ORG INFORMATICS LTD, Baroda V. The Dy.CIT.,Circle-4, Baroda

ITA 1619/AHD/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80356 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2014
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 22-08-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 14-05-2010
• Court: TRIBUNAL
• Department Lawyers: B KULSRESTHA
• Keywords: Capital asset; Depreciation; Business expenditure; Notional interest; Commercial expediency; Revenue expenditure
• Section: 37(1)

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD 0 00 0 0 00 0 , , , , ! '# ! '# ! '# ! '# $ $ $ $ BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER 0/ ITA NO. 1619/AHD/2010 & '&/ ASSESSMENT YEAR 2006-07 ORG INFORMATICS LIMITED, 321, ABHISHEK COMPLEX, 3 RD FLOOR, AKSHAR CHOWK, OLD PADRA ROAD, BARODA-390020. PAN: AACCS9395K VS ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-4, BARODA. ()/ APPELLANT *+() / RESPONDENT 0/ ITA NO. 1464/AHD/2010 & '&/ ASSESSMENT YEAR 2006-07 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-4, BARODA. VS ORG INFORMATICS LIMITED, 321, ABHISHEK COMPLEX, 3 RD FLOOR, AKSHAR CHOWK, OLD PADRA ROAD, BARODA-390020. PAN: AACCS9395K ()/ APPELLANT *+() / RESPONDENT REVENUE BY : SHRI B. KULSRESTHA, SR. DR ASSESSEE(S) BY : SHRI SANJAY R. SHAH, AR !, - #./ // / DATE OF HEARING : 22/08/2014 /0' - #. / DATE OF PRONOUNCEMENT: 12/09/2014 1 1 1 1/ // / O R D E R PER SHRI N.S. SAINI, ACCOUNTANT MEMBER: THESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE A ND THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF IN COME TAX (APPEALS) DATED 12.01.2010. ITA NOS. 1619 & 1464/AHD/2010 ORG INFORMATICS LTD., BARODA AY 2006-07 - 2 - 2. IN ITA NO. 1619/AHD/2010, GROUND NO. 1 OF THE A PPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF I NCOME TAX (APPEALS) SUSTAINING THE ADDITION OF NOTIONAL INTEREST IN RES PECT OF AMOUNT OUTSTANDING IN THE ACCOUNT OF SISTER CONCERN. 3. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS DE CIDED THE ISSUE AS UNDER: THE SECOND GROUND OF APPEAL IS RELATED TO THE DISA LLOWANCE OF RS 34,62,386/-. THE ASSESSING OFFICER HAD MADE THIS A DDITION BY MAKING PROPORTIONATE DISALLOWANCE OF INTEREST EXPENDITURE ON ACCOUNT OF ALLEGED DIVERSION OF FUNDS AS INTEREST FREE AMOUNT TO A SISTER CONCERN. IT WAS NOTED BY THE ASSESSING OFFICER THAT AS ON 31 .03.2006 THERE WAS A OUTSTANDING BALANCE OF RS 2,30,82,579/- IN THE AC COUNTS OF GLOBAL IT TECHNOLOGY P. LTD. (GIP) SHOWN AS SUNDRY DEBTORS IN THE BALANCE SHEET. IT HAS BEEN NOTED BY THE ASSESSING OFFICER THAT THE APPELLANT IS PAYING HUGE AMOUNT OF INTEREST WHILE DIVERTING FUND S TO THE SISTER CONCERN AS INTEREST FREE ADVANCE. HE THEREFORE, CH ARGED 15% INTEREST ON THE CLOSING BALANCE IN THE NAME OF GIP AND ACCOR DINGLY, MADE DISALLOWANCE OF RS 34,62,386/-. 5.1 BEFORE ME, THE DISALLOWANCE HAS BEEN CHALLENGED ON THE GROUND THAT THE APPELLANT HAD ITS OWN SUFFICIENT FUNDS AND NO INTEREST BEARING FUNDS HAVE BEEN DIVERTED. IT HAS FURTHER BEEN STAT ED THAT THE ACTUAL FUNDING WAS ONLY OF RS 3,25,613/-. THE NATURE OF O UTSTANDING WITH GIP WAS STATED TO BE AS FOLLOWS: PARTICULARS RS. OUTSTANDING ON ACCOUNT OF FUNDING 2,25,613 OUTSTANDING ON ACCOUNT OF GOODS/ SERVICES SUPPLIED BY APPELLANT 2,09,683 OUTSTANDING ON ACCOUNT OF NON FUNDING TRANSACTIONS (I) OUTSTANDING ON ACCOUNT OF SALE OF TECHNICAL KNOWHOW ON 28.02.2004 (II) OUTSTANDING ON ACCOUNT OF TRANSFER OF DEBTORS OF APPELLANT AND ERSTWHILE DDE ORG SYSTEMS P LTD. AMALGAMATED WITH APPELLANT W.E.F. 01.04.2003 1,14,45,000 1,11,02,283 TOTAL 2,25,47,283 GRAND TOTAL 2,30,82,579 IT HAS BEEN ARGUED THAT THE TOTAL DEBIT ON ACCOUNT OF FUNDING AGGREGATED TO RS 58,67,250/- AS AGAINST THE OPENING BALANCE OF RS 37,88,859/-. THUS, DURING THE YEAR, IF AT ALL THER E IS ANY FUNDING, SUCH FUNDING WAS TO THE TUNE OF RS 20,78,391/- ONLY. IT HAS BEEN STATED THAT EVEN IF ANY DISALLOWANCE IS TO BE MADE FOR ARG UMENT SAKE, THE SAME COULD BE ONLY ON THE AMOUNTS OF RS.20,78,391/-. THE APPELLANT FURTHER RELIED ON THE VARIOUS CASE LAWS INCLUDING H ON'BLE SUPREME ITA NOS. 1619 & 1464/AHD/2010 ORG INFORMATICS LTD., BARODA AY 2006-07 - 3 - COURTS DECISION IN THE CASE OF S.A. BUILDERS LTD. 288 ITR 1(SC) AND AHMEDABAD TRIBUNAL'S DECISION IN THE CASE OF ESSAR STEEL LTD. 97 TTJ 985. 5.2 I HAVE CONSIDERED THE SUBMISSIONS MADE AND ALSO THE FACTS OF THE CASE. IT IS SEEN FROM THE COPY OF ACCOUNT FILED THAT APPELLANT HAS BEEN INCURRING EXPENDITURE ON BEHALF OF GIP. IT IS FURTHER SEEN THAT THE APPELLANT ALLOWED PART OF THE SALE PROCEEDS FOR THE SALES OF TECHNICAL KNOW HOW MADE ON 28.02.2004 AMOUNTING TO RS.1,14,45 ,000/- REMAINED WITH GIP. IT IS FURTHER NOTICED THAT AN AM OUNT OF RS.1,11,02,283/- BEING SUNDRY DEBTORS WERE TRANSFER RED TO GIP. IT HAS BEEN STATED BY THE APPELLANT THAT THESE SUNDRY DEBT ORS WERE IN THE BOOKS OF DDEORG SYSTEMS PVT. LTD (DOS), WHICH WAS A JOINT VENTURE AND THE APPELLANT HAVING 50% SHARE OF THE SAME. THI S COMPANY (DOS) WAS AMALGAMATED WITH THE APPELLANT COMPANY ON 01.04 .2003. WITH AMALGAMATION ALL THE ASSETS AND LIABILITIES INCLUDI NG SUNDRY DEBTORS OF THE DOS WERE VESTED INTO THE APPELLANT COMPANY. IT HAS BEEN STATED THAT THE APPELLANT WAS IN LIQUIDITY RISES AND THERE FORE APPROACHED ITS BANKERS FOR THE GRANT OF ADDITIONAL/FRESH CREDIT FA CILITIES. TO PRESENT A GOOD PICTURE TO THE BANKERS, SUNDRY DEBTORS OF DOS WERE TRANSFERRED TO GIP. THIS RESULTED INTO A GOOD BALANCE SHEET AND THE APPELLANT WAS ABLE TO ACQUIRE FRESH LOANS FROM THE BANK. ACCORDIN G TO THE APPELLANT, SUCH TRANSFER OF SUNDRY DEBTORS DOES NOT AMOUNT THE TRANSFER OF FUNDS. THE CONTENTION OF THE APPELLANT SUFFERS FROM SELF C ONTRADICTION. HOW THE SUNDRY DEBTORS IN THE NAME OF GIP RESULTS IN TH E IMPROVED BALANCE SHEET IS NOT EXPLAINED. AT BEST IT IS A SPACIOUS AR GUMENT. ON THE ONE HAND, THE APPELLANT SUBMITS THAT IT WAS SUFFERING F ROM LIQUIDITY CRISES AND WENT TO THE BANK FOR FRESH CREDITS AND ON THE O THER HAND NOT ONLY IT WAS FUNDING GIP BUT DID NOT RECOVER THE SALE PRO CEEDS FOR THE YEARS TOGETHER. NOT ONLY THAT, IT ALLOWED GIP TO RECOVER AND APPROPRIATE SUNDRY DEBTORS FOR ITS OWN PURPOSE, WHICH ACTUALLY BELONGED TO THE APPELLANT COMPANY. CERTAINLY, WHEN THE APPELLANT IS SUFFERING FROM LIQUIDITY CRISES AND REQUESTING BANKS FOR FRESH CRE DITS, ALLOWING ITS FUND TO BE USED BY GIP WAS AGAINST ITS OWN BUSINESS INTE REST AS IT IS APPARENT FROM THE FACTS NOTED ABOVE. BY NO STRETCH OF IMAGINATION THE FUNDS WHICH WERE ALLOWED TO BE UTILIZED BY GIP BY T HE APPELLANT WHILE IT WAS SUFFERING FROM LIQUIDITY CRISES CAN BE CONSI DERED AS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. ON THE PEC ULIAR FACTS OF THE APPELLANT'S CASE IT HAS TO BE HELD THAT THERE WAS A DIRECT LINK BETWEEN THE LIQUIDITY CRISES FACED BY THE APPELLANT AND THE FUNDS TRANSFERRED/ NOT RECOVERED FROM GIP. THEREFORE, ON THE PECULIAR FACTS OF THE APPELLANT'S CASE, THE AO WAS JUSTIFIED IN MAKING TH E DISALLOWANCE. HOWEVER, THE APPELLANT'S ALTERNATIVE PLEA THAT THE AO WAS NOT JUSTIFIED IN CHARGING INTEREST AT THE RATE OF 15% WHEN THE AP PELLANT WAS PAYING INTEREST AT THE RATE OF 11% IS ACCEPTABLE. THE APPE LLANT'S ANOTHER ARGUMENT THAT THE AO WAS NOT JUSTIFIED IN CHARGING INTEREST ON THE CLOSING BALANCE AS ON 31 ST MARCH RATHER THAN ON PRODUCT BASIS CHARGED BY THE BANK IS ALSO ACCEPTABLE. THUS ON PRINCIPLES, THE DISALLOWANCE IS UPHELD BUT THE QUANTUM OF DISALLOWANCE SHOULD BE RE WORKED AT THE RATE OF 11% ON PRODUCT BASIS. THE APPELLANT MAY FUR NISH THE ITA NOS. 1619 & 1464/AHD/2010 ORG INFORMATICS LTD., BARODA AY 2006-07 - 4 - CALCULATION BEFORE THE AO FOR THIS PURPOSE. THIS GR OUND IS DECIDED ACCORDINGLY. 4. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE S UBMITTED THAT SIMILAR ISSUE HAS COME TO BE DECIDED BY THE TRIBUNA L IN FAVOUR OF THE ASSESSEE FOR ASSESSMENT YEAR 2005-06 VIDE ORDER DAT ED 17.06.2011 PASSED IN ITA NO. 4150/AHD/2008. IT WAS THEREFORE HIS PRA YER THAT FOLLOWING THE SAME, THE GROUND OF APPEAL OF THE ASSESSEE SHOULD B E ALLOWED. 5. ON THE OTHER HAND, THE DEPARTMENTAL REPRESENTAT IVE SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD . IN THE INSTANT CASE, THE ASSESSING OFFICER DISALLOWED NOTIONAL INTEREST AT T HE RATE 15% ON RS 2,30,82,878/- AND ADDED RS 34,62,386/- TO THE INCOM E OF THE ASSESSEE, CONSIDERING THE SAME TOWARDS ADVANCE TO ASSOCIATE C ONCERNS MADE WITHOUT CHARGING INTEREST FROM THEM. FURTHER, IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS GIVEN FRESH ADVANCE OF RS 52,97,000/- TO GLOBAL IT TECHNOLOGY P. LTD. FURTHER, THE CONTENTION OF THE ASSESSEE IS THAT DUR ING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS EARNED PROFIT BEFOR E DEPRECIATION OF RS 7,80,99,000/- WHICH IS MANY TIMES MORE THAN THE AMOUNT ADVANCED DURING THE YEAR OF RS 52,97,000/- OR EVEN THE ENTIR E DEBIT BALANCE AT THE CLOSE OF THE YEAR OF RS 2,30,32,878/-. WE FIND THA T THIS BENCH OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE ITSELF IN ASSE SSMENT YEAR 2005-06 HAS DELETED THE ADDITION MADE ON ACCOUNT OF NOTIONAL IN TEREST BY OBSERVING THAT THE AMOUNT REPORTED AS LOAN TAKEN ACTUALLY REPRESEN TS THE AMOUNT OF ADVANCES FOR SUPPLY OR IN RESPECT OF SERVICES ALREA DY RECEIVED, AND THEREFORE, WAS COVERED BY THE DECISION OF HONBLE S UPREME COURT IN THE CASE OF SA BUILDERS LIMITED VS. CIT 288 ITR 1 (SC) WHERE IT WAS HELD THAT INTEREST ON FUNDS BORROWED BY THE ASSESSEE TO GIVE INTEREST FREE LOAN TO SISTER CONCERN SHOULD NOT BE DISALLOWED AS A DEDUCTION U/S . 36(1)(III) OF THE ITA NOS. 1619 & 1464/AHD/2010 ORG INFORMATICS LTD., BARODA AY 2006-07 - 5 - INCOME TAX ACT, 1961 IF IT WAS GIVEN BY THE ASSESSE E AS A MEASURE OF COMMERCIAL EXPEDIENCY. FURTHER, THE TRIBUNAL ALSO HELD THAT THE HONBLE SUPREME COURT IN THE CASE OF MUNJAL SALES CORPORATI ON VS. CIT 298 ITR 298 (SC) HAS HELD THAT WHERE THE PROFIT DURING THE YEAR OF THE ASSESSEE WAS SUFFICIENT TO COVER THE LOAN GIVEN TO THE SISTER CO NCERN, THE TRIBUNAL OUGHT TO HAVE HELD THAT THE LOAN GIVEN WAS FROM ASSESSEES O WN FUNDS. AS OBSERVED BY US ABOVE THAT DURING THE YEAR, THE ASSESSEE HAS EARNED PROFIT BEFORE DEPRECIATION OF RS 7,80,99,000/- AND BALANCE OUTSTA NDING PAYABLE TO GLOBAL IT TECHNOLOGY P. LTD. WAS RS 2,30,32,878/-. THUS, THE INTEREST FREE ADVANCE PAID BY THE ASSESSEE TO ITS SISTER CONCERN IS MUCH LESS THAN THE AMOUNT OF PROFIT EARNED BY THE ASSESSEE. THEREFORE, WE RESPE CTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF THE ASSESSE E ITSELF RENDERED IN THE ASSESSMENT YEAR 2005-06, SET ASIDE THE ORDERS OF TH E LOWER AUTHORITIES AND DELETE THE DISALLOWANCE OF RS 34,62,386/-. THUS, T HIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 7. GROUND NO. 2 OF THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER DISALLOWING DEDUCTION OF RS 11,80 ,005/- ON ACCOUNT OF REPAIRS AND MAINTENANCE EXPENSES OF BUILDING BY HOL DING IT TO BE AN EXPENDITURE RESULTING IN ACQUISITION OF ASSETS PROV IDING ENDURING BENEFITS. 8. THE COMMISSIONER OF INCOME TAX (APPEALS) HELD A S UNDER: 6. THE THIRD GROUND OF APPEAL IS DIRECTED AGAINST T HE DISALLOWANCE OF RS.11,80,005/- ON ACCOUNT OF CLAIM OF REPAIRS AN D MAINTENANCE EXPENSES OF BUILDING. IT HAS BEEN NOTED BY THE AO T HAT THE APPELLANT HAS INCURRED THE EXPENDITURE ON ACCOUNT OF CONSTRUC TION OF FALSE CEILING MAKING PARTITIONS AND INSTALLATION OF ELECTRIC FITT INGS ON THE PREMISES TAKEN ON RENT. THE AO CONSIDERED IT AS CAPITAL EXPE NDITURE AND AS SUCH DISALLOWED THE SAME AFTER ALLOWING 10% DEPRECIATION ON THIS. THE AO ALSO RELIED ON HON'BLE SUPREME COURT'S DECISION IN THE CASE OF BALLIMAL NAVAL KISHORE (224 ITR 414). ITA NOS. 1619 & 1464/AHD/2010 ORG INFORMATICS LTD., BARODA AY 2006-07 - 6 - 6.1 THE APPELLANT ON THE OTHER HAND HAS ARGUED THAT THESE EXPENDITURE WERE ROUTINE EXPENDITURE OF REPAIRS AND THE APPELLANT HAS NOT ACQUIRED ANY BENEFIT OF ENDURING NATURE. 6.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELL ANT AND THE FACTS OF THE CASE. IT IS SEEN THAT THE APPELLANT HAS INCU RRED EXPENDITURE ON ACCOUNT OF CONSTRUCTION OF FALSE CEILING PUTTING UP ELECTRICAL INSTALLATIONS AND OTHER SUCH WORK WHICH DECIDEDLY R ESULTED INTO ACQUISITION OF ASSETS OF ENDURING NATURE, CERTAINLY PROVIDING BENEFITS SPREAD OVER SEVERAL YEARS. THE AO HAS RIGHTLY DISAL LOWED THE SAME. THIS GROUND IS THEREFORE REJECTED. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD . IN THE INSTANT CASE, THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE INCURRED EXPENDITURE OF RS 11,80,005/- ON CONSTRUCTION OF FALSE CEILING, MA KING PARTITIONS AND INSTALLATIONS ON ELECTRIC FITTINGS ON THE PREMISES TAKEN ON RENT. THE ASSESSEE CLAIMED AFORESAID EXPENDITURE AS REVENUE EXPENDITUR E. THE ASSESSING OFFICER HELD AFORESAID EXPENDITURE AS CAPITAL EXPEN DITURE AND CONSEQUENTLY ONLY ALLOWED DEPRECIATION THEREON. 10. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APP EALS) CONFIRMED THE ACTION OF THE ASSESSING OFFICER ON TH E GROUND THAT THE AFORESAID EXPENDITURE RESULTED INTO ACQUISITION OF ASSETS OF ENDURING NATURE, CERTAINLY PROVIDING BENEFITS SPREAD OVER SEVERAL YE ARS. THE COMMISSIONER OF INCOME TAX (APPEALS) ALSO OBSERVED THAT THE ASSESSI NG OFFICER RELIED UPON THE ORDER OF THE HONBLE SUPREME COURT IN THE CASE OF BALLIMAL NAVAL KISHORE (SUPRA). BEFORE US, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SIMPLY SUBMITTED THAT THE AFORESAID EXPENDITURE HAS NOT RE SULTED IN ACQUISITION OF ANY CAPITAL ASSET AND THEREFORE OUGHT TO HAVE BEEN ALLOWED AS REVENUE EXPENDITURE. 11. WE FIND THAT NO MATERIAL HAS BEEN BROUGHT BEFO RE US TO SHOW THAT HOW EXPENDITURE IN QUESTION HAS NOT GIVEN RISE TO ACQUISITION OF CAPITAL ASSET OF ENDURING NATURE IN THE HANDS OF THE ASSESS EE. THE AUTHORIZED ITA NOS. 1619 & 1464/AHD/2010 ORG INFORMATICS LTD., BARODA AY 2006-07 - 7 - REPRESENTATIVE OF THE ASSESSEE HAS NOT MADE ANY SUB MISSION IN RESPECT OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF BALLIMAL NAVAL KISHORE (SUPRA) RELIED UPON BY THE LOWER AUTHORITIE S. 12. IN ABSENCE OF ANY CONVINCING MATERIAL BROUGHT BEFORE US TO SHOW THAT THE EXPENDITURE IN QUESTION HAS NOT RESULTED I N ACQUISITION OF ANY ASSET OF ENDURING NATURE, WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDERS OF LOWER AUTHORITIES. THEREFORE, THIS GROUN D OF APPEAL OF THE ASSESSEE IS DISMISSED. 13. GROUND NO. 3 OF THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) SUSTAINING THE ADDITION OF RS 5 LAKHS IN RESPECT OF SELLING AND DISTRIBUTION EXPENSES BY HOLDING IT TO BE NON- BUSINESS EXPENDITURE FOLLOWINGS HIS PREDECESSORS O RDER FOR ASSESSMENT YEAR 2005-06. 14. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS D ECIDED THIS ISSUE AS UNDER: 7. THE FOURTH GROUND OF APPEAL IS DIRECTED AGAINST THE DISALLOWANCE OF RS.5,00,000/- IN RESPECT OF SELLING AND DISTRIBU TION EXPENSES. THE AO HAS NOTED THAT THE APPELLANT HAD DEBITED AN AMOU NT OF RS.5,00,000/- IN THE NAME OF NORTH EASTERN TECHNOLO GY & CONSULTATION SERVICES. IT WAS STATED BY THE APPELLANT BEFORE TH E AO THAT THIS AMOUNT OF RS.5,00,000/- WAS PAID OUT OF THE OUTSTAN DING BROUGHT FORWARD FROM EARLIER YEARS. IT HAS BEEN NOTED BY TH E AO THAT IN A.Y.2005-06, THIS ISSUE WAS EXAMINED IN DETAIL AND THE CLAIM WAS NOT FOUND TO BE GENUINE. MY LD. PREDECESSOR HAS ALSO CO NFIRMED THE DISALLOWANCE MADE IN A.Y. 2005-06. THE FACTS OF THE CASE REMAIN THE SAME. THE APPELLANT HAS NOT BROUGHT ANY NEW EVIDE NCE ON RECORDS TO WARRANT ANY CHANGE IN THE FINDINGS I FULLY AGREE WI TH THE FINDINGS RECORDED BY MY PREDECESSOR. ACCORDINGLY, THIS GROU ND OF APPEAL IS DISMISSED. 15. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE VERY FAIRLY CONCEDED THAT THIS ISSUE HAS BEEN DECIDED BY THE TR IBUNAL AGAINST THE ASSESSEE IN ASSESSMENT YEAR 2005-06 VIDE ORDER DATE D 17.06.2011 IN ITA NO. 4150/AHD/2008. WE FIND THAT THE TRIBUNAL IN TH AT ORDER HELD AS UNDER: ITA NOS. 1619 & 1464/AHD/2010 ORG INFORMATICS LTD., BARODA AY 2006-07 - 8 - 11. IN GROUND NO.4 OF THE APPEAL, THE ASSESSEE CHA LLENGED THE DISALLOWANCE OF DEDUCTION OF RS.37,61,506/- IN RESP ECT OF SELLING AND DISTRIBUTION EXPENSES. IN THE PROFIT & LOSS ACCOUNT , THE ASSESSEE HAS DEBITED SELLING AND SALE PROMOTION EXPENSES AMOUNTI NG TO RS.55,08,000/- AS AGAINST RS. 14,29,000/- DEBITED I N THE IMMEDIATE PRECEDING YEAR. THE ASSESSEE WAS ASKED TO GIVE BREA K-UP OF THE SAME AND WAS ALSO ASKED TO JUSTIFY THE CLAIM OF THE SALE PROMOTION EXPENSES AMOUNTING TO RS.37,61,506/- DEBITED UNDER THE HEAD 'SELLING AND SALES PROMOTION EXPENSES'. THE ASSESSEE SUBMITTED THAT AN AMOUNT OF RS.37,00,000/- IS PAYABLE IN RESPECT OF MIZORAM E-G OVERNANCE PROJECT. IT WAS STATED BY THE AO THAT THE ASSESSEE COULD NOT PLACE ON RECORD ANY MATERIAL TO PROVE ITS CLAIM. IT WAS HELD THAT L UMP SUM PAYMENT MADE TO MR. LARSING M IS NOTHING BUT NON-BUSINESS E XPENDITURE CLAIMED BY THE ASSESSEE. THE ASSESSEE COULD NOT PLA CE ON RECORD HOW MUCH INCOME EARNED BY THE ASSESSEE ON ACCOUNT OF TH IS PAYMENT TO MR. LARSING M. THE ADDITION WAS ACCORDINGLY MADE. I T WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE ASSESSEE HAS ACC OUNTED EXPENSES OF RS. 37,61,5067- AND OFFERED INCOME OF RS.2,14,35 ,800/- IN THE YEAR UNDER REFERENCE IN RESPECT OF MIZORAM GOVERNMENT'S PROJECT. FOR WHICH THE EXPENSES WERE INCURRED. THE LEARNED CIT(A) HOWE VER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND CONFIRMED THE ADDITION. HIS FINDINGS IN PARA 5.3 ARE REPRODUCED AS UNDER: '5.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE COUNS EL AND FACTS OF THE CASE. THE APPELLANT MADE PAYMENT OF RS.37,61,506/- TO ONE INDIVIDUAL MR. LARSING M WHO ISSUED TWO BILLS OVER A PERIOD OF TWO MONTHS. THE BILLS MENTIONED LIAISONING, PRODUCT INTIMATION AND COORDINATION SERVICES, SERVICES TOWARDS REALIZATION OF PAYMENT A ND CHARGES TOWARDS PRODUCT/MATERIAL DEPLOYED. WHEN THE ASSESSING OFFIC ER ASKED THE EVIDENCES OF RENDERING THE SERVICES OR CAPABILITY O F THE SAID INDIVIDUAL TO RENDER THESE SERVICES, THE APPELLANT ONLY SUBMIT TED COPY OF BILLS, AND CLAIMED THAT THE SAID PERSON IS NOT RELATED. TH E INVOICES HAVE BEEN RAISED AND THE PAYMENTS HAVE BEEN MADE BY CHEQ UES. THE COMPANY EARNED MORE THAN RS.2 CRORES IN RESPECT OF MIZORAM GOVERNMENT PROJECTS. APART FROM THESE SUBMISSIONS, NO EVIDENCE IN THE FORM OF ANY DOCUMENT OR OTHER EVIDENCES TO PROV E THE INVOLVEMENT OF THE SAID PERSON WAS FILED. EVEN WHEN IT WAS SPEC IFICALLY ASKED DURING THE APPEAL HEARING TO PROVE WITH NECESSARY DOCUMENT ARY OR OTHER EVIDENCE, THE FACT OF RENDERING SERVICES, THE APPEL LANT ONLY RELIED UPON THE BILLS ISSUED BY THE PARTY. WHEN ANY EXPENSES IS CLAIMED BY THE APPELLANT, ONUS IS ON THE APPELLANT TO PROVE THAT T HE SAME HAS BEEN INCURRED FOR THE PURPOSE OF BUSINESS AND IT IS NOT FOR THE ACTIVITIES AGAINST LAW. UNLESS THE APPELLANT SUBMITS THE DETAI LS AND EVIDENCES, THE CLAIM CANNOT BE VERIFIED. IT IS HELD BY MANY JU DICIAL DECISIONS THAT MERELY MAKING PAYMENT BY CHEQUES DOES NOT PROVE ANY EXPENSE FOR BUSINESS PURPOSES. IT IS CLEAR THAT THE APPELLANT D ID NOT PROVE THE RENDERING OF SERVICES AND JUST RELIED UPON THE BILL S SUBMITTED BY THE PERSON. THEREFORE THE APPELLANT HAS NOT DISCHARGED ITS ONUS. ANOTHER ARGUMENT OF THE APPELLANT IS THAT IT RECEIV ED INCOME FROM MIZORAM GOVERNMENT, SO THE CLAIM OF EXPENSES SHOULD BE ALLOWED, GOES AGAINST IT. IN THE CASE OF GOVERNMENT CONTRACT S/WORK, THERE ITA NOS. 1619 & 1464/AHD/2010 ORG INFORMATICS LTD., BARODA AY 2006-07 - 9 - CANNOT BE ANY INTERMEDIARY. MORE THAN 15% OF GROSS RECEIPTS FROM MIZORAM GOVERNMENT WAS PAID TO THE PERSON WHOSE CRE DENTIALS OR BUSINESS ACTIVITY ARE NOT KNOWN. THIS CLEARLY MEANS THAT PAYMENT HAS GONE NOT FOR BUSINESS PURPOSES. THE SUBMISSION OF B ILL OR THE MENTION OF ACTIVITIES IN THE BILL IS ONLY FORM AND NOT SUBS TANCE UNLESS PROVED WITH NECESSARY EVIDENCES. SINCE THE JOB WAS WITH TH E GOVERNMENT I DO NOT SEE THE INVOLVEMENT OF ANY LEGITIMATE EXPENSE I N THE NATURE OF LIASONING ETC. WHICH CAN BE ALLOWED U/S. 37(1). THE APPELLANT'S OTHER ARGUMENT THAT THE PARTY IS NOT RELATED IS NOT RELEV ANT SINCE THE DISALLOWANCE IS MADE U/S. 37(1) AND NOT U/S. 40A(2) (B). CONSIDERING THESE, THE DISALLOWANCE MADE BY THE ASSESSING OFFIC ER IS CONFIRMED.' 12. THE LEARNED COUNSEL FOR THE ASSESS EE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND R EFERRED TO PB AND 95 WHICH ARE THE BILLS FOR THE PAYMENT AND SUBMITTE D THAT COMPLETE NAME AND ADDRESS AND THE DETAILS OF THE SERVICES RE NDERED HAS BEEN MENTIONED IN THESE BILLS. THEREFORE, ADDITION IS UN JUSTIFIED. HE HAS FURTHER SUBMITTED THAT COPY OF THE CONTRACT WITH MR . LARSING M IS NOT AVAILABLE. 13. ON THE OTHER HAND, THE LEARNED DR RELIED UPON T HE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE H AS FAILED TO DISCHARGE THE ONUS UPON IT TO PROVE GENUINENESS OF THE EXPENDITURE INCURRED FOR BUSINESS PURPOSE, THEREFORE, ADDITION IS JUSTIFIED. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDERS OF THE A UTHORITIES BELOW. THE ASSESSEE SUBMITTED TWO BILLS FOR THE PERIOD OF 2 MO NTHS I.E. MARCH, 20(15 AND JANUARY, 2005 WHICH CONTAINED THE LIAISON ING WORK ETC. PERFORMED BY MR. LARSING M. NO OTHER DETAILS HAVE B EEN GIVEN AS TO WHAT ACTUAL SERVICES HAVE BEEN RENDERED BY THIS PER SON FOR THE ASSESSEE. NO EVIDENCE OF RENDERING ANY SERVICES HAS BEEN FILED ON RECORD. NO EVIDENCE IN THE FORM OF ANY DOCUMENT OR OTHER EVIDENCE HAS BEEN FILED TO PROVE INVOLVEMENT OF THE ABOVE PE RSON FOR EARNING OF THE INCOME BY THE ASSESSEE. EVEN AT THE APPELLATE S TAGE BEFORE THE LEARNED CIT(A) AS WELL AS BEFORE THE TRIBUNAL, THE ASSESSEE HAS FAILED TO PROVE AS TO WHAT SERVICES HAVE BEEN RENDERED BY THIS PERSON FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THUS, THE ASSE SSEE FAILED TO DISCHARGE THE ONUS UPON IT TO PROVE GENUINENESS OF THE EXPENDITURE INCURRED FOR THE BUSINESS OF THE ASSESSEE. CONSIDER ING THE FACTS OF THE CASE IN THE LIGHT OF THE FINDINGS OF THE AUTHORITIE S BELOW AND IN THE ABSENCE OF ANY EVIDENCE IN FORM OF CONTRACT WITH TH E PARTY, WD ARE UNABLE TO INTERFERE WITH THE ORDERS OF THE AUTHORIT IES BELOW. WE CONFIRM THE FINDINGS OF THE LEARNED CIT(A) AND DISM ISS THIS GROUND OF APPEAL OF THE ASSESSEE. AS A RESULT, GROUND NO.4 OF THE APPEAL OF THE ASSESSEE IS DISMISSED. THEREFORE, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. ITA NOS. 1619 & 1464/AHD/2010 ORG INFORMATICS LTD., BARODA AY 2006-07 - 10 - 16. GROUND NO. 4 IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMING THE ACTION OF TH E ASSESSING OFFICER DISALLOWING CLAIM OF RS 17,14,308/- IN RESPECT OF F OREIGN EXCHANGE FLUCTUATION INCURRED BY THE APPELLANT ON REINSTATEM ENT OF CLOSING BALANCE AS AT THE YEAR END. 17. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SEE CLAIMED DEDUCTION OF RS 17,14,308/- UNDER THE FOREIGN EXCH ANGE FLUCTUATION LOSS. THE ASSESSING OFFICER DISALLOWED THE SAME ON THE GR OUND THAT IT RELATES TO PRIOR PERIOD AND THEREFORE NOT ALLOWABLE DURING THE YEAR. 18. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APP EALS) CONFIRMED THE ACTION OF THE ASSESSING OFFICER BY OB SERVING AS UNDER: 8. THE FIFTH GROUND OF APPEAL IS AGAINST THE DISAL LOWANCE OF AN AMOUNT OF RS.17,14,308/- IN RESPECT OF FOREIGN EXCH ANGE FLUCTUATION. IT HAS BEEN NOTED BY THE AO IN THE ORDER THAT THIS EXCHANGE LOSS RELATES TO PRIOR PERIOD AND THEREFORE NOT ALLOWABLE DURING THIS YEAR. HE HAS ALSO NOTED THAT THE APPELLANT HAS CLAIMED LOSS ON 10,06,000 US DOLLARS. 8.1 BEFORE ME, IT HAS BEEN STATED THAT THE APPELLAN T HAD .MADE ADVANCES FOR PURCHASE OF GOODS. THERE WAS STILL SOM E ADVANCES LEFT TO BE RECOVERED FROM SUPPLIERS. IT HAS BEEN STATED THA T AS ON THE BALANCE SHEET DATE THE DIFFERENCE ON ACCOUNT OF RATES PREVA ILING WAS ACCOUNTED AS INCOME OR EXPENDITURE DEPENDING UPON THE PREVAIL ING RATE AND THIS WAS DONE AS PER THE ACCOUNTING STANDARD AS-11 FOLLO WED BY THE APPELLANT. THE APPELLANT HAS FURTHER STATED THAT TH E OPENING DEBIT BALANCE IN THE ACCOUNT OF THE PARTY WAS RS.41,42,78 7/- WHICH WAS EQUIVALENT TO 53,291.20 US DOLLARS. THE GIVEN RATE WAS 1 US DOLLAR = RS.77.74. THE CLOSING DEBIT BALANCE IN DOLLARS TERM S REMAINED THE SAME I.E. 53,291.20 US DOLLARS, HOWEVER, THE EXCHAN GE RATE AS ON 31.03.2006 WAS US 1 DOLLAR = RS.44.61. THUS, THE DI FFERENCE OF RS. 17,55,467/-WAS RECOGNIZED AS LOSS AS PER ACCOUNTING PRACTICE FOLLOWED BY THE APPELLANT. 8.2 I HAVE CONSIDERED THE SUBMISSIONS AND ALSO THE FACTS OF THE CASE AS PRODUCED. THE COMPUTATION OF THE FOREIGN EXCHANG E HAS BEEN WORKED OUT AS UNDER: (MARK - X FORMING PART OF ORDE R PAGE NO. 8-A) ITA NOS. 1619 & 1464/AHD/2010 ORG INFORMATICS LTD., BARODA AY 2006-07 - 11 - ORG INFORMATICS LIMITED. BARODA APPEAL NO. CAB/II1/158/08-09 A.Y.2006-07 COMPUTATION OF FOREIGN EXCHANGE LOSS CLAIMED. DATE PARTICULARS US DOLLAR RS US DOLLAR RATE DATE PARTICULAR US DOLLAR RS US DOLLAR RALE US DOLLAR RS US DOLLAR 03.06.2004 ADVANCE PAID 60.000 2,698.140 44.97 31.1,05 SUPPLIES 875,836 38,098,866 43.50 21 07.2004 ADVANCE PAID 300,000 13878,000 46.26 31.1.05 SUPPLIES 46,700 2,031.450 43 50 26.09.2004 ADVANCE PAID 100.000 4,578,000 45.78 31 1.05 SUPPLIES 30.173 1.312.517 43 50 28,09,2004 ADVANCE PAID 206,000 9,430.680 45.78 31 01,2005 ADVANCE PAID 340,000 15,000,800 44.12 TOTAL 10006000 45,585,800 41442,517 41442833 53291 4142787 77.74 DETAILS OF RESTATEMENT OF BALANCE IN THE BOOKS OF A CCOUNT US DOLLARS RS. US DOLLAR RATE OPENING BALANCE 53,291.00 4,142,787 77.74 CLOSING BALANCE 53,291.00 2,377,312 44.61 1,765,475 FROM THE ABOVE IT IS SEEN THAT THE APPELLANT HAD GI VEN 3,40,000 US DOLLARS AS ON 31.01.2005 AND AFTER ACCOUNTING FOR V ARIOUS SUPPLY RECEIVED TILL 31.01.2005, THERE WAS AN OUTSTANDING BALANCE OF 53,290 DOLLARS. THE APPELLANT HAS WORKED OUT LOSS AFTER TA KING THE RATE DIFFERENCE BETWEEN 31.01.2005 AND 31.03.2006. CLEAR LY THIS IS NOT AS PER ACCOUNTING STANDARD. THE APPELLANT HAS CONVENIE NTLY NOT INFORMED AS TO WHAT WAS THE RATE APPLICABLE AS ON 01.04,2005 . ANY VARIATION IN THE RATES HAS TO BE WORKED OUT WITH REFERENCE TO TH E CLOSING DATE OF THE BALANCE SHEET OF THE PREVIOUS YEAR. THE APPELLA NT CANNOT TAKE SHELTER BEHIND ACCOUNTING STANDARD FOR LIMITED PURP OSE. SECONDLY NO DETAILS HAVE BEEN FURNISHED EITHER BEFORE THE AO OR BEFORE THE UNDERSIGNED TO ESTABLISH THAT THE ADVANCE WAS ON AC COUNT OF REVENUE AND NOT ON ACCOUNT OF CAPITAL-GOODS. IT IS ALSO NOT CLEAR AS TO WHY THE AMOUNT HAS BEEN LYING FOR SUCH A LONG PERIOD WITHOU T ANY SUPPLIES RECEIVED AGAINST THE SAID AMOUNT. FURTHER NO EVIDEN CE REGARDING RATE APPLIED HAS BEEN GIVEN. IN THE ABSENCE OF COMPLETE DETAILS IN THIS REGARD IT IS DIFFICULTY TO COME TO A CONCLUSION THA T LOSS WAS ON REVENUE ACCOUNT. LOOKING INTO THE TOTALITY OF THE FACTS, IT IS TO BE HELD THAT THE APPELLANT HAS FAILED TO JUSTIFY THE CLAIM. ACCORDIN GLY, THIS GROUND OF APPEAL IS REJECTED. 19. BEFORE US, THE AUTHORIZED REPRESENTATIVE OF TH E ASSESSEE SUBMITTED THAT FOREIGN EXCHANGE FLUCTUATION LOSS IN QUESTION WAS ARRIVED ON THE BASIS OF ACCOUNTING STANDARD AS 11. ITA NOS. 1619 & 1464/AHD/2010 ORG INFORMATICS LTD., BARODA AY 2006-07 - 12 - 20. WE FIND THAT THE COMMISSIONER OF INCOME TAX (A PPEALS) HAS CORRECTLY APPRECIATED THE ISSUE AND HELD THAT THE E XCHANGE RATE FLUCTUATION LOSS DETERMINED ON THE BASIS OF EXCHANGE RATE PREVA ILING AT THE END OF THE YEAR AND EXCHANGE RATE PREVAILING AT THE BEGINNING OF THE YEAR IS ALLOWABLE AS DEDUCTION TO THE ASSESSEE SUBJECT TO THE CONDITI ON THAT THE ADVANCE MADE IS ON REVENUE ACCOUNT. WE FIND THAT THE ASSESSEE H AS BROUGHT NO MATERIAL EITHER BEFORE THE LOWER AUTHORITIES OR BEFORE US TO SHOW THAT THE ADVANCE IN RESPECT OF WHICH EXCHANGE RATE FLUCTUATION LOSS WAS CLAIMED WAS ON REVENUE ACCOUNT. FURTHER, WE ALSO OBSERVE THAT NO MATERIAL WAS BROUGHT BY THE ASSESSEE EITHER BEFORE US OR BEFORE THE LOWER AUTHO RITIES TO SHOW THAT THE LOSS CLAIM RELATES TO THE YEAR UNDER CONSIDERATION IN THE SENSE THAT THERE WAS FLUCTUATION OF THIS MAGNITUDE IN EXCHANGE RATE PREVAILING ON THE FIRST DAY OF THE RELEVANT PREVIOUS YEAR AND ON THE LAST DAY O F THE RELEVANT PREVIOUS YEAR. IN ABSENCE OF ANY SUCH MATERIAL BROUGHT BEFO RE US, WE FIND NO GOOD REASON TO INTERFERE WITH THE ORDER OF THE COMMISSIO NER OF INCOME TAX (APPEALS). IT IS CONFIRMED. THE GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 21. GROUND NO. 5 OF THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) S USTAINING THE ADDITION IN RESPECT OF EXPENSES INCURRED TOWARDS RENT OF OFF ICE HIRED IN AFGHANISTAN AND THE ONLY GROUND OF APPEAL TAKEN BY REVENUE IN I TA NO. 1464/AHD/2010 IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF IN COME TAX (APPEALS) ALLOWING DEDUCTION FOR AMOUNT OF RS 6,30,000/- AS A GAINST THE DISALLOWANCE OF ENTIRE RENT OF RS 18,00,000/- MADE BY THE ASSESS ING OFFICER. 22. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SING OFFICER OBSERVED THAT THE ASSESSEE WAS NOT ABLE TO PRODUCE RENT AGREEMENT IN RESPECT OF THE CLAIM OF RENT. HE ALSO NOTED THAT T HE AFGHANISTAN PROJECT WAS MONITORED BY SHRI OHRI TO WHOM THE ASSESSEE HAD PAI D COMMISSION AND ITA NOS. 1619 & 1464/AHD/2010 ORG INFORMATICS LTD., BARODA AY 2006-07 - 13 - THEREFORE THE ASSESSEE WAS NOT REQUIRED TO INCUR SE PARATE EXPENDITURE ON RENT. 23. ON APPEAL, BEFORE THE COMMISSIONER OF INCOME T AX (APPEALS), THE ASSESSEE ARGUED THAT TO EXECUTE THE PROJECT FOR CONSTRUCTION AND COMMISSIONING OF TELEPHONE TOWERS IN AFGHANISTAN, I T HAD HIRED PREMISES IN AFGHANISTAN FROM LOCAL NATIONAL SHRI GUL WALI. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAD SHOWN INCOME FROM AFGHANISTAN PROJ ECT DURING THE YEAR WHICH HAS BEEN TAXED IN THE HANDS OF THE ASSESSEE. 24. THE COMMISSIONER OF INCOME TAX (APPEALS), AFTE R CONSIDERING THE SUBMISSION OF THE ASSESSEE, HELD AS UNDER: 9.2 I HAVE GIVEN MY CAREFUL CONSIDERATION TO THE FA CTS OF THE CASE AND THE SUBMISSIONS MADE. IN MY CONSIDERED OPINION, THE AO HAS ERRED IN MAKING THIS DISALLOWANCE IN A SUMMARY MANN ER. IT IS NOT DISPUTED THAT THE APPELLANT IS ENGAGED IN THE BUSIN ESS ACTIVITY IN AFGHANISTAN FROM WHICH IT HAS EARNED INCOME. MERELY BECAUSE THERE IS NO FORMAL RENT AGREEMENT, THE CLAIM CANNOT BE DISAL LOWED. BEFORE ME, COPY OF RENT RECEIPTS HAVE BEEN FILED WHICH SHOWS T HAT THE AMOUNT HAS BEEN PAID PARTLY THROUGH CHEQUE AND PARTLY IN CASH .HOWEVER, CERTAIN DISCREPANCIES IN THE RENT RECEIPTS ARE GLARING. THE APPELLANT HAD FILED ELEVEN RECEIPTS FOR THE PERIOD BETWEEN MAY, 2005 TO APRIL, 2006. APPARENTLY RENT FOR APRIL, 2006 IS NOT ALLOWABLE. T HERE IS NO RENT RECEIPT FOR AUGUST, 2005, THE REASON FOR WHICH IS N OT EXPLAINED. EXCEPT FOR FOUR RECEIPTS, NO OTHER RECEIPT CARRIES CHEQUE NUMBER. IN SOME RECEIPTS, COLUMNS FOR CHEQUE NUMBER HAVE BEEN LEFT BLANK. SUCH RECEIPTS DO NOT INSPIRE CONFIDENCE AND RAISE SERIOU S QUESTION ABOUT THEIR GENUINENESS. SOME RECEIPTS SAY THAT AMOUNT HA S BEEN PAID IN CASH. LOOKING INTO SUCH DISCREPANCY, THE CLAIM CANN OT BE ALLOWED IN TOTALITY. THERE ARE FOUR PAYMENTS THROUGH CHEQUES E ACH FOR 3150 US DOLLARS WHICH SEEMS TO BE THE RENT FOR EACH QUARTER . APPLYING THIS 3150 X 4 = 12,600 US DOLLARS SHOULD ONLY BE ALLOWAB LE. THE APPELLANT GETS PARTIAL RELIEF ON THIS GROUND. 25. BEFORE US, THE AUTHORIZED REPRESENTATIVE OF TH E ASSESSEE SUBMITTED THAT IN THE ASSESSMENT YEAR 2005-06, THE ASSESSEE HAD INCURRED RENT EXPENDITURE ON THESE PREMISES AND THE SAME WAS ALLOWED BY THE ASSESSING OFFICER. IT WAS FURTHER THE SUBMISSION O F THE AUTHORIZED ITA NOS. 1619 & 1464/AHD/2010 ORG INFORMATICS LTD., BARODA AY 2006-07 - 14 - REPRESENTATIVE OF THE ASSESSEE THAT IT IS NOT NECES SARY THAT EACH AND EVERY TRANSACTION IS BACKED BY FORMAL AGREEMENT EXECUTED IN WRITING. IN ABSENCE OF AGREEMENT IN WRITING, EXPENDITURE COULD NOT BE D ISALLOWED. IT WAS FURTHER SUBMITTED THAT SHRI OHRI WAS ENGAGED BY THE ASSESSE E FOR PROJECT RELATED WORK AND WAS PAID FEES/COMMISSION FOR THE SERVICES RENDERED BY HIM. THE FEES/COMMISSION PAID WAS FOR THE PURPOSE OF PROJECT RELATED WORK AND NOT FOR THE PURPOSE OF RENT FOR THE PREMISES HIRED BY T HE ASSESSEE. THEREFORE, IT CANNOT BE SAID THAT SINCE FEES ARE PAID BY THE ASSE SSEE, THERE CANNOT BE ANY EXPENDITURE OF RENT TO BE INCURRED BY THE ASSESSEE. THE REMITTANCES TO AFGHANISTAN FOR PROJECT EXPENSES AND OTHER EXPENSES WERE THROUGH NORMAL BANKING CHANNEL AND IN ACCORDANCE WITH POLICY GUIDE LINES OF RESERVE BANK OF INDIA. 26. ON THE OTHER HAND, THE DEPARTMENTAL REPRESENTA TIVE SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 27. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RE CORD. IN THE INSTANT CASE, THE ASSESSEE CLAIMED EXPENDITURE OF RS 18,00,000/- ON ACCOUNT OF RENT PAID FOR PREMISES IN AFGHANISTAN. THE DISALLOWANCE OF T HE ENTIRE AMOUNT OF RENT WAS MADE BY THE ASSESSING OFFICER FOR WANT OF RENT AGREEMENT. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT THE DISALLOWANCE ON THE ABOVE GROUND WAS NOT JUSTIFIED. THE COMMISSIONER O F INCOME TAX (APPEALS) OBSERVED THAT THE RENT RECEIPTS FOR ONLY 10 MONTHS COULD BE PRODUCED BEFORE HIM BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATIO N. FURTHER, ON VERIFICATION OF THE RENT RECEIPTS, IT WAS FOUND THA T ONLY PAYMENTS IN 4 MONTHS WERE MADE BY CHEQUE. IN OTHER RECEIPTS, PLACE OF C HEQUE NUMBER WAS NOT FILLED UP. THE COMMISSIONER OF INCOME TAX (APPEALS ) HAS RAISED SOME DOUBTS ON THE GENUINENESS ON THE 6 RECEIPTS. IN TH E OPINION OF THE COMMISSIONER OF INCOME TAX (APPEALS), IT COULD HAVE BEEN THAT EACH OF THE 4 RECEIPTS IS FOR ONE QUARTER. IN THIS VIEW OF THE MATTER, THE COMMISSIONER ITA NOS. 1619 & 1464/AHD/2010 ORG INFORMATICS LTD., BARODA AY 2006-07 - 15 - OF INCOME TAX (APPEALS) ALLOWED DEDUCTION IN RESPEC T OF 4 PAYMENTS OF RENT AGGREGATING TO US DOLLAR 12600/- AND RESTRICTED THE DISALLOWANCE TO THE BALANCE AMOUNT. 28. BEFORE US, THE ASSESSEE REITERATED THE ARGUMEN T MADE BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). WE FIND THAT NO MATERIAL WAS BROUGHT BEFORE US TO SHOW THE GENUINENESS OF THE PA YMENTS OF RENT OTHER THAN THE 4 PAYMENTS ALLOWED BY THE COMMISSIONER OF INCOME TAX (APPEALS). NO MATERIAL WAS BROUGHT BEFORE US TO SHOW THAT ANY OTHER AMOUNT THAN 4 PAYMENTS ALLOWED BY THE COMMISSIONER OF INCOME TAX (APPEALS) WERE MADE BY CHEQUE OR WERE MADE BY WITHDRAWAL FROM BANK ACCO UNT OF THE ASSESSEE. IN ABSENCE OF ANY MATERIAL BROUGHT BEFORE US TO EST ABLISH THE GENUINENESS OF THE REMAINING PAYMENT OF RENT WHICH WERE DISALLOWED BY THE COMMISSIONER OF INCOME TAX (APPEALS), WE DO NOT FIND ANY GOOD RE ASON TO INTERFERE WITH THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S). IT IS CONFIRMED. THE GROUND OF APPEAL OF THE ASSESSEE AS WELL AS OF THE REVENUE, BOTH ARE DISMISSED. 29. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED WHEREAS THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON FRIDAY, THE 12 TH OF SEPTEMBER, 2014 AT AHMEDABAD. SD/- SD/- (KUL BHARAT) JUDICIAL MEMBER ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 12/09/2014 GHANSHYAM MAURYA, SR. P.S. ITA NOS. 1619 & 1464/AHD/2010 ORG INFORMATICS LTD., BARODA AY 2006-07 - 16 - TRUE COPY 1 - *#2 32'# 1 - *#2 32'# 1 - *#2 32'# 1 - *#2 32'#/ COPY OF THE ORDER FORWARDED TO : 1. () / THE APPELLANT 2. *+() / THE RESPONDENT. 3. # !4 / CONCERNED CIT 4. !4() / THE CIT(A)-III, AHMEDABAD 5. 2'7 *# , , / DR, ITAT, AHMEDABAD 6. 78& 9, / GUARD FILE. 1! 1! 1! 1! / BY ORDER, : :: :/ // / ; ; ; ; ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD