The DCIT, Circle-4, Ahmedabad V. Grace Castings Ltd., Ahmedabad

ITA 1585/AHD/2014

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9557 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-01-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 03-01-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 19-05-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Depreciation; Additional evidence
• Section: 143(3); 37(1); 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD , , BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NO.1585/AHD/2014 ( / ASSESSMENT YEAR : 2009-10) THE DEPUTY CIT CIRCLE-4 AHMEDABAD / VS. GRACE CASTINGS LTD. 5&6 FIRST FLOOR LIBERTY COMPLEX NR.SWASTIK CHAR RASTA NAVRANGPURA AHMEDABAD-380 009 # ./ ./ PAN/GIR NO. : AAACG 5597 K ( #% / APPELLANT ) .. ( &#% / RESPONDENT ) #%' / APPELLANT BY : MR. PRASOON KABRA, SR.DR &#%(' / RESPONDENT BY : MR. PRAKASH D. SHAH, AR )*(+ / DATE OF HEARING 03/01/2017 ,-./(+ / DATE OF PRONOUNCEMENT 09/01/2017 / O R D E R PER PRADIP KUMAR KEDIA, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-VIII, AHMEDABAD [CIT(A) IN SHORT] DATED 11/02/2014 FOR THE ASSESSMENT YEAR (AY ) 2009-10. 2. THE EFFECTIVE GROUNDS OF APPEAL RAISED BY THE RE VENUE READ AS UNDER:- ITA NO. 1585/AHD/2014 DCIT VS. GRACE CASTINGS LTD. ASST.YEAR 2009-10 - 2 - 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.23,02,591/- MADE ON ACCOUNT OF COMMI SSION PAID TO M/S.NAKODA ENTERPRISES, WITHOUT PROPERLY APPRECI ATING THE FACTS OF THE CASE BROUGHT ON RECORD. 2. THE LD.CIT(A) HAS ALSO ERRED IN LAW AND ON FAC TS IN DELETING THE ADDITION OF RS.18,00,000/- MADE ON ACCOUNT OF RENT ON D.G.SET PAID TO SMT. ROOPAM MARDIA PROPRIETOR OF M/S. NAKOD ENTERPRISES, WITHOUT PROPERLY APPRECIATING THE FACT S OF THE CASE BROUGHT ON RECORD. 3. THE LD.AR, AT THE OUTSET, SUBMITTED THAT THE IDE NTICAL ISSUE AROSE BEFORE THE TRIBUNAL FOR AYS 2007-08 & 2008-09 EARLI ER. THE TRIBUNAL HAS SET ASIDE THE ORDER OF THE CIT(A) AND RESTORED THESE ISSUES TO THE FILE OF ASSESSING OFFICER (AO) FOR RE-ADJUDICATION. SIN CE THE ISSUES INVOLVED ARE IDENTICAL TO THAT OF EARLIER YEARS, THESE ISSUE S ALSO DESERVE TO BE SET ASIDE TO THE FILE OF AO FOR RE-ADJUDICATION. 4. THE LD.DR, ON THE OTHER HAND, DID NOT RAISE ANY OBJECTION TO THE AFORESAID PROPOSAL ON BEHALF OF THE ASSESSEE. 5. WE HAVE HEARD THE PARTIES, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELO W. WE NOTE THAT THE TRIBUNAL IN ITA NO.2182/AHD/2011 FOR AY 2008-09 ORD ER DATED 26/05/2015 HAS SET ASIDE THE ISSUES INVOLVED TO TH E FILE OF AO FOR RE- ADJUDICATION FOLLOWING EARLIER ORDER PASSED IN AY 2 007-08. THE RELEVANT ITA NO. 1585/AHD/2014 DCIT VS. GRACE CASTINGS LTD. ASST.YEAR 2009-10 - 3 - PARA OF THE ORDER OF THE TRIBUNAL DEALING WITH THE ISSUES INVOLVED READS AS UNDER:- 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELO W. IN RESPECT OF GROUND NOS.1 & 1.2 ARE AGAINST THE DELETION OF DISALLOWANCE OF RS. 27,46,569/- MADE ON ACCOUNT OF COMMISSION PAYMENT TO M/S.NAKODA ENTERPRISES. WE FI ND THAT THE LD.CIT(A) HAS DECIDED THIS ISSUE FOLLOWING HIS PREDECESSORS ORDE R PASSED IN AY 2006-07 BY HOLDING AS UNDER:- 2.3. I HAVE CAREFULLY CONSIDERED THE FINDINGS OF T HE A.O. AND SUBMISSIONS OF THE APPELLANT AND OTHER MATERIAL AVAILABLE ON RECORD. G RACE CASTING PVT.LTD. IS A COMPANY INCORPORATED UNDER THE COMPANIES ACT WITH T HE MAIN OBJECT TO MANUFACTURE AND TRADE IN THE AREA OF METAL PRODUCTS . DURING THE RELEVANT PREVIOUS YEAR THE APPELLANT WAS ENGAGED IN MANUFACTURING IN GOTS AND BARS AND FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME OF RS.26,81 ,770/-. THE A.O FINALIZED THE ASSESSMENT U/S. 143(3) ON A TOTAL INCOME OF RS.72,2 8,340/- BY MAKING TOTAL ADDITIONS OF RS.4546,569/-. THE A.O. HAS MADE DISALLOWANCE OF RS.27,46,569/- ON ACCOUNT OF PAYMENT OF COMMISSION TO NAKODA ENTERPRISES, WHOSE PROPRIETOR IS SMT. ROOPAM MARDIA. IT IS OBSERVED THAT IN THE ASSESSMENT YEAR 2006-07 ALSO THE APPELLANT PAID COMMISSION TO THE TUNE OF RS. 24,30,078/- TO M/S. N AKODA ENTERPRISES AND THE SAME WAS DISALLOWED BY THE A.O. MY PREDECESSOR LD. CIT (A) VIDE ORDER NO. CIT(A)- VIII/ITO/4(1)/209/08-09 DTD. 29.9.2009 DELETED THE ADDITION ON IDENTICAL FACTS GIVING THE FOLLOWING FINDINGS:- 'I HAVE CONSIDERED THE FACTS AND THE SUBMISSIONS OF THE LD. A.R. CAREFULLY. THERE IS NO DISPUTE ABOUT THE FACT THAT THE APPELLANT HAS PA ID COMMISSION TO THE TUNE OF RS.24,30,078/- TO M/S. NAKODA ENTERPRISE A PROPRIET ARY OF SMT. ROOPAM MARDIA. THE A. O. HAS DISALLOWED THE AMOUNT HOLDING THAT SM T. MARDIA HAS NOT RENDERED HER SERVICES DIRECTLY TO THE APPELLANT. HE HAS ALSO OBS ERVED THAT THE CONTRIBUTION OF SHRI RAJIV MARDIA IN THE BUSINESS OF SMT. MARDIA SHALL N OT BE TAKEN ANY COGNIZANCE OF. HE HAS ALSO OBSERVED THAT THE OTHER EMPLOYEES OF NA KODA ENTERPRISE HAD PLAYED MINIMUM ROLE IN ITS BUSINESS. HE HAS HELD THAT UNDE R THESE CIRCUMSTANCES THE PAYMENT OF COMMISSION WAS NOT WHOLLY AND EXCLUSIVEL Y FOR THE PURPOSE OF BUSINESS. 6.5 THE A.O, HOWEVER, BY ARRIVING AT THIS CONCLUSIO N HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO SUPPORT SUCH FINDINGS. ON THE CONTRARY, IT IS FOUND THAT SMT. ROOPAM MARDIA IN HER STATEMENT RECORDED AT THE TIME OF SUR VEY AND SUBSEQUENTLY HAS ELABORATELY DISCUSSED HER BUSINESS CONNECTIONS WITH THE APPELLANT AND THE SERVICES RENDERED BY HER PROPRIETARY CONCERN FOR EARNING THE COMMISSION FROM THE APPELLANT UNDER REFERENCE. THE A.O HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO PROVE THAT THE CLAIMS MADE BY MRS. MARDIA WAS FALSE AND UNSUBSTANT IATED. IT IS SEEN THAT THE APPELLANT HAS ALSO FILED COPIES OF SOME PURCHASING PARTIES WHO HAVE CONFIRMED THAT ITA NO. 1585/AHD/2014 DCIT VS. GRACE CASTINGS LTD. ASST.YEAR 2009-10 - 4 - THEY MADE PURCHASES FROM THE APPELLANT THROUGH NAKO DA ENTERPRISES. THESE EVIDENCES HAVE ALSO NOT BEEN CONTROVERTED BY THE A. O IN THE ASSESSMENT ORDER. 6.6 THE APPELLANT HAS MADE ITS ENTIRE SALES THROUGH NAKODA ENTERPRISE AND HAS PAID COMMISSION AT THE RATE OF 100 PER METRIC TONNE, THE A.O WITHOUT APPRECIATING THE FACTS CORRECTLY HAS ALLEGED THAT THE APPELLANT HAS PAID RS. 50 PER M. T TO OTHER COMMISSION AGENTS. IN FACT THE APPELLANT HAS PAID C OMMISSION @ RS. 50 PER M. T TO THE PARTIES FROM WHOM IT HAS MADE PURCHASES DURING THE RELEVANT PERIOD. THEREFORE UNDER THESE CIRCUMSTANCES I DO NOT FIND ANY REASON TO DISALLOW THE COMMISSION PAID BY THE APPELLANT TO MS NAKODA ENTERPRISE. IN THIS R EGARD RELIANCE IS PLACED ON THE DECISION OF HON 'BLE ITAT DELHI IN THE CASE OF ACIT V/S ASSOCIATED STRIPS (P) LTD. 1 SOT 338 (DEL) WHERE IN THE HON'BLE TRIBUNAL HAS HEL D THAT 'ONCE IT HAD BEEN HELD THAT THE COMMISSION WAS PAID AGAINST SERVICES RENDE RED BY THE RESPECTIVE COMMISSION AGENT THEN WITHOUT ASSIGNING ANY REASON, DISALLOWANCE OF COMMISSION WAS NOT JUSTIFIED - RENDERING OF SERVICES BY COMMIS SION AGENT NOT BEING IN DISPUTE PAYMENT OF COMMISSION THROUGH ACCOUNT PAYEE CHEQUES AGAINST BILLS RAISED COULD NOT BE DISALLOWED EVEN PARTLY '. MY PREDECESSOR LD. CIT(A) HAS DISCUSSED THE ISSUE I N DETAIL AND AFTER GIVING LOGICAL FINDINGS ON THE IMPUGNED ISSUE HAS DELETED THE ADDI TION IN THE PREVIOUS ASSESSMENT YEAR. THE A.O. HAS NOT BROUGHT ANY ADDITIONAL EVIDE NCE ON RECORD TO SUBSTANTIATE THE ADDITIONS. IN VIEW OF THE FACTS MENTIONED ABOVE, TH ERE IS NO REASON TO INTERFERE IN THE FINDINGS GIVEN BY MY PREDECESSOR LD. CIT(A) AS REFE RRED ABOVE. THEREFORE, IN THESE CIRCUMSTANCES, I DO NOT FIND ANY REASON TO DISALLOW THE COMMISSION PAID BY THE APPELLANT TO M/S. NAKODA ENTERPRISES AND THEREFORE, ADDITION MADE BY THE A.O. IS DELETED. AS SUCH THE APPELLANT GETS RELIEF OF RS.21 ,46,569/-. 5.1. THE REVENUE HAD FILED AN APPEAL AGAINST THE OR DER OF LD.CIT(A) IN AY 2006-07 IN ITA NO.261/AHD/2010, WHEREIN IDENTICALGROUND RAISED BY THE REVENUE WAS ALLOWED FOR STATISTICAL PURPOSES BY RESTORING THE ISSUE BA CK TO THE FILE OF AO FOR DECISION AFRESH. THE FACTS ARE IDENTICAL IN THIS YEAR AS WEL L AND THE LD.CIT(A) HAS FOLLOWED THE ORDER OF HIS PREDECESSOR WHICH HAS BEEN SET ASIDE B Y THE COORDINATE BENCH. THE COORDINATE BENCH IN ITA NO.261/AHD/2010 PERTAINING TO AY 2006-07 HAS OBSERVED AS UNDER:- 6.. . IN THIS REGARD, CERTAIN POINTS ARE REQUIRED TO BE ESTABLISHED BY THE ASSESSEE WHO IS CLAIMING THE GENUINENESS OF THE COMMISSION P AYMENT:- (I) THAT THE AMOUNT IN QUESTION HAS ACTUALLY BEE N EXPENDED. (II) THAT THE MODE OF PAYMENT AND THE DATES OF PAY MENT ARE TO BE PRECISELY INFORMED. (III) THAT THE BASIS OF PAYMENT WHETHER ON DAILY B ASIS, MONTHLY BASIS OR YEARLY BASIS AND THE CALCULATION OF COMMISSION ON EACH C LAIMED TRANSACTION IS TO BE PLACED ON RECORD. (IV) THAT WHETHER THE PAYMENT WAS MADE ON THE BASI S OF CREDIT NOTES OR BILLS RAISED BY THE COMMISSION AGENT OR THAT WHAT WAS THE BASIS OF SATISFACTION BEFORE MAKING OF PAYMENT. ITA NO. 1585/AHD/2014 DCIT VS. GRACE CASTINGS LTD. ASST.YEAR 2009-10 - 5 - (V) THAT THE ASSESSEE IS REQUIRED TO ESTABLISH THA T AH AGENT HAS BEEN APPOINTED TO LOOK AFTER THE SALES IF NOT PERSONALLY DOING THE MARKETING. (VI) THAT THE ASSESSEE IS TO ESTABLISH THE EXISTEN CE OF COMMISSION AGENCY BETWEEN THE TWO PARTIES, I.E. THE PRINCIPAL AND THE AGENT. (VII) THAT THE ASSESSEE IS TO ESTABLISH THE PRINCIP LE AND AGENT RELATIONSHIP AND FOR THAT ALL THE INGREDIENTS AS PRESCRIBED UNDER THE LA W HAS TO BE ESTABLISHED. (VIII) THAT THE AGENT IS REQUIRED TO BE PRODUCED, SO THAT HE CAN ESTABLISH WHAT EFFORTS HE HAS MADE AND HOW THE EFFORTS WERE FRUITF UL AND WHAT CORRESPONDENCE IN THIS REGARD WAS MADE BETWEEN THE PRINCIPLE AND THE PARTIES. (IX) THAT THE LAW IS VERY CLEAR THAT ALTHOUGH THE PAYMENT OF COMMISSION MIGHT HAVE BEEN MADE THROUGH BANKING CHANNEL OR COULD BE IN ACCORDANCE WITH AN AGREEMENT BUT STILL IT IS OPEN TO THE REVENUE DEPAR TMENT TO DECIDE THE DEDUCTIBILITY AND THE GENUINENESS OF THE EXPENDITUR E. (X) THAT THE GENUINENESS OF THE EXISTENCE OF THE S ELLING AGENCY IS REQUIRED TO BE ESTABLISHED AND NOT TO BE BASED UPON A MAKE-BELIEF DOCUMENT. THE HON'BLE COURTS HAVE THEREFORE HELD THAT MERE EXISTENCE OF A GREEMENT DO NOT BIND THE ITO TO ALLOW SUCH DEDUCTION OF PAYMENT OF COMMISSIO N. (XI) THAT THE ASSESSEE IS DEFINITELY UNDER OBLIGAT ION TO ESTABLISH THE NECESSITY FOR INCURRING OF- EXPENDITURE, BECAUSE AN EXPENDITURE S HOULD NOT BE A GRATUITOUS PAYMENT TO NEAR-ONES. (XII) THAT THE ALLOWABILITY OF EXPENDITURE DEPENDS UPON THE FACT THAT IT OUGHT TO BE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSIN ESS. (XIII) THAT THE RENDERING OF SERVICES BY THE AGENT AND THE EXACT WORK DONE FOR PROCURING THE BUSINESS IS THE PRIMARY EVIDENCE TO B E PLACED ON RECORD TO ESTABLISH THAT THE EXPENDITURE WAS EXCLUSIVELY FOR THE BUSINESS. 6.1. THESE ARE THE FEW POINTS WHICH ARE REQUIRED TO BE EXAMINED BY THE REVENUE DEPARTMENT WHILE INVESTIGATING THE GENUINENESS OF THE TRANSACT ION. WE WANT TO CLARIFY THAT THE POINTS REFERRED HEREINABOVE ARE NOT EXHAUSTIVE BUT MERELY SUGGESTIVE DEPENDING UPON CASE TO CASE, THEREFORE THE DEPARTMENT IS AT LIBERTY TO INVESTIGA TE THOROUGHLY AS PER LAW TO EXAMINE THE CORRECTNESS OF THE CLAIM. WE HAVE ALSO NOTED THAT T HE ASSESSING OFFICER IN THE PRESENT CASE HAS STARTED THE PROCEEDINGS BY NOTING THE FACT THAT THE GENUINENESS OF THE COMMISSION WAS DOUBTED BECAUSE THE SAID LADY HAPPENED TO BE AN INT ERESTED PARTY AS DEFINED U/S.40A(2)(B). THE PURPOSE OF MENTIONING OF THIS PROVISION WAS PLA CED ON RECORD THAT THE SAID LADY IS NOT AN OUTSIDER BUT HAVING SUBSTANTIAL INTEREST IN THE ASS ESSEE-COMPANY AS ALSO IN A COMMANDING POSITION BY HOLDING MAJORITY SHARES TO INFLUENCE TH E BUSINESS DECISIONS OF THE ASSESSEE- COMPANY. FINALLY WHEN THE GENUINENESS COULD NOT BE CONCLUSIVELY ESTABLISHED, THEN THE PROVISIONS OF SECTION 37 WAS INVOKED AND RIGHTLY SO . 5.2. THEREFORE, THIS GROUND OF REVENUES APPEAL IS ALSO RESTORED TO THE FILE OF AO TO DECIDE IT AFRESH IN THE LIGHT OF THE DIRECTION GIVEN BY TH E COORDINATE BENCH IN ITA NO.261/AHD/2010(SUPRA). THUS, GROUND NOS.1 & 1.2 OF REVENUES APPEAL ARE ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 1585/AHD/2014 DCIT VS. GRACE CASTINGS LTD. ASST.YEAR 2009-10 - 6 - 6. GROUND NOS.2 & 2.2 ARE INTER-CONNECTED. THE LD.S R.DR SUBMITTED THAT THE IDENTICAL ISSUE WAS ALSO RAISED FOR ADJUDICATION IN THE AY 20 06-07, WHEREIN ALSO THE HONBLE TRIBUNAL HAS RESTORED THE GROUND TO AO FOR DECISION AFRESH. THIS FACT IS NOT CONTROVERTED BY LD.COUNSEL FOR THE ASSESSEE. 6.1. WE FIND THAT THE LD.CIT(A) HAD FOLLOWED THE DE CISION OF HIS PREDECESSOR PASSED IN AY 2006-07 AND DECIDED THIS ISSUE BY HOLDING AS UNDER: - 3.3 I HAVE CONSIDERED THE FINDINGS OF THE A.O., SU BMISSION OF THE APPELLANT AND OTHER MATERIALS AVAILABLE ON RECORD. HERE AGAIN, TH E IDENTICAL ADDITION WAS MADE BY THE A.O. IN THE PRECEDING YEAR AND THE SAME WAS DEL ETED BY MY PREDECESSOR LD CIT(A) VIDE ORDER NO. CIT(A)-VIII/ITO 4(1) /209/ 08 -09 DTD. 29.9.2009 GIVING THE FOLLOWING FINDINGS: '7.5 I HAVE CONSIDERED THE FACTS AND THE SUBMISSION S OF THE LD. A.R CAREFULLY. THERE IS NO DISPUTE ABOUT THE FACT THAT THE APPELLANT HAS TAKEN A D.G SET ON LEASE FROM NAKODA ENTERPRISE. THE APPELL ANT IS USING THE D.G SET FOR THE PURPOSE OF ITS BUSINESS. IT HAS FURNISH ED THE LEASE AGREEMENT AND DETAILS WITH REGARD TO CONSUMPTION OF FUEL AND ELEC TRICITY TO JUSTIFY THE HIRING OF D.G SET. THE A.O HAS NOT CONTROVERTED THE SE FACTS IN THE ASSESSMENT ORDER. IT IS A WELL SETTLED PROPOSITION OF LAW THAT ONCE THE EXPENSES ARE HELD TO BE INCURRED DURING THE COURSE OF BUSINESS PARTIAL DISALLOWANCE IS NOT PERMISSIBLE. IN THIS REGARD REL IANCE IS PLACED ON THE DECISION OF HON'BLE CALCUTTA HIGH COURT IN THE CASE OF RAVI MARKETING PVT. LTD. V/S CIT 280 ITR 519 WHEREIN THE HON'BLE COURT HAS HELD 'THE AUTHORITIES UNDER THE INCOME-TAX ACT CAN EXAMI NE THE GENUINENESS OF THE EXPENDITURE AND THE PURPOSE FOR WHICH IT WAS EXPENDED. ONCE IT IS ESTABLISHED THAT THE AMOUNT WAS GENUINELY EXPENDED AND IT WAS EXPENDED FOR A PARTICULAR PURPOSE, THE ONLY DISCRETIONS THAT IS LEFT TO THE AUTHORITY UNDER THE ACT IS TO APPLY THE LAW ON THE BASIS OF S UCH ESTABLISHED FACT OR FINDING. IF THE PURPOSE FOR WHICH IT IS EXPENDED IS ELIGIBLE FOR DEDUCTION UNDER A PARTICULAR HEAD, NO DISCRETION IS LEFT TO T HE AUTHORITY EITHER TO SURMISE THE QUANTUM THAT OUGHT TO HAVE BEEN SPENT O R TO SURMISE OR PRESUME THE PURPOSE DIFFERENTLY AND CONVERT THE SAM E TO SOME OTHER HEAD.' 7.6 THEREFORE, IN VIEW OF THE ABOVE, THE DISALLOWAN CE MADE BY THE ABOVE CANNOT BE SUSTAINED. HENCE, THE DISALLOWANCE OF RS.18,00,000/- IS HEREBY DELETED'. THE LD. A.R. PUT UP ALL THE FACTS ON RECORD TO JUSTIFY THE PAYMENT OF LEASE REN T ON D.G. SET. HE ALSO BROUGHT ON RECORD THAT IN WHAT MANNER THE USE OF D.G. SET HAS BEEN HE LPFUL IN INCREASING THE TURNOVER AND PROFITABILITY OF THE APPELLATE COMPANY. HE EMPHASIZ ED WITH VARIOUS FACTS AND EVIDENCES THAT D.G. SET WAS TAKEN ON LEASE FOR THE PURPOSE OF BUSI NESS AND THE PAYMENT OF LEASE RENT IS SUPPORTED BY THE LEASE AGREEMENT ETC. HE ALSO JUSTI FIED THAT THE LEASE RENT HAS BEEN FIXED ON ARM'S LENGTH. THE A.O. HAS NOT BROUGHT ANY EXTRA EVIDENCE ON RECORD TO SUBSTANTIAT E THE ADDITION. IN VIEW OF THE ABOVE FACTS, THERE IS NO REASON TO DEVIATE FROM THE FINDINGS GIV EN BY MY PREDECESSOR LD. CIT(A) IN THE PREVIOUS YEAR ON THE IMPUGNED ISSUE. THEREFORE, THE DISALLOWANCE MADE BY THE A.O. IS ITA NO. 1585/AHD/2014 DCIT VS. GRACE CASTINGS LTD. ASST.YEAR 2009-10 - 7 - DELETED. AS SUCH THE APPELLANT GETS RELIEF OF RS. 1 8 LAKHS. 6.2. THE ISSUE TRAVELLED UPTO THE STAGE OF THE ITAT C BENCH AHMEDABAD AND THE TRIBU NAL IN ITA NO.261/AHD/2010 FOR AY 2006-07 VIDE ORDER DATED 12/10/2012 WAS PLEASED TO RESTORE THIS ISSUE AS WELL TO THE FILE OF THE AO BY OBSERVING AS UNDER:- 8. GROUND NO.2 READS AS UNDER:- THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETIN G THE DISALLOWANCE OF RENT ON DG SET AMOUNTING TO RS.18,00,000/-. 8.1. THE AO HAS NOTED AND SHOW CAUSE WAS ISSUED IN RESPECT OF LEASE-RENT PAID TO SMT.ROOPAM AT THE RATE OF RS.3 LACS PER MONTH IN RE SPECT OF THE HIRING OF DIESEL GENERATOR. FACTS HAVE REVEALED THAT A GENERATOR WHICH COSTED R S.96 LACS WAS RENTED OUT BY SMT.ROOPAM TO THE ASSESSEE-COMPANY IN TERMS OF AN AGREEMENT DA TED 25.02.2004. THE ALLEGATION OF THE AO WAS THAT THE GENERATOR WAS TAKEN ON LEASE FROM THE LADY WITH AN INTENTION TO PASS ON AN UNDUE BENEFIT. THE ASSESSEE'S REPLY WAS THAT THE DECISION OF HIRING OF GENERATOR SET WAS A COMMERCIAL DECISION OF THE ASSESSEE-COMPANY. THE LA DY HAS INVESTED A HUGE AMOUNT TOWARDS PURCHASE, THEREFORE LEASED OUT THE D.G.SET. THE ASS ESSEE-COMPANY HAS CONSUMED SUBSTANTIAL FUEL TO RUN THE D.G.SET, HENCE THE LEASE RENT WAS C LAIMED AS AN ALLOWABLE EXPENDITURE. THE AO HAS HELD THAT 50% OF THE EXPENDITURE COULD BE ME ANT FOR BUSINESS PURPOSES. REST OF THE AMOUNT WAS DISALLOWED BY INVOKING SECTION 37 OF IT ACT. IN THIS CONNECTION, WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL PLACED ON R ECORD. OUR ATTENTION WAS DRAWN ON PAGE 142 OF THE COMPILATION CONTAINING THE AGREEMENT EXE CUTED IN RESPECT OF THE LEASE OF THE D.G.SET. THE ASSESSEE'S CONTENTION IS THAT THE AO SHOULD NOT HAVE PARTLY DISALLOWED THE CLAIM BY INVOKING THE PROVISIONS OF SECTION 37(1) OF IT A CT. IT IS TRUE THAT THE AO HAS INVOKED THE PROVISIONS OF SECTION 37(1) OF IT ACT WHILE DISALLO WING 50% OF THE CLAIM. WE HAVE NOTED THAT THE LEASE RENT AT RS.3 LACS P.M. WAS PAID. THE INVE STMENT TOWARDS PURCHASE OF DG SET WAS RS.96 LACS. DUE TO THIS REASON, THE ASSESSING OFFIC ER HAD WORKED OUT THAT THE RETURN ON THE SAID INVESTMENT WAS MORE THAN 3%. ACCORDING TO. ASS ESSING OFFICER, EVEN THE RETURN ON THE SAID INVESTMENT WAS HIGHER BECAUSE THE ASSESSEE-LAD Y SHOULD HAVE CLAIMED THE DEPRECIATION ON DG SET. IN SUCH A SITUATION, WHEN A HIGH LEASE-R ENT IS BEING PAID BY THE ASSESSEE-COMPANY TO AN INTERESTED PARTY, THEN THE FAIRNESS OF THE TR ANSACTION SHOULD BE PROPERLY PLACED ON RECORD BY THE ASSESSEE. THE ASSESSEE-COMPANY WAS TH US REQUIRED TO PLACE ON RECORD THE BUSINESS NEED OF THE DG SET. THE ONUS IS ON THE ASS ESSEE TO ESTABLISH THAT THE SERVICES OF DG SET WERE IMMINENTLY REQUIRED TO RUN THE BUSINESS. M EANING THEREBY THE ASSESSEE HAS TO DEMONSTRATE THE BUSINESS NECESSITY FOR HIRING OF TH E DG SET. THEREFORE, IT WAS EXPECTED THAT THE ASSESSEE SHOULD PLACE ON RECORD CERTAIN EVIDENC ES, SUCH AS, THE FREQUENCY OF ELECTRICITY FAILURE CAUSING BUSINESS HARDSHIP, THUS COMPELLING THE ASSESSEE-COMPANY TO HIRE THE GENERATOR SET. THE REQUIREMENT OF THE GENERATOR SET CAN BE PROVED BY PLACING SUCH TYPE OF OTHER EVIDENCES BY THE ASSESSEE. IN A SITUATION, WH EN THE REVENUE DEPARTMENT IS ALLEGING A COLOURABLE DEVICE OF DIVERSION OF FUNDS, THEN A DUT Y IS CASTED UPON THE ASSESSEE TO CLEAR THE SMOKE-SCREEN AND TO DEMONSTRATE THE TRANSPARENCY OF THE TRANSACTION. BASICALLY, IN THIS CASE THE DOUBT WAS BASED UPON THE FACT THAT A HIGH RENT; AS PER ASSESSING OFFICER WAS PAID BY THE COMPANY TO AN INTERESTED PERSON. ON ONE HAND, THE A SSESSEE HAS INFORMED THE ASSESSING OFFICER THAT THE PROFITS WERE GOING HIGH AND THE TU RNOVER HAD ALSO GONE UPTO RS.66 CRORES BUT ON THE OTHER HAND, THE ASSESSEE-COMPANY HAS NOT DEM ONSTRATED THAT WHY THE GENERATOR SET WAS NOT PURCHASED BY THE ASSESSEE-COMPANY OF ITS OW N HAVING DUAL BENEFIT, I.E. SAVING OF ITA NO. 1585/AHD/2014 DCIT VS. GRACE CASTINGS LTD. ASST.YEAR 2009-10 - 8 - LEASE-RENT AND ALSO THE BENEFIT OF DEDUCTION OF DEP RECIATION. AS FAR AS THE 50% DISALLOWANCE IS CONCERNED, THE ACTION OF THE ASSESSING OFFICER C AN BE SAID TO BE DULY COVERED BY THE SECTION 37 OF THE I.T.ACT. HE WAS NOT REQUIRED TO INVOKE TH E PROVISIONS OF SECTION 40A(2) AS OBJECTED BY ID.AR. SECTION 37 EXPLICITLY SAYS THAT AN EXPEND ITURE HAS TO BE WHOLLY FOR THE PURPOSE OF THE BUSINESS. IF AN EXPENDITURE IS NOT WHOLLY FOR THE P URPOSE OF THE BUSINESS, BUT PARTLY FOR THE PURPOSE OF THE BUSINESS, THEN ONLY THAT PART IS ALL OWABLE. THE WORDS 'WHOLLY AND EXCLUSIVELY', THUS REFER TO THE MOTIVE AND THE OBJECT BEHIND THE EXPENDITURE. THE OBJECT HAS TO BE EXCLUSIVELY AS ALSO SOLELY FOR RUNNING OF THE BUSIN ESS. THE EXPENDITURE HAS TO BE INCURRED IN REALITY AND THERE SHALL BE OSTENSIBLE REASON FOR IN CURRING OF THE EXPENDITURE. THE ASSESSING OFFICER HAS THOUGHT IT PROPER TO DECIDE THE PERCENT AGE OF DISALLOWANCE ON THE BASIS OF THE EXPECTED ANNUAL RETURN ON SUCH INVESTMENT. WE, HOWE VER, CLARIFY THAT IN NO CIRCUMSTANCE THE DISALLOWANCE AS MADE BY THE ASSESSING OFFICER SHOUL D BE ENHANCED WHILE WE ARE RESTORING THIS GROUND BACK TO THE STAGE OF THE ASSESSING OFFI CER WITH THE DIRECTION THAT THE ASSESSEE SHALL PLACE ON RECORD THE BASIC REQUIREMENT OF BUSINESS N ECESSITY FOR TAKING ON HIRE THE IMPUGNED DG SET. WITH THESE REMARKS THIS GROUND IS RESTORED BACK TO THE FILE OF ASSESSING OFFICER FOR DE NOVO DECISION. 6.3. THEREFORE, FOR THIS YEAR ALSO, THIS ISSUE IS A LSO RESTORED TO THE FILE OF AO FOR DECISION AFRESH. THE AO IS HEREBY DIRECTED TO DECIDE THIS ISSUE IN THE LIGHT OF THE DIRECTION BY THE COORDINATE BENCH IN ITA NO.261/AHD /2010(SUPRA). THUS, GROUND NOS.2 & 2.2 OF REVENUES APPEAL ARE ALLOWED FOR STA TISTICAL PURPOSES. 7. GROUND NOS.3 & 4 ARE GENERAL IN NATURE WHICH REQ UIRE NO INDEPENDENT ADJUDICATION. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS AL LOWED FOR STATISTICAL PURPOSES. 6. WE DO NOT FIND ANY DISPARITY ON FACTS BETWEEN AY 2007-08 AND AY 2008-09. THE LD. FIRST APPELLATE AUTHORITY HAS BASED HIS DECISIO N ON AY 2006-07 WHICH WAS ALSO RELIED IN AY 2007-08. THEREFORE, CONSIDERING THE OR DER OF THE TRIBUNAL IN AY 2007-08 WE ALLOW THIS APPEAL OF REVENUE FOR STATIST ICAL PURPOSES AND SET ASIDE THE ORDERS OF REVENUE AUTHORITIES BELOW AND REMIT THESE ISSUES TO THE FILE OF AO FOR READJUDICATION. 6. IN PARTIY WITH THE EARLIER ORDER OF THE ITAT, BO TH THE ISSUES AS RAISED BY WAY OF GROUND NOS.1 & 2 OF THE APPEAL ARE SET ASIDE TO THE FILE OF AO FOR FRESH ADJUDICATION IN ACCORDANCE WITH LAW AFTER GIVING PROPER OPPORTUNITY OF HEARING TO THE ASSESSEE. ITA NO. 1585/AHD/2014 DCIT VS. GRACE CASTINGS LTD. ASST.YEAR 2009-10 - 9 - 7. REMAINING GROUNDS ARE GENERAL IN NATURE WHICH RE QUIRE NO INDEPENDENT ADJUDICATION. 8. IN THE RESULT, REVENUES APPEAL IS ALLOWED FOR S TATISTICAL PURPOSES. THIS ORDER PRONOUNCED IN OPEN COURT ON 09/ 01/2017 SD/- SD/- () ( ) (RAJPAL YADAV) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 09/ 01 /2017 3..),.)../ T.C. NAIR, SR. PS !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. #% / THE APPELLANT 2. &#% / THE RESPONDENT. 3. 456+ 7+ / CONCERNED CIT 4. 7+ ( ) / THE CIT(A)-VIII, AHMEDABAD 5. 89:+)56 , 56/ , 4 / DR, ITAT, AHMEDABAD 6. : * / GUARD FILE. / BY ORDER, &8++ //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 3.1.17 (DICTATION-PAD 5- P AGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 4.1.17 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.9.1.17 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 9.1.17 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER