. Thus it was contended by the assessee that no addition of whatsoever under the provision of section 68 of the Act is warranted. The assessee also submitted that it is not under obligation to explain the source of source of the funds in the hands of the company i.e. M/s RNG Finlease. 17.1 The assessee in support of his contention has relied upon the judgment of Hon’ble Gujarat High Court in the case of Pragti Co-Op Bank reported in 278 ITR 169. However, the Assessing Officer was not satisfied with the contention of the assessee by observing that the documents such as bank accounts, share application form, PAN Card, audited accounts and the allotment letter does not prove the genuineness of the transaction. The Department while framing the assessment in the case of M/s. Sunshines Tiles Company Pvt Ltd., found that such company has taken bogus unsecured loan from M/s. RNG Fin Lease Pvt Ltd. in the assessment year 2010-11. 17.2 Furthermore, the assessee failed to produce the Director of the company namely M/s RNG Fin-Lease Pvt Ltd. to establish genuineness of the transaction. The Assessing Officer also found that the transaction of receiving the loan and share application money was not recorded in the Tax Audit Report. The person namely Shri Shailesh Makadia was made director in the company namely M/s RNG Fin Lease Pvt. Ltd. from 13.03.2010 who was also the Director in the assessee company and therefore the M/s RNG Fin Lease Pvt. Ltd was closely connected with the assessee. 12 ITA No.156/Rjt/2015 A.Y.2011-12 and others 18. In view of the above, the Assessing Officer concluded that the assessee has received accommodation entries in the form of share capital and unsecured loan from M/s RNG Fin Lease Pvt. Ltd. Furthermore, to have such accommodation entries the assessee must have incurred commission expenses to the tune of 2% of the such amount i.e Rs. 4,52,50,000/- being Rs. 9,05,000.00. Thus, the Assessing Officer in effect has made the addition of Rs. 4,52,50,000/- and Rs. 9,05,000/- to the total income of the assessee. 19. Aggrieved assessee preferred an appeal to the Ld. CIT(A). The assessee before the Ld. CIT(A) submitted that there were various documents filed during the assessment proceedings to justify the unsecured loan and share capital received by it. But the Assessing Officer without pointing out any defect in such details have followed the order of the Assessing Officer in the case of M/s Sunshine Tiles Company Pvt. Ltd. 19.1 The assessee further submitted that it has furnished all the necessary details such as PAN card, bank statement, details of the interest paid, ledger account, confirmation, repayment of the loan, income tax return, audited financial statement in respect of the loans and share capital. 20. The Assessing Officer was very much empowered to call upon the Director of the M/s RNG Finlease Pvt . Ltd. to verify the genuineness of the transaction but the Assessing Officer unnecessary shifted the onus upon the assessee. There was enough fund available with M/s RNG Finlease Pvt. Ltd. amounting to Rs. 30,64,61,647/- and out of such amount, the only sum of Rs. 4,52,50,000/- was paid to the assessee company which constitutes only 14.65% only. As such, there was sufficient fund available with M/s RNG Finlease Pvt. Ltd. The Ld.CIT(A), after considering the submission of the assessee deleted the addition made by the Assessing Officer by observing as under: 13 ITA No.156/Rjt/2015 A.Y.2011-12 and others 5.3 I have carefully considered the appellant's contention, the details filed and the assessment order. It is observed that the main plank on which the A.O. has based his addition is the non-production of the promotors before him leading to non-verification of the genuineness, capacity and identity. The Assessing Officer has also observed that the appellant has not offered any security for the unsecured loan. Also, the appellant did not know the persons managing the affairs of the company. The A.O. therefore held that the appellant is hand in glove with the depositor and has converted his black money in the guise of unsecured loans using the 'Kolkata channel'' The A'O' has relied upon the test of human probabilities as given by the Hon'ble Supreme Court in the case of Sumati Dayal (supra). on the other hand, the appellant has submitted all the details filed before the A.O. as required, except for personal appearance by the promoters. 5.4 Before proceeding further, it would be worthwhile to know the details that have been filed by the appellant in respect of the depositors. They are: 1. Memorandum of Association, certificate of incorporation issued by ROC in respect of RNG Finlease P. Ltd. 2. Form No.23AC as filed before Ministry of Corporate Affairs. 3. PAN 4. Copy of bank statement transaction of depositor showing the said transaction. 5. Details of interest paid to the depositor and tax deducted on the interest Paid. 6. Ledger account of the appellant in the books of the depositor. 7. Contra confirmation from the depositor duly stamped and signed. 8. Details of repayment of loan in subsequent year. 9. Copy of ITR acknowledgement of the depositor. 10. Copy of audited accounts of the depositor wherein the loan o the appellant has been duly reflected in the balance sheet. 11. Details showing net worth of the depositor from their audited financial statement which shows that the loan advanced to the appellant constitutes a small fraction of the net worth. 5.5. The law about cash credits has been very well discussed and established by various judicial authorities. In respect of the cash credit u/s68 the primary onus lies on the assessee to prove the identity of the depositor, its capacity to advance the money and the genuineness of the transaction. In the present case, as the promoters were not produced before him' the Assessing Officer hold that the onus has not been properly discharged by the appellant' I have carefully examined the details filed by the appellant' It is seen that the identity of the depositor is established by virtue of the Roc certificates, PAN, lTR and bank account. As regards the capacity of the depositor, the appellant has filed details of paid up share capital, reserves surpluses and net worth of the depositor. It is seen from the details that the depositor has reasonably high net worth and the loan advanced is 14.65%of the net worth of the depositor. 'The financial details in respect of RNG Finlease P.Ltd. as on 31/3/2011 are as under:- Particulars as on 31.3.2011 RNG Finlease vt. Ltd. Paid up share capital 33305500 Reserves & Surplus 273156147 Net worth 306461647 Loan and share capital invested in the appellant and 45250000 Loan to appellant as % of net worth 14.65% Cash & Bank balance 3771408 14 ITA No.156/Rjt/2015 A.Y.2011-12 and others 5.6 The details of cash and bank balances have also been filed. The only issue now requires to be analysed is about the genuineness of the transaction. The transaction has been carried out through banking channel and properly reflected in both the accounts, there are no corresponding cash deposits just prior to advancing of loan by the depositor, tax has been deducted on theinterest paid by the appellant and the loan has been subsequently repaid back again through banking channel. The inescapable conclusion therefore is that the transaction is genuine. The A.O. has raised a point regarding the transaction being through 'kolkata route' whereby black money has been converted into white money under the guise of deposit. Merely because the deposit is from Kolkata, the A.O. cannot reach to this conclusion' The AO should have gone further and investigated about the money corning into there bank account of the depositor. The A.O. had to conclusively prove that the appellant had given cash or there was cash deposit in the bank account of the depositor or cash deposits in other accounts from which money has flown to the depositor and then to the appellant. The A.O. has not done anything to this effect and has stopped only at the first level. The A.O,s inference is solely based on the non-production of the promoters. As regards the production of the promoters before the Assessing Officer the Assessing Officer could have easily issued commission u/s.131(1)(d) as the promoters were stationed beyond 500 km. This has not been done by the A.O. As against that, the appellant has given complete details running into 14 points which have been narrated earlier. The onus therefore, in my opinion, has been properly discharged by the appellant. Be that as it may, even if such loan is by the Kolkata route, it is for the A.O. to conclusively prove the same. This has not been done by the A.O. The above discussion holds good for the share application money also invested by M/s. RNG Finlease P. Ltd. In the case of CIT vs. Chanakya Developers 43 taxmann.com 91, the Hon’ble Guiarat High Court has held as under:- "We are in complete agreement with CIT(A) and the Tribunal both, who have concurrently held that the onus which was required to be discharged on the part of the assessee respondent was duly done. Not only the identity of the persons concerned but also the PAN numbers were before the Assessing Officer. In the event of any further inquiry, it was open to the Assessing Officer to make inquiry under section 133(6) of the Act. On its choosing not to exercise such powers, it was erroneous on the part of the Assessing Officer to make addition of a sum of Rs.23,00,000/-, despite such cogent evidences having been put-forth by the assessee. Both the authorities have concurrently held the issue in favour of the assessee and moreover, the entire issue is essentially in the realm of facts." 5.7 Similar view has been held by the Hon'ble Supreme Court in case of Lovely Exports P. Ltd. 216 CTR 195. In this case, the appellant hasestablished the identity, the capacity of the lender and the genuineness of the transaction. Considering the factual matrix and the discharge of the onus by the appellant, it is held that no addition u/s.68 is warranted. The addition is directed to be deleted. It is also worthwhile to mention here that the A.O. has based his order mainly on the findings in another case, i.e. M/s. Sunshine Tiles P. Ltd. The addition u/s.68 in that case has been deleted by the Ld. CIT(A)-I, Rajkot. vide order in Appeal No.CIT(A)-I/Rjt/0044/13-14 (A.Y. 2010-11), dt.28/8/2014 wherein it is held as under:- “The law about cash credits has been very well discussed and established by various judicial authorities. In respect of the cash credit u/s.68, the primary onus lies on the assessee to prove the identity of the depositor, its capacity to advance the money and the genuineness of the transaction' In the present case, as the promoters were not produced before hint, the A.O. held that the onus has not been properly discharged by the appellant. 15 ITA No.156/Rjt/2015 A.Y.2011-12 and others I have carefully examined the details filed by the appellant. It is seen that the identity of the depositor is established by virtue of the RoC certificate, PAN, ITR and bank account. It is also pertinent to mention that the depositor has submitted a sworn in affidavit of the managing director of RNG Finlease P. Ltd., confirming the transaction. As regards the capacity of the depositor, the appellant has filed details of paid up that capital, reserves surpluses and net worth of the depositor. It is seen from the details that the depositor has reasonably high net worth and the loan advanced is 3.26% of the net worth of the depositor. The details of cash and bank balances have also been filed. The only issue now requires to be analyzed is about the genuineness of the transaction. The transaction has been carried out through banking channel and properly reflected in both the accounts, there are no corresponding cash deposits just prior to advancing of loan by the depositor, tax has been deducted on the interest paid by the appellant and the loan has been subsequently repaid back again through banking channel. The inescapable conclusion therefore is that the transaction is genuine. The A.O.has raised a point regarding the transaction being through 'kolkota route' whereby black money has been converted into white money under the guise of deposit. Merely because the deposit is from Kolkata, the A.O. cannot reach to this conclusion. The A.O should have gone further and investigated about the money coming into the bank account of the depositor. The A.O. had to conclusively prove that the appellant had given cash or there was cash deposit in the bank account of the depositor or cash deposits in other accounts from which money has flown to the depositor and then to the appellant. The A.O. has not done anything to this effect and has stopped only at the first level. The A.O's inference is solely based on the non-production of the promoters, the statement of Shri Makadia conveying ignorance about the person incharge of the depositor company and lack of any security by the appellant. As regards the production of the promoters before the AO, the AO could have easily commission u/s.131(1)(d) as the promoters were stationed beyond 500 km. This has not been done by the AO. As against that, the appellant has given complete details running into 14 points which have been narrated, earlier. Also, the depositor himself has confirmed the transaction by independently filing a sworn of managing director of the of RNG Finlease P. Ltd. The onus therefore, in my opinion, has been properly discharged by the appellant. It would also be worthwhile to mention here that the Kolkata route referred to b the A.O is generally operative in respect of share application money of purchase of loss. Be that as it may , even if such loan is by the Kolkata route, it is for the A.O to conclusively prove the same. This has not been done by the A.O. Considering the factual matrix and the discussion as above, it is held that no addition u/s.68 is warranted. The addition is directed to be deleted.” 5.8 Thus, the very basis for the addition made by the A.O. stands eroded. Be that as it may, the A.O. has also raised an objection in para-7.5 of the assessment order that, the said loan transaction is not reported by the auditor in Form-3CD and therefore it is not genuine. I have also examined this point. This appears to be an inadvertent omission on part of the auditor. The payment from RNG Finlease has been received by cheque and properly reflected in the bank account. Merely because the auditor has failed to mention this in the audit report does not make the transaction a sham one. The circumstantial evidences clearly point to the fact of the transaction having been carried out between the two parties. This objection raised by the A.O. is also therefore not conclusive enough for making an addition u/s.68. Considering the above discussion, the addition uis.68 is directed to be deleted. This ground of appeal is allowed 6.0 Ground No.4 is regarding addition of Rs.9,05,000/- on account of commission payment for arranging accommodation entries of the unsecured loans. 16 ITA No.156/Rjt/2015 A.Y.2011-12 and others 6.1 The A.O. has held that the appellant must have paid commission to middle man @ 2% for arranging the unsecured loans and has therefore made an addition of Rs.9,05,000/-. As the main addition u/s.68 has been deleted as per Ground No.3 above, there is no case for this estimated addition on account of payment of commission to middle men for arranging the loan. The A.O. has not brought anything on record to show that this commission was paid. In the absence of any concrete findings by the A.O., this addition is directed to be deleted. This ground of appeal is allowed. 21. Being aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before us. 22. Both the Ld. DR and Ld. AR before us vehemently supported the order of the authorities below as favourable to them. 23. We have heard the rival contentions of both the parties and perused the materials available on record. The provision of section 68 of the Act fastens the liability on the assessee to provide the identity of the lenders, establish the genuineness of the transactions and creditworthiness of the parties. These liabilities on the assessee were imposed to justify the cash credit entries under section 68 of the Act by the Hon’ble Calcutta High Court in the case of CIT Vs. Precision finance (p) Ltd reported in 208 ITR 465 wherein it was held as under: “It was for the assessee to prove the identity of the creditors, their creditworthiness and the genuineness of the transactions. On the facts of this case, the Tribunal did not take into account all these ingredients which had to be satisfied by the assessee. Mere furnishing of the particulars was not enough. The enquiry of the ITO revealed that either the assessee was not traceable or there was no such file and, accordingly, the first ingredient as to the identity of the creditors had not been established. If the identity of the creditors had not been established, consequently, the question of establishment of the genuineness of the transactions or the creditworthiness of the creditors did not and could not arise. The Tribunal did not apply its mind to the facts of this particular case and proceeded on the footing that since the transactions were through the bank account, it was to be presumed that the transactions were genuine. It was not for the ITO to find out by making investigation from the bank accounts unless the assessee proved the identity of the creditors and their creditworthiness. Mere payment by account payee cheque was not sacrosanct nor could it make a non-genuine transaction genuine.” 23.1 From the preceding discussion we note that admittedly the AO has followed the finding of the AO in the assessment framed under 143(3) of the Act in the case of M/s Sunshine Tiles Co. Pvt. Ltd. without pointing out any defect in the 17 ITA No.156/Rjt/2015 A.Y.2011-12 and others documents submitted by the assessee during the assessment proceedings. As such, it was pointed out by the AO that in the assessment of M/s Sunshine Tiles Co. Pvt. Ltd., it was held that M/s RNG Finlease private Ltd, a company based in Kolkata, was engaged in providing the accommodation entry. Thus, the amount received by the assessee from M/s RNG Finlease private Ltd represents the unexplained cash credit under section 68 of the Act. Furthermore, the AO also held that the assessee failed to produce the director of the company namely RNG Finlease Pvt. Ltd. 23.2 However, the learned CIT(A) held that the assessee has discharged the primary onus cast under section 68 of the Act and deleted the addition made by the AO. In this backdrop we proceed to adjudicate the issue on hand. 23.3 The primary onus lies upon the assessee to furnish the preliminary documents in support of the transactions carried out by it which has been duly discharged. The assessee has discharged its onus by furnishing the necessary details such as a copy of PAN, ledger copy, confirmation and bank details in support of identity of the parties, genuineness of transaction and creditworthiness of the parties. Under the provisions of law, there is no onus upon the assessee to produce the Director of the other party. For this purpose, the Revenue has been authorized under the provisions of section 131/133(6) of the Act to carry out the necessary verification but the AO has not done so, but shifted the onus upon the assessee which is not as per the provisions of law. 23.4 It was also brought to our notice by the learned AR that addition made in the case of M/s Sunshine tiles private Ltd was subsequently deleted by the learned CIT-A. Thus, in the given facts and circumstances, no reliance can be made to the assessment framed in the case of M/s sunshine tiles private Ltd for drawing any adverse inference against the assessee. 18 ITA No.156/Rjt/2015 A.Y.2011-12 and others 23.5 There are three conditions specified under section 68 of the Act to justify the cash credit received during the year. Coming to first condition cast under section 68 of the Act i.e. proof of identity. The AO has nowhere doubted the identity of the party namely RNG Finlease private Ltd. 23.6 Now coming to the second and third condition, i.e. genuineness of the transaction and creditworthiness of the parties, regarding this we note that all the transactions were carried out through banking channel and the assessee has also refunded part of the amount to the party namely M/s RNG Finlease private Ltd through banking channel. The repayment of the loan amount by the assessee was duly accepted by the Revenue. In this regard, we find support and guidance from the judgment of Hon’ble Gujarat High Court in the case of the CIT Vs. Rohini builders reported in 256 ITR 360 wherein it was held as under: “The genuineness of the transaction is proved by the fact that the payment to the assessee as well as repayment of the loan by the assessee to the depositors is made by account payee cheques and the interest is also paid by the assessee to the creditors by account payee cheques.” 23.7 Thus, there remains no doubt that the transaction of the advance received by the assessee from the party was not genuine. In our considered view, once the assessee is able to prove that the money received by it was returned in the account of the same party, then there remains no doubt to draw an inference that the advances received by the assessee were unexplained cash credit. Therefore in our considered view, the assessee has discharged its onus imposed under section 68 of the Act. In view of the above, we do not find any infirmity in the order of Ld. CIT (A). 23.8 Once the addition made by the AO has been treated by us, holding the loan transaction and share application transaction between the assessee and M/s RNG Finlease Pvt. Ltd, as genuine, the corresponding addition made by the AO for O 9,05,000.00 on account of bogus transactions is not sustainable. Accordingly, we direct the AO to delete the same. It is not out of the place to mention that learned 19 ITA No.156/Rjt/2015 A.Y.2011-12 and others CIT-A has deleted the addition made by the AO after elaborate discussion which has been reproduced somewhere in the preceding paragraph. The learned DR at the time of hearing has not brought anything on record contrary to the finding of the learned CIT-A. Hence, the ground of appeal of the Revenue is hereby dismissed. 23.9 In the result appeal of the Revenue is dismissed. Now coming to the ITA No. 322/Rjt/2017 for A.Y.2012-13 an appeal by the Revenue. 24. The Revenue has raised the following grounds of appeal: 1. The Ld.CIT(Appeal) has erred in law and on facts in deleting the addition made on account of provision made on performance guarantee without appreciating the facts that no claim has been made instead of huge provision. 2. The Ld.CIT(Appeal) has erred in law and on facts in deleting the addition made on account of disallowance the proportionate interest expenses. 3. The Ld.CIT(A) has erred in law and on facts in deleting the addition made on account of LTCG without appreciating the facts that assessee company is liable for LTCG. \ 4. The Ld.CIT(Appeal) has erred in law and on facts in deleting the addition made on account of disallowance made u/s.14A without appreciating the facts that no expenses were attributed by the assessee towards the earning of exempt income. 5. It is, therefore, prayed that the order of the Ld.CIT(A) may be set aside and that of the Assessing Officer be restored. 25. The first issue raised by the Revenue is that the Ld. CIT(A) erred in deleting the addition made by the Assessing Officer on account of provision made by the assessee with respect to performance guarantee/warrantee amounting to Rs. 2,03,55,868/- only. 26. At the outset we note that the issues raised by the Revenue in its grounds of appeal for the AY 2012-13 are identical to the issues raised by the Assessee in its 20 ITA No.156/Rjt/2015 A.Y.2011-12 and others own case in ITA No. 139/Rjt/2015 for the assessment year 2011-12. Therefore, the findings given in ITA No. 139/Rjt/2015 shall also be applicable for the year under consideration i.e. AY 2012-13. The ground appeal of the Assessee for the assessment 2011-12 has been decided by us vide paragraph No. 14 to 14.7 of this order in favour of assessee and against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2011-12 shall also be applied for the year under consideration i.e. AY 2012-13. Hence, the ground of appeal filed by the Revenue is hereby dismissed. 27. The second issue raised by the Revenue is that the Ld. CIT(A) erred in deleting the addition made by the Assessing Officer on account of disallowance of the proportionate interest expenses. 28. The Assessing Officer during the assessment proceedings found that the assessee has advanced money amounting to Rs. 6,00,000/- without any interest. Therefore, the Assessing Officer was of the view that the interest bearing fund has been diverted by the assessee. Thus, he worked out the amount of interest attributed to such loan and advance for Rs. 72,000/- and disallowed the same by adding to the total income of assessee. 29. Aggrieved assessee preferred an appeal before the Ld. CIT(A), who deleted the addition made by the Assessing Officer by observing as under: The second limb is that, no disallowance is called for as the appellant is having sufficient non-interest bearing share capital and free reserves of Rs.14.74 crores. I find both the arguments convincing. The appellant could not recover the advances on one hand, whereas on the other hand, it had other interest free capital also. Most importantly, the Assessing Officer failed to establish the nexus between the borrowed fund and advanced funds. Therefore, the disallowance made is not justified and hence, directed to be deleted. 30. Being aggrieved by the order of the Ld. CIT(A), the revenue is in appeal before us. 21 ITA No.156/Rjt/2015 A.Y.2011-12 and others 31. Both the Ld. DR and Ld. AR vehemently supported the order of the authorities below as favourable to them. 32. We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, the own fund of the assessee exceeds the amount of loan and advance given to the parties and therefore it is presumed that the interest free loans and advances were provided out of the share capital and reserve and surplus fund of the assessee. Thus, no disallowance of interest expense is warranted. Accordingly, we do not find any infirmity in the order of the Ld. CIT(A). Hence, the ground of appeal of the Revenue is hereby dismissed. 33. The next issue raised by the Revenue is that the Ld. CIT(A) erred in deleting the addition made by the Assessing Officer on account of Long Term Capital Gain amounting to Rs. 1,04,17,891.00 only. 33.1 The assessee has purchased the agriculture land in the year 2006 for Rs. 16,26,125/- only. Subsequently the assessee realized that the agriculture land was to be purchased in the name of individuals being the Directors of the Company. But inadvertently, such agricultural land got registered in its name. Furthermore, the assessee also admitted that it is not legally possible for it to acquire the agriculture land in it name. Thus, the assessee has corrected the deed by transferring the property in the name of Director at the same price at which it was acquired in the year 2006 in the year under consideration. As per the assessee the impugned transaction cannot be regarded as transfer so as to attract the capital gain and therefore the same cannot be made subject to tax under the head “Capital Gain”. 34. However, the Assessing Officer was not satisfied with the reasons given by the assessee on the ground that the assessee has realized its 6 years later for correcting the registration document. As per the Assessing Officer the assessee is doing so in order to avoid the capital gain tax on the transfer of land. Thus the 22 ITA No.156/Rjt/2015 A.Y.2011-12 and others Assessing Officer worked out the stamp value of such land amounting to Rs.1,28,77,551/- and calculated capital gain of Rs. 1,04,17,891/- and added to the total income of the assessee. 34.1 Aggrieved assessee preferred an appeal to the Ld. CIT(A), the assessee before the Ld. CIT(A), reiterated the submission made before the Assessing Officer. 35. The assessee in addition to the submission made before the Assessing Officer further contended that the impugned land was sold in the same assessment year i.e. AY 2012-13 and Directors in their individual capacity have offered long term capital gain which is much more than the amount of capital gain in the hands of the assessee. The reason for higher capital gain was explained by the assessee that the land was sold after converting into non agriculture land. Accordingly, the assessee contended that there is no question of alleging that the assessee has adopted the colorable device. The Ld. CIT(A) after considering the submission of the assessee deleted the addition made by the Assessing Officer by observing as under: 8.2 I have perused the assessment order and written submission filed by the ld.A.R of the appellant. According to the ld. AR thh wrong recording of purchases in the name of the assessee company instead of the directors is bona fide error due to following reasons. (a)Firstly, agricultural land can be bought by agriculturists only. As per the provisions of the Bombay Tenancy and Agricultural Lands Act, 1948 (Section 63), no person other than the individual agriculturist is allowed to purchase agricultural land in Gujarat. (b)The land in question is agricultural land only. (c)As per the purchase deed, the name of the purchaser is shri sandipkumar vallabhbhai Mankadia, Hindu, aged 31, business: Agriculturist. and business, Resident Metoda, GIDC, 26s2, Karavad Road, Metoda PAN: AFDPM6B76Q, the Director of Radhe Renewable Energy Development pvt. Ltd, Rajkot. Further at page 5 of the purchase deed it is stated that all the directors of the Radhe Renewable Energy Development pvt. Ltd, Rajkot are agriculturists. (d)By virtue of codicil deed, this was rectified. The codicil deed is only rectification and there is no transfer. The codicil deed is accepted by law. (e)After execution of codicil deed, the owners sold the land and paid capital gain on such sale. Such capital gain is much higher than the capital gain worked out by the assessing officer in the hands of the company. Therefore, effectively, there is no loss of revenue to the department. 23 ITA No.156/Rjt/2015 A.Y.2011-12 and others (f) Such sate and offer of capital gain was made much before the date of assessment and hence, it was not a thought after plan. (g)The tax rate is the same in the hands of either the company or the directors. 8.3 The Assessing Officer however held that, since the appellant company transferred the agricultural land, capital gain chargeable u/s.45 of the Act arises in its hands. He also held that, the purchase deed was wrongly made in the name of company in the year 2006, then the correction should have happened immediately. There is no reason to wait for 6 year to do the correction. Therefore, this is a method adopted by the assessee to avoid payment of capital gain tax on transfer of land, which is nothing but a colorable device' However' one also needs to bear in mind that, the impugned land, at the time of change of name from assessee to its directors, was not a capital asset. Hence, the same is anyway not subject to capital gains tax. Secondly, the company is ineligible for possessing an agricultural land. Therefore, the inadvertence is proved beyond doubt. Thirdly, the directors paid more tax as capital gain than that determined by the Assessing Officer. Therefore, if it is charged as capital gains in the hands of the company, there would be double taxation. 8.4 In light of the above, it is held that the Assessing Officer is not justified in charging capital gain tax on the same land on which the directors have already offered capital gains in their individual hands. The addition is therefore directed to be deleted. 36. Being aggrieved by the order of the Ld.CIT(A) the revenue is in appeal before us. 37. Both the Ld. DR and Ld. AR before us relied upon the order of the authorities below as favourable to them. 38. We have heard the rival contentions both the parties and perused the materials available on record. From the preceding discussion, we note that the capital gain was calculated in the hands of the assessee considering that the assessee has adopted colorable device to avoid the payment of tax by virtue of provision of section 50C of the Act. However, we note that Directors in their individual hands have paid more Long Term Capital Gain tax than the capital gain computed in the hands of the assessee. This fact has already been reproduced in the order of the Ld. CIT(A) and the same was not controverted by the Ld. DR appearing on behalf of the Revenue. Accordingly, we can conclude that the allegation made by the Assessing Officer that the assessee has adopted colorable device to avoid the tax under the head “Capital Gain” is devoid of any merit. 24 ITA No.156/Rjt/2015 A.Y.2011-12 and others Furthermore, the assessee and the Directors are closely connected people and therefore there is no loss to the revenue merely on the reasoning that the income has been offered in the hands of the Director in place of the company. Thus, we don’t find any infirmity in the order of the Ld. CIT(A). Hence, the ground of appeal of the Revenue is hereby dismissed. 39. The last issue raised by the revenue is that the Ld. CIT(A) erred in deleting the addition made by the Assessing Officer u/s 14A r.w. Rule 8D of Income tax Rules amounting to Rs. 6,04,058/- only. 40. The Assessing Officer during the assessment proceedings found that the assessee has made investment in the shares of various companies, Co-operative society and partnership firm which were capable of generating exempted income. Thus, the Assessing Officer was of the view that the disallowance is warranted under the provisions of section 14A r.w.r. 8D of Income Tax Rules. Thus, the Assessing Officer disallowed the interest and administrative expenses amounting to Rs. 59,33,786/- and 5,70,272/- respectively aggregating to Rs. 65,04,058/- and added to the total income of the assessee. 41. Aggrieved assessee preferred an appeal before the Ld. CIT(A), who deleted the addition made by the Assessing Officer by observing as under: I have perused the assessment order and the written submission of the ld.AR of the appellant. It is seen that the appellant had not earned any exempt income. The Assessing Officer holds that, the appellant has made investment which is likely to yield exempt income. As per section 14A, no deduction shall be allowed in respect of expenditure incurred by the assesee in relation to income which does not form part of the total income. Here, in order to make disallowance, there should be existence of exempt income and expenditure attributable to such earning. Therefore, the very purpose of this section is to discourage diversion of expenditure to earn exempt income. Since there is no exempt income, no disallowance can be made only on the apprehension that there are likely chances of earning exempt income. Therefore, the disallowance made is directed to be deleted. 42. Being aggrieved by the order of the Ld. CIT(A) the Revenue is in appeal before us. 25 ITA No.156/Rjt/2015 A.Y.2011-12 and others 43. Both the Ld. DR and Ld. AR relied upon the order of the authorities below as favourable to them. 44. We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, there was no exempt income received by the assessee and therefore the question of making the disallowance of interest expenses does not arise. In holding so we relied upon the judgment of Hon’ble Gujarat High Court in the case of CIT Vs. Corrtech Energy Pvt. Ltd. reported in 45 taxmann.com 116 wherein it was held as under: In the present case, the tribunal has recorded the finding of fact that the assessee did not make any claim for exemption of any income from payment of tax. It was on this basis that the tribunal held that disallowance under section 14A of the Act could not be made. In the process tribunal relied on the decision of Division Bench of Punjab and Haryana High Court in case of CIT v Winsome Textile Industries Ltd. [2009] 319 ITR 204 in which also the Court had observed as under : "7. We do not find any merit in this submission. The judgement of this court in Abhishek Industries Ltd (2006) 286 ITR 1 was on the issue of allowability of interest paid on loans given to sister concerns, without interest. It was held that deduction for interest was permissible when loan was taken for business purpose and not for diverting the same to sister concern without having nexus with the business. The observations made therein have to be read in that context. In the present case, admittedly the assessee did not make any claim for exemption. In such a situation section 14A could have no application." 5. We do not find any question of law arising, Tax Appeal is therefore dismissed. 44.1 In view of the above, we don’t find any infirmity in the order of the Ld. CIT(A). Hence, the ground of appeal of the Revenue is hereby dismissed. 44.2 In the result, the appeal of the Revenue is hereby dismissed. Now coming to the appeal of the assessee bearing ITA No. 110/Rjt/2022 for AY 2017-18 26 ITA No.156/Rjt/2015 A.Y.2011-12 and others 45. The only issue raised by the assessee is that the Ld. PCIT, erred in holding the assessment framed under section 143(3) of the Act as erroneous insofar prejudicial to the interest of Revenue. 46. The facts in brief are that the assessee in the present case is a private limited company and engaged in the business of manufacturing and trading of energy devices viz. Gasified, Gas Filter Devises. The Ld. PCIT, on examination of the assessment record found the infirmity in the assessment framed u/s 143(3) of the Act. As per the Ld. PCIT the assessee has made investment in the shares amounting to Rs. 14,17,95,000/- which was capable of generating tax free income. Thus, the disallowance was made under the provision of section 14A r.w.Rule 8D(ii) of Income Tax Rules for Rs. 14,37,262 being 1% of the average investment. 47. However, the Assessing Officer has made the disallowance of Rs. 2,10,000/- only without proper verification. Thus the income of the assessee has been under assessed by Rs. 12,27,262/- (14,37,262.00 – 2,10,000/-). Thus the Ld. PCIT held that the assessment order framed by the Assessing Officer is erroneous in so far prejudicial to the interest of the revenue. 48. Being aggrieved by the order of the ld. PCIT, the assessee preferred an appeal before us. 49. The Ld. AR before us filed a paper book running from pages 1 to 58 and contended that the assessee against the disallowance made by the Assessing Officer for Rs. 2,10,000/- under the provision of section 14A r.w. Rule 8D has preferred an appeal to the Ld. CIT(A) dated 21/12/2019. Therefore, the assessment framed u/s 143(3) of the Act cannot be subject matter of revision under the provision of section 263 of the Act. 27 ITA No.156/Rjt/2015 A.Y.2011-12 and others 49.1 The Ld. AR in support of his contention relied on the judgment of Hon’ble Allahabad High Court in the case of CIT vs. Vam Resorts & Hotel Pvt. Ltd. reported in 111 taxamnn.com 62 and Hon’ble High Court of Madras in the case of Smt. Renuka Philip Vs. ITO reported in 101 taxmann.com 119. 49.2 The Ld. AR also contended that there was notice issued u/s 143(1) of the Act dated 12/09/2019 by the Assessing Officer requiring the details to be furnished under the provision of section 14A r.w. Rule 8D of Income Tax Rules vide question no. 45 placed on page 44 of the paper book. 49.3 The Ld. AR also drew our attention to the reply submitted by the assessee in response to such show cause notice which is placed on pages 34 to 36 of paper book. 50. On the other hand the Ld. DR vehemently supported the order of the authorities below. 51. We have heard the rival contentions and perused the materials available on record. Admittedly, the assessee has preferred an appeal before the Ld. CIT(A) against the disallowance made by the Assessing Officer under the provision of section 14A r.w. Rule 8D of Income tax Rules. This fact can be verified from the grounds raised by the assessee before the Ld.CIT(A) which are placed on pages 38 of the paper book . The relevant extract of the ground is reproduced as under: The Ld.AO grievously erred on facts and in law in disallowing expenses of Rs.2,10,000/- by invoking provision of section 14A of the Act on the alleged ground that the appellant failed to establish that no expenditure was incurred to earn exempt income. The disallowance is in total disregards to the facts of the case and unjustified on facts as also in law and deserve to be deleted and may kindly be deleted. 51.1 Thus we hold that the proceedings initiated by the Ld. PCIT u/s 263 of the Act are not sustainable, as the issue is pending before the ld. CIT-A. In holding so we rely on the judgment of Hon’ble Allahabad High Court in the case of CIT vs. 28 ITA No.156/Rjt/2015 A.Y.2011-12 and others Vam Resorts & Hotel Pvt. Ltd. reported in 111 taxamnn.com 62 wherein it was held as under: “25. As, Clause (c) of Explanation 1 to Section 263 of the Act provides that when an appeal is pending before the Commissioner, the exercise of jurisdiction under Section 263 of the Act by CIT is barred. Thus, in the present case, the CIT wrongly exercised jurisdiction under Section 263 of the Act by remanding back the matter to assessing authority on 25.3.2013, while the appeal was decided by CIT (A) on 5.6.2013. Thus, the order passed by the ITAT does not suffer from any irregularity and needs no interference. 51.2 In view of the above, we hold that the order passed by the ld. CIT under section 263 of the Act is not sustainable. Hence, we quash the same. Thus, the ground of appeal of the assessee is allowed. 51.3 In the result, the appeal filed by the assessee is allowed. 52. In the combined result, all the appeals filed by the revenue are dismissed whereas the appeals filed by the assessee are allowed. This Order pronounced in Open Court on 08/07/2022 Sd/- Sd/- Sd/- (SIDDHARTHA NAUTIYAL) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER Rajkot, Dated 08/07/2022 manish