Serum Institute of India Ltd., Pune V. Deputy Commissioner of Income-tax,

ITA 1703/PUN/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0419 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 10-09-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANIL KUMAR CHAWARE
• Assessee Lawyers: SUNIL PATHAK; R S ABHYANKAR
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Earning of tax free income; Question of law; Difference of opinion; Right to appeal; Commercial expediency; Revised return; Change of opinion; Revenue expenditure
• Section: 43B; 14A; 147; 132

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE . . , , ' # BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.1703/PN/2014 '% % / ASSESSMENT YEAR : 2005-06 SERUM INSTITUTE OF INDIA LTD., SAROSH BHAVAN, 16-B/1, DR. AMBEDKAR ROAD, PUNE 411 001 PAN : AABCS 4225M . / APPELLANT V/S DCIT CENTRAL CIRCLE1(1), PUNE . / RESPONDENT ASSESSEE BY : SHRI SUNIL PATHAK & SHRI R.S. ABHYANKAR REVENUE BY : SHRI ANIL KUMAR CHAWARE, CIT / ORDER PER R.K.PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 31-03-2014 OF THE CIT(A)-II, PUNE RELATING TO ASSESSMENT YEAR 2005-06. 2. THE LD. COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARIN G DID NOT PRESS GROUNDS OF APPEAL NO.1 & 3 FOR WHICH THE LD. DEPARTMENTAL REPRESENTATIVE HAS NO OBJECTION. ACCORDING LY, THE ABOVE TWO GROUNDS ARE DISMISSED AS NOT PRESSED. / DATE OF HEARING :06.10.2016 / DATE OF PRONOUNCEMENT:30 .11.2016 2 ITA NO.1703/PN/2014 3. GROUND OF APPEAL NO.2 BY THE ASSESSEE READS AS UNDER : 2. CONFIRMING DISALLOWANCE OF EXPENDITURE AMOUNTING TO RS.1,17,88,000/- INCURRED ON REPAIRS, RENOVATION ETC. OF BUNGALOW LOCATED AT 70, KOREGAON PARK, PUNE TAKEN ON LEASE (B ELONGING TO M/S. POONAWALLA FINVEST & AGRO PVT. LTD., ZSP GROUP COMPA NY). 4. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF VACCI NES, ANTI-SERA, PLASMA AND HORMONAL PRODUCTS. IT FILED ITS RETU RN OF INCOME ON 30-10-2005 DECLARING TOTAL INCOME OF RS.32,40,22,220/-. THE ORDER U/S.143(3) WAS PASSED ON 30-03-2007 DETERMINING THE TOTAL INCOME AT RS.37,09,15,4 54/-. ON THE BASIS OF THE ORDER PASSED BY THE CIT(A) ON 26-03 -2009 THE ORDER GIVING EFFECT TO CIT(A) WAS REVISED TO RS.36,73,04,321/- VIDE ORDER U/S.250 DATED 06-11-2009. 5. SUBSEQUENTLY, AN ORDER U/S.263 WAS PASSED ON 26-03 - 2009 DIRECTING THE ASSESSING OFFICER TO CHECK THE DEDUCTIO N GRANTED U/S.10B ON EXPORT INVOICE OF RS.5,26,58,037/-. THE ASSESSING OFFICER PASSED ORDER U/S.143(3) R.W.S. 263 ON 07- 11- 2009 WITHOUT ANY CHANGE IN THE TOTAL INCOME AS DETERMIN ED VIDE ORDER U/S.250 DATED 06-11-2009 AS MENTIONED ABOVE AFTE R EXAMINING THE ISSUE IN THE ORDER PASSED U/S.263. 6. SUBSEQUENTLY, A SEARCH ACTION U/S.132 OF THE ACT WAS CARRIED OUT IN THE CASE OF POONAWALLA GROUP ON 21-06-20 11 OF WHICH THE ASSESSEE COMPANY WAS ONE OF THE CONCERNS. IN THE SAID SEARCH ACTION THE GROUP HAD DECLARED AN AMOUNT OF RS.54.44 CRORES FOR THE A.Y. 2005-06 TO 2012-13 AS UNDISCLOSED INC OME. THE ABOVE DISCLOSURE INCLUDES DISCLOSURE OF RS.10.80 CRORES MADE BY THE ASSESSEE COMPANY FOR A.Y. 2005-06 TO 2011-12 O N THE ISSUE OF EXPENSES ON BUNGALOW LOCATED AT 70, KOREGAON PA RK, 3 ITA NO.1703/PN/2014 PUNE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE COMPANY CLAIMED THE EXPENDITURE ON CONSTRUCTIO N AND REPAIRS OF THE SAID BUNGALOW AS BUSINESS EXPENDITURE. TH E ASSESSEE COMPANY HAS ADMITTED THE SAID EXPENDITURE TO BE DISALLOWED AND DECLARED IT AS ADDITIONAL INCOME IN ITS HANDS IN THE RESPECTIVE YEARS. THE UNDISCLOSED INCOME ADMITTED BY THE ASSESSEE COMPANY ON THIS ACCOUNT FOR THE YEAR UNDER CONSIDERATION, I.E. A.Y. 2005-06 AT RS.1,17,88,000/-. THE ASSESSING OFFICER, THEREFORE, REOPENED THE ASSESSMENT WITHIN THE MEANING OF SECTION 147 BY ISSUE OF NOTICE U/S.148. 7. THE ASSESSEE FILED A LETTER DATED 06-04-2012 REQUESTIN G THE ASSESSING OFFICER TO CONSIDER THE ORIGINAL RETURN OF INCOME SUBMITTED ON 30-06-2005 AS THE RETURN OF INCOME FILED IN RESPONSE TO NOTICE U/S.148. ALONG WITH THE SAID LETTER TH E ASSESSEE FILED A REVISED COMPUTATION OF INCOME WHEREIN THE ADDITIONS MADE IN THE ORDER PASSED U/S.143(3) WHICH WERE A GREED BY THE ASSESSEE COMPANY WERE NOT CONTESTED. THE ADD ITIONS CONTESTED BEFORE THE TRIBUNAL WERE NOT OFFERED TO TAX O R CLAIMED AS ALLOWABLE TO KEEP THE ISSUE ALIVE. 8. SO FAR AS THE ADDITIONAL INCOME DECLARED U/S.132 IS CONCERNED IT WAS SUBMITTED THAT THE SAID AMOUNT OF RS.1,17,88,000/- DECLARED BY DR. CYRUS POONAWALLA, CHAIRMAN AND MANAGING DIRECTOR IN HIS STATEMENT U/S.132(4) DATED 20 -07- 2011 AS ADDITIONAL INCOME IS TO BE ALLOWED AS BUSINESS EXPENDITURE. IT WAS ARGUED THAT THE AFORESAID AMOUNT R EPRESENT THE PART OF DECLARATION MADE BY DR. CYRUS POONAWALLA. THE AMOUNT HAS BEEN SPENT/INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THE EXPENDITURE HAD BEEN INCURR ED TO 4 ITA NO.1703/PN/2014 ENSURE SMOOTH RUNNING OF BUSINESS WITHOUT BEING AFFECTED B Y THE DISPUTES BETWEEN CSP GROUP & ZSP GROUP. IT WAS SUBMITTED THAT THE ASSESSEE COMPANY IS ONE OF THE PARTIES REFERRED TO IN THE FAMILY SETTLEMENT AND HAVE INCURRED THESE EXPENSES TO P ROTECT THEIR BUSINESS FROM LOSSES AND DAMAGES ARISING OUT OF FAMIL Y DISPUTES AND LITIGATION. VARIOUS DECISIONS WERE ALSO BROUGH T TO THE NOTICE OF THE ASSESSING OFFICER TO THE PROPOSITION AS T O WHY THE SAID EXPENDITURE SHOULD BE ALLOWED AS BUSINESS EXPENDITURE. 9. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE AND REJECTED THE CLAIM FOR THE FOLLOWING REASONS : I HAVE GONE TH R OUGH THE ASSESS E E ' S REPLIES. TH E SUBMISS I ON OF ASSESS EE IS DULY CONSIDERED BUT NOT ACCEPTED ON FOLLOWING GROU NDS : I. THE ASSEESSEE IN HIS SUBMISSION MADE AND DISCUSSED IN PRECEEDING PARAS , I TSELF ADM I TT E D THAT TH I S AMOUNT REPRESENTS THE AMOUNT DECLAR E D BY D R . CYRUS POONAWALLA , THE CHA I RMAN OF SERUM INSTITUTE OF INDIA LTD . IN HIS STATEMENT U/S 132 DT . 20 . 07 . 2011 . THIS HAS BEEN DECLARED WITH REFERENCE TO PAGE NO . 10 OF LOOSE PAPER BUNDLE NO . 13 FOUND AT THE OFFICE OF SHRI . PANNALAL KOTHARI AND WITH A VIEW TO HONOR THE DECLARATION MADE BY DR . C . S. POONAWALLA U/S 132 ON 20 . 07 . 2011 , ASSESSEE HAS ADDED THE SAID SUM OF RS . 1 , 17 , 88 , 000/- IN CONNECTION WITH REPAIRS & MAINTENANCE EXPENDITURE INCUR R ED F O R PROPERTY AT 70 , KORE G AON PARK, PUNE IN THE C O MPUTATION OF INCOME. THUS , IT IS APPARENT THAT ASSESSEE HAS NOT RETRACTED FROM THE DISCLOSURE MADE DURING SEARCH ACTION IN THE CASE OF ASSE SSEE. II. ASSESSEE HAS TAKEN STAND THAT THIS IS ALLOWABLE BUSIN ESS EXPENDITURE BECAUSE IT IS FORMING THE PART OF FAMILY ARRANGEMENT AS AGREED UPON BETWEEN TWO BROTHERS IN ORDER TO ENSURE S MOOTH FUNCTIONING OF THE OPERATIONS OF THE CSP GROUP (CYRU S POONAWALLA GROUP) & ZSP GROUP (ZAVARAY POONAWALLA GROUP) COMPA NIES . THE SUBMISSION OF ASSESSEE IS DULY CONSIDERED BUT NOT ACCEPTABLE . IT IS SETTLED ISSUE THAT COMPANY HAS AN INDEPENDENT LEGAL ENT ITY AND IN THIS CASE TRANSFER BY WAY OF INVESTMENT IS MADE THROUGH COMPANIES NOT THROUGH I NDIVIDUALS OF JOINT FAMILY /HUF OR BETWEEN FAMILY MEMBERS . HENCE , THE CASE LAW CITED BY ASSESSEE IS NOT APP L ICABLE. RELIANCE WAS PLACED ON KARNATAKA HIGH COURT JUDGMENT IN THE CASE OF SEA ROCK INVESTMENT CASE PAGE NO 172 PARA IN BOLD L I NES AND PAGE NO . 1 74 - PA R A-3 AND PARA-B . FURTHER FOR SETTLEMENT OF PERSONAL DISPUTE OF SHRI CYRUS SOLI POONAWA L LA & ZAVEREH SO L I POONAWALLA AS REFLECTED I N CLAUSE 14 OF FAMILY ARRANGEMENTS INVESTMENT WERE MADE BY COMPANIES . 5 ITA NO.1703/PN/2014 III) FURTHER, EXPENDITURE WAS NOT INCURRED FOR BUSINE SS PURPOSE. AS STATED BY ASSESSEE ITSELF THAT EXPENDITURE INCURRED IN BUNGLOW IN ORDER TO ENSURE THE SMOOTH RUNNING OF BUSINESS WITHOUT BEING AFFECTED BY THE DISPUTES BETWEEN CSP GROUP & ZSP GROU P. ASSESSEE COMPANY IS ONE OF THE PARTIES REFERRED TO IN THE FAMI LY SETTLEMENT AND HAVE INCURRED THESE EXPENSES TO PROTECT THEIR BUSIN ESSES FROM LOSSES AND DAMAGES ARISING OUT OF FAMILY DISPUTES AND LITI GATION. DURING SEARCH ACTION, IT WAS OBSERVED THAT THIS EXPENDI TURE WAS INCURRED TO PROVIDE BENEFIT TO FAMILY VIA INVESTMENT MADE IN BUNGLOW, AND IT HAS NOTHING TO DO WITH BUSINESS OF ASSESSEE AND THERE IS NO COMMERCIAL EXPEDIENCY. WHEN THESE FACTS CO NFRONTED WITH DR.C.S. POONAWALLA U/S 132 ON 20.07.2011, HE AGREED TO WITHDRAW CLAIM OF EXPENDITURE INCURRED ON BUNGLOW. IT APPEARS, THAT ASSESSEE IS NOW REFERRING CASE LAWS AND OTHER FACTS TO GET IMMUNITY FROM PENALTY ONLY. 10. BEFORE CIT(A) THE ASSESSEE CONTENDED THAT THE EXPENSES INCURRED ON THE BUNGALOW FORMED A PART OF THE FAMILY ARRANGEMENT AS AGREED UPON BETWEEN THE TWO BROTHERS TO ENSURE SMOOTH FUNCTIONING OF THE OPERATIONS OF C.S. POONAWALLA GROUP (CSP IN SHORT) AND Z.S. POONAWALLS GROUP (ZSP IN SHORT) GROU P . REFERRING TO THE STATEMENT OF DR . CYRUS POONAWALA DATED 20-07- 2011 IT WAS POINTED OUT THAT MR. POONAWALLA HAD STATED T HAT THE SAID E X PENDITURE WAS INCURRED IN O R DER TO ENSURE SMOOTH RUNNING OF BUSINESS WITHOUT BEING A FF ECTED BY TH E DISPU T ES BETWEEN CSP AND ZSP GROUP. IT WAS SUBM I TT E D THA T THE ASSESSEE-COMPANY IS ONE OF THE PARTIES REFERR E D TO IN THE FAMILY S E TTLEMENT AND EXPENS E S INCURRED WERE TO PROTECT THE BUSINESS FROM LOSES AND D A MAGES ARI S IN G OUT OF FAMILY DISPUTES AND L I TIGAT I ON. TH E ASSESSEE-COMP A NY ' HAS , HO WE V ER , CO NTE ND E D T HA T THE S A ME WAS AGRE E D T O B E A DD E D BA C K ONLY TO BUY PEACE AND AVOID LITIGATION. THE ASSESSEE PLACED RELIANCE ON THE FOLLOWING JUDICIAL DECISION : I. CHEMOSYN LTD. VS. ACIT 149 TTJ 294 (MUM) II. ECHJAY INDUSTRIES LTD. VS. DCIT ITA NO.3103/MUM/1 996 6 ITA NO.1703/PN/2014 11. THE ASSESSEE CONTENDED THAT THE EXPENSES ARE INC URRED FOR THE O F FICE OF THE DIRECTOR I . E. MR . ZAVARAY POONAWALA AND THEREFORE, IF THE EXPENDITURE IS INCURRED ON REPAIRS/DEVELOP MENT OF LEASED PREMISES FOR THE OFFICE OF A DIRECTOR, IT IS WHO L LY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS AND SUCH EXPENSES ON REPAIRS OF A LEASED PREMISES FOR THE USE OF A DIRECTOR SHOULD BE TREATED AS REVENUE EXPENDITURE AS IT IS PROMP TED BY COMMERCIAL EXPEDIENCY AS DEC I DED IN THE CASE OF CIT VS SIR SHADILAL ENTERPRISES LTD (2009) 317 ITR 449 (AL L ). IT WAS CONTENDED THAT EXPENSES INCURRED ON LEASED PREMISES BE ALLOWED AS REVENUE EXPENDITURE AND AS THE ASSESSEE DID NOT AC QUIRE ANY CAPITAL ASSET ALTERNATIVELY DEPRECIATION WILL HAVE TO BE ALLOW ED AS THE GENERAL PRINCIPLE IS THAT EXPENDITURE ON CREATION OF A CAPITAL ASSET ON CAPITAL ACCOUNT APPLIES ONLY WHERE THE CAPITAL ASSET BELONGS TO AN ASSESSEE. THE ASSESSEE RELIED ON THE DEC ISION OF THE APEX COURT IN THE CASE OF CIT VS MADRAS AUTO SERVICES (P) LTD (1998) 233 ITR 468 (SC) . IT WAS ARGUED THAT THE EXPENDITURE INCURRED FOR TERMINAT I NG DISADVANTAGEOUS RELATIONSHIP TO AVOID PECUNIARY LOSES OR COMMERCIAL INCONVENIENCES OCCURRING I N THE FUTURE , IS PURELY OF A REVENUE NATURE. FOR THE ABOVE PROPOSIT I ON THE ASSESSEE RELIED UPON THE FOLLOWING DECISIONS : I. WESTERN INDIA OIL DISTRIBUTION CO. LTD. VS. CIT 77 ITR 140 (BOM.) II. CIT VS. DALMIA DADRI CEMENT LTD. (1970) 77 ITR 4 10 (P&H) 12. IT WAS FURTHER ARGUED THAT THE SAID AMOUNT OF RS. 1, 17 , 88,000/ - HAS BEEN OF FER ED TO TAX BY POONAWALA FINVEST & AGRO PVT . LTD , A ZSP GROUP COMPANY AND IF THE ASSESSEE-COMPANY OF THE CSP GROUP OFFERS THE SAME TO T AX, IT WILL AMOUNT TO DOUBLE TAXATION. IT WAS CONTENDED T HAT THE ASSESSING OFFICER DIS R EGA R DED 7 ITA NO.1703/PN/2014 THE CLA I M OF BUS I NESS EXPENDITU R E STA TI NG T HA T T H ER E IS NO COMMERCIAL EXPEDIENCY IN MAKING THE EX P ENDI T URE W IT HOUT APPRECIA TI NG THAT THE AMOUNT DECLARED AS INCOME IS NOTHING BUT FORMING PART OF THE FAMILY ARRANGEMENT WHICH IS WITH THE INTENTION TO SETTLE THE DISPUTE AND NOT TO CIRCUMVENT TH E PROVISIONS OF LAW. 13. HOWEVER, THE CIT(A) ALSO WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE AND UPHELD THE ACTION OF THE ASSESSING OFFICER BY OBSERVING AS UNDER : 3.7 THE APPELLANT IN GROUND NO.1 HAS CONTESTED THAT EXPENDITURE OF RS.1,17,88,000/- IN INCURRED ON REPAIRS, RENOVATIO N OF BUNGALOW LOCATED AT 70, KOREGAON PARK BE ALLOWED KOREGAON PARK BE ALLOWED AS THE IMPUGNED EXPENDITURE IS PART OF FAMILY ARRANGE MENT TO ENSURE SMOOTH RUNNING OF BUSINESS. THE FACT OF THE CASE I S THAT A SEARCH ACTION WAS CARRIED OUT IN THE CASE OF THE POONA WALA GROUP ON 21-06-2011 AND THE APPELLANT BEING ONE OF THE ENTIT IES OF THE GROUP. DURING THE SAID SEARCH ACTION DISCLOSURE WAS MADE BY THE GROUP IN ITS VARIOUS GROUP CONCERNS AND OUT OF THE SAID DISCLOSURE , AN AMOUNT OF RS. 54 . 44. CRORES WAS DISCLOSED BY THE APPELLANT COMPANY FOR A . Y. 2005-06 TO A . Y. 2012-13, WHICH INCLUDED DISCLOSURE OF RS. 10.80 CRORES MADE BY THE APPELLANT ON THE ISSUE OF 'EXPENSES O N BUNGALOW LOCATED AT 70, KOREGAON PARK FOR THE AFORESAID YEARS. THE UNDISCLOSED INCOME ADMITTED BY THE APPELLANT COMPANY FOR THE YEAR UNDER CONSIDERATION I . E. A . Y. 2005-06 IS RS. 1,17,88,000/- . THE AFORESAID BUNGALOW BELONGED TO THE GROUP OF COMPANIE S OF THE GROUP I . E. POONAWALA FINVEST & AGRO PVT . LTD AND THE APPELLANT COMPANY CLAIMED THE SAID AMOUNT AS EXPENDITURE ON CON STRUCTION AND REPAIRS OF THE BUNGALOW AS BUSINESS EXPENDITURE. DR . CYRUS POONAWALA, CMD OF THE APPELLANT COMPANY IN HIS STATEM ENT RECORDED U/S 132(4) ON 20-07-2011 DECLARED THE ADDIT IONAL INCOME OF RS. 1,17,88,000/- WHICH IS WITH REFERENCE TO PAGE NO 10 OF LOOSE PAPER BUNDLE NO 13 FOUND AT THE OFFICE OF SHRI . PANNALAL KOTHARI . THE APPELLANT HAS RAISED THE ISSUE THAT THE SAID EXPENDITUR E HAS BEEN INCURRED TO ENSURE SMOOTH RUNNING OF BUSINESS WITHOUT BE ING AFFECTED BY THE DISPUTES BETWEEN CSP AND ZSP GROUP AN D THE APPELLANT BEING ONE OF THE PARTIES, IN THE FAMILY SET TLEMENT INCURRED THE SAID EXPENSES TO PROTECT THE BUSINESS FROM LOSS AND DAM AGES ARISING OUT OF FAMILY DISPUTES AND LITIGATION. THE APP ELLANT HAS FILED THE COPY OF THE SAID FAMILY SETTLEMENT/ OR THE FAMILY ARRANGEMENT AGREEMENT DATED 22-08-2002. ON PERUSAL OF THE SAID AG REEMENT IT IS NOTICED THAT THE SAME HAS ENTERED INTO IN ORDER TO AV OID DIFFERENCES AND DISPUTES IN FUTURE OF THE NEXT GENERATION AND IN ORDER TO ENSURE A SUITABLE AND EQUITABLE ALLOCATION AND INDEPENDENT CONTROL AND WHEREVER THERE IS JOINT CONTROL TO ENSURE HARMONY. TH US THE SAID FAMILY ARRANGEMENT PRIMARILY CONTAINS THE AREA OF OP ERATION OF THE TWO GROUPS VIZ. CSP AND ZSP AND EQUITABLE DISTRIBUTI ON OF THE ASSETS AND PROPERTIES AND THE VARIOUS COMPANIES/FIRMS BETWEEN THEM. THE 8 ITA NO.1703/PN/2014 SAID ARRANGEMENT BETWEEN THE TWO GROUPS HOWEVER DO NO T INDICATE OR JUSTIFY THE AFORESAID PAYMENT AS WAS FOUND RECORDED ON THE SEIZED DOCUMENT . HENCE THE CONTENTION RAISED BY THE APPELLANT THAT THE AMOUNT DECLA R ED AS INCOME IS PART OF FAMILY ARRANGEMENT IS PRIMA FACIE NOT CORRECT AS THE MENTION OF THE EXPENSE S IN THE FAMILY ARRANGEMENT IS ABSENT EXCEPT FOR THE FACT THAT BUNGAL OW AT 70, KOREGAON PARK WAS AGREED TO BE FULLY CONSTRUCTED ON A CCOUNT OF SERUM INSTITUTE, THE APPELLANT EXCEPT FOR THE INTERN AL FURNISHING, WHICH APPEAR TO HAVE BEEN SPENT BY THE OTHER GROUP I .E. ZSP GROUP. THE APPELLANT'S CONTENTION THAT THE SAID ARRANGEMENT WAS .WITH THE INTENTION TO SETTLE THE DISPUTE ALSO DO NOT GET ANSWERE D BY ANY SUCH INSTANCE POINTED OUT BY THE APPELLANT. THE SAID ARRAN GEMENT BETWEEN THE TWO FAMILIES I.E. CSP AND ZSP IS FOR EQU ITABLE ALLOCATION OF CONTROL OF THE VARIOUS ENTITIES VIZ. COMPANY FIRMS/ ASSETS SO AS TO AVOID ANY LIKELY DIFFERENCES AND DISPUTES FOR THE FUTU RE GENERATION I.E. WITH RESPECT TO THE CHILDREN OF THE TWO BROTHER S AS IS EVIDENT FROM THE CLAUSES AND WORDINGS OF THE FAMILY ARRANGEMEN T DATED 22.08.2002. THE APPELLANT HAS RAISED VARIOUS LEGAL ISSUE S RELATING TO THE INCURRENCE OF THE SAID EXPENDITURE WHICH MAY BE ACCEPTABLE IN A SITUATION AND CASE OF NORMAL/REGULAR COURSE OF BUSINESS. THE APPELLANT IN THE PRESENT CASE HAS OFFERED THE AFORESAI D SUM AS ADDITIONAL INCOME VOLUNTARILY DURING THE COURSE OF SE ARCH ACTION BASED ON THE NOTINGS MADE ON THE SEIZED DOCUMENT HOWE VER, NOW THE APPELLANT HAS CHANGED ITS STANCE AFTER A GAP OF SU BSTANTIAL TIME PERIOD, WHICH IS NOT BASED ON SOUND REASONING. THE APPE LLANT HAS ALSO NOT BEEN ABLE TO BRING ON RECORD ANY SUCH MATERI AL TO INDICATE THAT THE SAID EXPENDITURE HAS BEEN INCURRED FOR THE P URPOSE OF BUSINESS AND, THEREFORE, THERE IS CERTAINLY NO COMMERC IAL EXPEDIENCY SO AS TO CONSIDER THE CLAIM MADE BY THE APPELLANT. THE EXPENDITURE INCURRED MAY HAVE BEEN TO PROTECT DISPUTES IN FAMILY AND FUTURE LITIGATION WITHIN THE FAMILY. THE AFORESAID EXPENDIT URE CANNOT BE SAID TO HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS RATHER IT IS AN EXPENDITURE ONLY TO EARN PE RSONAL GAIN AND THE APPELLANT HAS FAILED TO ESTABLISH AND DEMONSTRA TE THAT THE EXPENDITURE IN QUESTION WAS INCURRED PURELY OUT OF BU SINESS CONSIDERATION AND FOR CONDUCTING THE BUSINESS OUT OF BU SINESS CONSIDERATION AND FOR CONDUCTING THE BUSINESS OUT OF CO MMERCIAL EXPEDIENCY. IN VIEW OF THE ABOVE FACT, I TEND TO AG REE TO THE OBSERVATION OF THE ASSESSING OFFICER AND THE CONTENTION RAISED BY THE APPELLANT DOES NOT APPEAR TO BE CONVINCING AND HENCE THE SAME IS FOUND TO BE NOT TENABLE. 3.8 IN VIEW OF THE ABOVE FACTS THE GROUND OF APPEAL NO.1 RAISED BY THE APPELLANT IS DISMISSED. 14. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 15. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY OBJECTED TO THE ORDER OF THE CIT(A) IN CONFIRMING THE DISALLOWANCE MADE BY T HE ASSESSING OFFICER. HE SUBMITTED THAT THE ASSESSING OFFICER REJECTED THE CLAIM OF DEDUCTION OF RS.1,17,88,000/- AS BUSINE SS 9 ITA NO.1703/PN/2014 EXPENDITURE FOR 3 REASONS NAMELY, (1) CHAIRMAN OF THE ASSE SSEE COMPANY DR. CYRUS POONAWALLA HAD AGREED IN HIS STATEMENT U/S.132(4) AND THE SAME HAS NOT BEEN RETRACTED FROM THE DISCLOSURE MADE DURING THE SEARCH ACTION, (2) THE DISPUTE IS BETWEEN TWO BROTHERS. THEREFORE, THE COMPANY BEING AN INDEPENDENT LEGAL ENTITY THE EXPENDITURE CANNOT BE ALLOWED AS ALLOWABLE EXPENDITURE IN THE HANDS OF THE COMPANY AND (3) THE EXPENDITURE WAS NOT INCURRED FOR BUSINESS PURPOSE AND IT HAS NOTHING TO DO WITH SMOOTH RUNNING OF BUSINESS. HE SUBMITTE D THAT THE TURNOVER OF THE ASSESSEE COMPANY HAS GONE U P TO 25 TIMES BECAUSE OF THE SETTLEMENT BETWEEN THE 2 WARRING G ROUP. THIS ITSELF SHOWS THAT THE SAME WOULD NOT HAVE BEEN POSS IBLE WITHOUT AMICABLE SETTLEMENT BETWEEN THE 2 GROUPS. 16. REFERRING TO PAGE 3 TO 17 OF THE PAPER BOOK HE DREW THE ATTENTION OF THE BENCH TO THE COPY OF FAMILY ARRANGEMENT AGREEMENT. REFERRING TO PAGE 2 OF THE SETTLEMENT AGREEM ENT HE DREW THE ATTENTION OF THE BENCH TO CLAUSE 1(A) AND SUBM ITTED THAT THE ASSESSEE HAS PURCHASED THE SHARES FROM Z.S. POONAW ALLA. AFTER THE SAID PURCHASE MR. Z.S. POONAWALLA IS NOW A NOMINAL SHAREHOLDER AND NOT A SUBSTANTIAL SHAREHOLDER. REFERRING TO PAGE 8 OF THE SETTLEMENT DEED HE DREW THE ATTENTION OF THE B ENCH TO CLAUSE 14 WHICH STATES THAT THE BUNGALOW AT 70, KOREGAO N PARK, PUNE WILL BE FULLY CONSTRUCTED AT SERUM INSTITUTES ACCOUNT EXCEP T FOR INTERNAL FURNISHINGS. 17. REFERRING TO PAGE 25 OF THE COPY OF THE ORDER PASSE D BY THE HONBLE SETTLEMENT COMMISSION HE SUBMITTED THAT THE HON BLE SETTLEMENT COMMISSION IN THE SAID DECISION HAS HELD THAT T HE SAID AMOUNT CANNOT BE TAXED IN BOTH THE HANDS. REFERRIN G TO THE 10 ITA NO.1703/PN/2014 STATEMENT RECORDED U/S.132(4) OF DR. CYRUS POONAWALLA ON 25-06-2011 COPY OF WHICH IS PLACED AT PAGES 18 TO 26 O F THE PAPER BOOK HE DREW THE ATTENTION OF THE BENCH TO HIS ANSWER TO QUESTION NO.6 WHERE MR. CYRUS POONAWALLS HAS STATED THAT A TOTAL SUM OF RS.9,62,00,000/- HAS BEEN INCURRED FOR THE REPAIR AN D RENOVATION OF BUNGALOW AT 70, KOREGAON PARK, PUNE FOR WHIC H THE EXPENSES HAVE BEEN DEBITED IN THE BOOKS OF THE ASSESSE E COMPANY. REFERRING TO THE COPY OF THE STATEMENT U/S.132 (4) OF ZAVAREH SOLI POONAWALLA ON 21-07-2011, COPY OF WHICH IS PLAC ED AT PAGES 46 TO 57 OF THE PAPER BOOK THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE REPLY GIVEN BY MR . ZAVAREH SOLI POONAWALLA TO QUESTION NO.13 WHEREIN HE HAD REPLIED AS UNDER : Q.NO.13 SIIL HAS INCURRED RS.9.62 CRORES AND PIIPL H AS INCURRED RS.7.21 CRORES IN RESPECT OF PROPERTY AT 70, KOREGAON PARK WHICH HAS NOT BEEN REFLECTED IN THE BOOKS OF PFAPL. IN HIS STATEMENT DR. C.S. POONAWALLA HAS ADMITTED THIS FACT A ND HAS DISCLOSED THESE AMOUNTS AS INCOMES IN THE HANDS OF THE RESP ECTIVE COMPANIES IN THE RESPECTIVE YEARS. THESE RECEIPTS ARE N OT TO BE REFUNDED TO SIIL AND PIIPL. PLEASE EXPLAIN AS TO WHY THESE RECEIPTS SHOULD NOT BE CONSIDERED AS INCOME IN THE HANDS OF PFAP L. ANS. PFAPL OWNS A PROPERTY AT 70, KOREGAON PARK, PUNE SIIL ACQUIRED IT FOR ITS BUSINESS PURPOSE FOR WHICH THEY HAVE BEEN PAYING PFAPL RENT OVER THE YEARS WHICH HAS BEEN OFFERED TO T AX BY PFAPL. OVER THE YEARS SIIL SPENT RS.9.62 CR ON CONSTRUCTION AN D PIIPL SPENT RS.7.21 CR THEREON. BOTH THESE AMOUNTS ARE DULY REFLE CTED IN THE BOOKS OF ACCOUNTS OF THE RESPECTIVE COMPANIES. PFAPL HA S ALSO INCURRED EXPENDITURE ON CONSTRUCTION OF THE SAID PROP ERTY OUT OF ITS OWN SOURCE. SIIL AND PIIPL HAVING AGREED TO WITHDRAW THEIR CLAI M OF RIGHT TO USE THE SAID PROPERTY AND AGREED NOT TO CLAIM THE AMOUNT SPENT ON THE SAID PROPERTY THE BENEFIT IS NOW AVAILED TO PFAPL IN THE CURRENT FINANCIAL YEAR, I.E. F.Y. 2011-12 AND HENCE THE INC OME IS BEING OFFERED IN THE HANDS OF PFAPL OF RS.16.83 CRORES FOR T HE F.Y. 2011-12 RELEVANT TO A.Y. 2012-13. 18. REFERRING TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF BANARSIDAS VS. KANSHIRAM REPORTED IN 1963 AI R 11 ITA NO.1703/PN/2014 1165 HE SUBMITTED THAT WHERE THERE IS A DIFFERENCE BETW EEN 2 WARRING GROUPS AND THE COMPANY PAYS THE EXPENDITURE SUCH EXPENDITURE IS AN ALLOWABLE EXPENDITURE IN THE HANDS OF TH E COMPANY. REFERRING TO THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF CHEMOSYN LIMITED VS. ACIT REPORTE D IN 139 ITD 68 HE SUBMITTED THAT THE TRIBUNAL IN THE SAID DE CISION HAS HELD THAT WHERE IT IS SUFFICIENT TO SHOW THAT THE DISPU TES BETWEEN THE SHAREHOLDERS HAD AFFECTED DAY TO DAY BUSINE SS OF THE ASSESSEE AND THE SETTLEMENT OF THE SAID DISPUTE CERTAINL Y HELPED THE ASSESSEE TO RUN ITS BUSINESS SMOOTHLY AND EFFECTIVE LY ENABLING IT TO ACHIEVE FURTHER GROWTH, THEN THE EXPENDITURE INCURR ED BY THE ASSESSEE COMPANY ON PAYMENT OF PREMIUM FOR PURCHASE OF ITS OWN SHARES FROM WARRING GROUP OF SHAREHOLDERS IS REVENUE IN NATURE AND ALLOWABLE AS DEDUCTION. REFERRING TO THE DEC ISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. CH EMOSYN LIMITED REPORTED IN 371 ITR 147 HE SUBMITTED THAT THE A BOVE DECISION OF THE TRIBUNAL HAS BEEN UPHELD BY THE HONBLE HIG H COURT. HE SUBMITTED THAT THE BUNGALOW DOES NOT BELONG TO THE ASSESSEE COMPANY. THE OWNERSHIP ALSO DOES NOT BELONG TO THE ASSESSEE COMPANY. 19. REFERRING TO THE DECISION OF THE HONBLE BOMBAY HIGH C OURT IN THE CASE OF CIT VS.PRUTHVI BROKERS AND SHAREHOLDERS PV T. LTD. REPORTED IN 349 ITR 336 HE SUBMITTED THAT THE HONBLE HIGH COURT IN THE SAID DECISION HAS HELD THAT EVEN ASSUMING TH AT THE ASSESSING OFFICER IS NOT ENTITLED TO GRANT DEDUCTION ON THE BASIS OF A LETTER REQUESTING AN AMENDMENT TO THE RETURN FILED, THE APPELLATE AUTHORITIES ARE ENTITLED TO CONSIDER THE CLAIM AND TO ADJUDICATE THE SAME. IT IS NOT NECESSARY THAT THE DED UCTION BE ALLOWED ONLY IF A REVISED RETURN OF INCOME WOULD HAVE BEEN FILED. 12 ITA NO.1703/PN/2014 20. REFERRING TO THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF BAMBINO INVESTMENT & TRADING COM LTD. VS. DCIT REPORTED IN 2 SOT 585 HE SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION HAS HELD THAT AN APPEAL AGAINST ASSES SMENT OF CONCESSION IS MAINTAINABLE IF IT LATER TRANSPIRES THAT CON CESSION WAS GIVEN ON A MISTAKEN IMPRESSION OF TRUE LEGAL POSITION. 21. REFERRING TO CIRCULAR NO.14 DATED 11-04-1955, COPY OF WHICH IS PLACED AT PAGES 122 TO 127 OF THE PAPER BOOK H E SUBMITTED THAT AS PER THE SAID CIRCULAR THE OFFICERS OF THE DEPARTMENT MUST NOT TAKE ADVANTAGE OF THE IGNORANCE O F AN ASSESSEE AND TO HIS RIGHTS. IT IS ONE OF THEIR DUTIES TO ASSIST A TAXPAYER IN EVERY REASONABLE WAY, PARTICULARLY IN THE MAT TER OF CLAIMING AND SECURING RELIEFS AND IN THIS REGARD THE OFFICERS SHOULD TAKE THE INITIATIVE IN GUIDING A TAXPAYER WHERE PROCEEDINGS OR OTHER PARTICULARS BEFORE THEM INDICATE THA T SOME REFUND OR RELIEF IS DUE TO HIM. HE SUBMITTED THAT ADMISSION BY THE CHAIRMAN OF THE ASSESSEE COMPANY IS NOT BINDING ON T HE ASSESSEE WHICH WAS A PURE QUESTION OF LAW. THIS IS VERY M UCH AN EXPENDITURE ALLOWABLE AS BUSINESS EXPENDITURE. THE ASSESS EE HAS NOT DERIVED ANY BENEFIT ON CAPITAL ACCOUNT. THE PROPE RTY DOES NOT BELONG TO THE ASSESSEE. BY ENTERING INTO THE FAMILY ARRANGEMENT, THE SHARES HELD BY OTHER GROUP WERE TRAN SFERRED TO THE CSP GROUP AND IT IS FOR THE SMOOTH RUNNING OF THE BU SINESS. THEREFORE, THIS EXPENDITURE SHOULD BE ALLOWED AS A BUSINES S EXPENDITURE. 22. THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO THE DEC ISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. B RAHMA CORP. HOTELS & RESORT LTD. AND BATCH OF OTHER APPEALS VID E ORDER 13 ITA NO.1703/PN/2014 DATED 02-12-2014 SUBMITTED THAT THE TRIBUNAL HAS UPHE LD THE DECISION OF THE CIT(A) WHO HAS ALLOWED THE CLAIM OF EXPENDITUR E ON ACCOUNT OF PREMIUM PAID ON BUYBACK OF SHARES AS REV ENUE EXPENDITURE. HE ALSO RELIED ON THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ECHJAY INDUSTRIES LTD. VS. D CIT REPORTED IN 88 TTJ 1089 ORDER DATED 24-04-2012 WHERE THE TRIBUNAL HAS ALLOWED THE CLAIM IN RESPECT OF PAYMENTS MADE TO BUY OUT SHARES OF CERTAIN RECALCITRANT SHAREHOLDERS FOR SMOOTH RUNNING OF BUSINESS. 23. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND HEAVILY RELIED ON THE ORDER OF THE ASSESSING OFFICER AND THE CIT(A). HE SUBMITTED THAT THE VARIOUS DECISIONS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN ALL THOSE CASES, THERE WAS DISPUTE AND THE SETTLEMENT WAS UNDER THE DIRECTION OF THE COMPANY LAW B OARD OR HIGH COURT. HOWEVER, IN THE INSTANT CASE IT IS A SMOOTH FAM ILY ARRANGEMENT. THEREFORE, THOSE DECISIONS ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 24. THE LD. COUNSEL FOR THE ASSESSEE IN HIS REJOINDER SUBM ITTED THAT THIS IS VERY MUCH BUSINESS EXPENDITURE IN THE HANDS OF THE ASSESSEE. THE DEPARTMENT TAXES BOTH THE PARTIES WHICH IS NOT CORRECT. SINCE ZSP HAS ALREADY OFFERED THE SAME TO TAX I N HIS SETTLEMENT PETITION AND THE SAME HAS BEEN TAXED, THEREFO RE, TAXING THE SAME AGAIN IN THE HANDS OF THE ASSESSEE WITHO UT ALLOWING IT AS BUSINESS EXPENDITURE WILL AMOUNT TO DOUBLE TAXATION, WHICH IS NOT CORRECT. 14 ITA NO.1703/PN/2014 25. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE P APER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDER ED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND DURING THE COURSE OF SEARCH ACTION IN THE CASE OF POONAWALLA GROUP ON 21-06 -2011 AN AMOUNT OF RS.54.44 CRORES WAS OFFERED AS UNACCOUNTED AND UNDISCLOSED INCOME BY THE SAID GROUP FOR THE PERIOD FROM A .Y. 2005-06 TO A.Y. 2012-13. THE ABOVE DISCLOSURE OF RS.54.4 4 CRORES INCLUDES DISCLOSURE OF RS.10.80 CRORES MADE BY THE ASSESSEE COMPANY FOR A.Y. 2005-06 TO 2011-12 ON THE ISS UE OF EXPENSES ON BUNGALOW LOCATED AT 70, KOREGAON PARK, PU NE. WE FIND THE ASSESSING OFFICER REOPENED THE ASSESSMENT U/S.147 BY ISSUE OF NOTICE U/S.148 TO BRING TO TAX THE AMOUNT OF RS.1,17,88,000/- OUT OF THE AMOUNT OF RS.10.80 CRORES PERTAINING TO THE IMPUGNED ASSESSMENT YEAR. WE FIND THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS S UBMITTED BEFORE THE ASSESSING OFFICER THAT ALTHOUGH AN AMOUNT OF RS.1,17,88,000/- WAS DECLARED AS ADDITIONAL INCOME BY DR. CYRUS POONAWALLA, PUNE IN HIS STATEMENT U/S.132(4), HOWEVER, THE SAME IS ALLOWABLE AS BUSINESS EXPENDITURE. IT WAS ALSO SUBMITTED THAT THIS AMOUNT OF EXPENDITURE OF RS.1,17,88,000 /- HAS BEEN OFFERED TO TAX BY POONAWALLA FINVEST AND AGRO L TD, A ZSP GROUP COMPANY. THEREFORE, AGAIN BRINGING TO TAX THE S AID AMOUNT WILL AMOUNT TO DOUBLE TAXATION. VARIOUS DECISIONS WE RE ALSO CITED BEFORE THE ASSESSING OFFICER TO JUSTIFY THE CLAIM AS AN ALLOWABLE EXPENDITURE. IT WAS FURTHER SUBMITTED THAT THE EXPENDITURE OF RS.1,17,88,000/- INCURRED FOR THE REPAIR AN D MAINTENANCE OF THE PROPERTY AT 70, KOREGAON PARK, PUNE IS A PART OF THE FAMILY ARRANGEMENT WHICH WAS FOR SMOOTH RUNNING OF THE 15 ITA NO.1703/PN/2014 BUSINESS OF THE ASSESSEE COMPANY. HOWEVER, WE FIND THE ASSESSING OFFICER REJECTED THE ARGUMENT OF THE ASSESSEE ON THE GROUND THAT THE CHAIRMAN OF THE ASSESSEE COMPANY DR. C YRUS POONAWALLA HAD AGREED THIS AMOUNT AS ADDITIONAL INCOME IN HIS STATEMENT RECORDED U/S.132(4) AND THE SAME HAS NOT BEE N RETRACTED. FURTHER, THE SETTLEMENT WAS BETWEEN TWO BROTHERS AND THEREFORE THE COMPANY IS NOT LIABLE TO INCUR ANY EXPENDIT URE. THE ASSESSING OFFICER WAS ALSO OF THE OPINION THAT THERE IS NO QUESTION OF ANY SMOOTH RUNNING OF BUSINESS FOR INCURRING O F THE EXPENDITURE. 26. WE FIND THE LD.CIT(A) UPHELD THE ACTION OF THE ASSESSIN G OFFICER. WHILE DOING SO, HE NOTED THAT THE ARRANGEMENT BET WEEN TWO GROUPS DID NOT INDICATE OR JUSTIFY THE PAYMENT OF RS.1,17,88,000/- AS WAS FOUND RECORDED ON THE SEIZED DOCUMENT. THE ASSESSEE ALSO COULD NOT JUSTIFY PROPERLY THAT THE SAID ARRANGEMENT WAS FOR THE INTENTION TO SETTLE THE DI SPUTE BETWEEN THE TWO FAMILIES. FURTHER, THE ASSESSEE ALSO COULD NOT BRING ANY MATERIAL ON RECORD TO INDICATE THAT THE SAID EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSE OF BUSINES S AND THAT THERE IS ANY COMMERCIAL EXPEDIENCY. 27. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESS EE THAT BECAUSE OF THE SETTLEMENT BETWEEN THE TWO GROUPS , THE TURNOVER OF THE ASSESSEE COMPANY HAS GONE UP TO 25 T IMES. FURTHER, ZSP GROUP HAS ALREADY OFFERED THE SAME TO TAX IN THEIR PETITION BEFORE THE SETTLEMENT COMMISSION. THEREFORE, TAXING IT IN THE HANDS OF THE ASSESSEE COMPANY WILL AMOUNT TO DOU BLE TAXATION. IT IS ALSO HIS SUBMISSION THAT THE PROPERTY DOE S NOT BELONG TO THE ASSESSEE COMPANY. MERELY BECAUSE THE A SSESSEE 16 ITA NO.1703/PN/2014 HAS MADE A STATEMENT U/S.132(4) BY ADMITTING THE SAME AS ADDITIONAL UNDISCLOSED INCOME, THE SAME IS NOT BINDING ON THE ASSESSEE. IT IS ALSO HIS CASE THAT IN VIEW OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF PRUTHVI BROKERS AND SHAREHOLDERS LTD. AN ASSESSEE CAN MAKE A CLAIM BEFORE TH E ASSESSING OFFICER THROUGH A LETTER. IT IS ALSO HIS CASE T HAT THE CONCESSION GIVEN UNDER MISTAKEN FACT OR LAW IS NOT BINDING ON THE ASSESSEE. 28. WE FIND SOME FORCE IN THE ABOVE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE. WE FIND THE HONBLE SETTLEMENT COMMISSION IN ITS ORDER DATED 14-12-2012 ON THE BASIS OF THE APPLICATION MADE BY POONAWALLA GROUP AT PARA 6.3 TO 6.5 OF THE ORDER HAS OBSERVED AS UNDER : 6.5 (VI) YEAR OF TAXABILITY OF INVESTMENT MADE TOWARDS THE CONSTRUCTION OF THE BUNGALOW AT KOREGAON PARK- THIS ISSUE IS RELEVANT IN THE CASE OF M/S POONAWALLA FINV EST & AGRO PVT. LTD. (PFAPL). IT IS STATED BY THE AR THAT PFAPL HAD AN OLD BUNGALOW AT 70 KOREGAON PARK, PUNE WHICH WAS RENTED OUT TO M/S SERUM INSTITUTE OF INDIA LTD. (SIIL) (CONTROLLED BY DR. C.S. POONAWALLA). THERE WAS A FAMILY ARRANGEMENT BETWEEN DR. C.S. POONAWALLA (CSP) AND SHRI Z.S. POONAWALLA (ZSP) IN WHICH IT WAS DECIDED THAT A NEW BUNGALOW WOULD BE CONSTRUCTED ON THE ABOVE PREMISES AND THE EXPENDITURE WOULD BE INCURRED BY SII L. THE INTENTION WAS TO PROVIDE FOR A SEPARATE OFFICE-CUM-RE SIDENCE FOR SHRI ZSP. ACCORDINGLY, SIIL HAD INCURRED THE EXPEND ITURE ON CONSTRUCTION OF THE BUNGALOW AMOUNTING TO RS.1080.84 LAKHS OVER THE YEARS AND M/S POONAWALLA INVESTMENT & INDUSTRIES PVT . LTD. (PIIPL) HAD INCURRED THE EXPENDITURE OF RS.721.20 LA KHS. SIIL HAD CLAIMED THE ABOVE EXPENDITURE AS A REVENUE EXPENDITU RE IN ITS BOOKS OF ACCOUNT, WHILE PIIPL. HAD CAPITALIZED THE A BOVE EXPENDITURE AND CLAIMED DEPRECIATION THEREON. THE C LAIM FOR THE EXPENDITURE AS A DEDUCTION WAS MADE BY SIIL ON THE GR OUND THAT IT WILL HAVE A RIGHT TO USE THE BUNGALOW FOR ITS BUSINESS PURPOSES AS THE BUNGALOW BELONGED TO PFAPL, THE EXPENDITURE INC URRED-WAS CLAIMED AS A DEDUCTION IN VIEW OF THE DECISION OF TH E HONBLE SUPREME COURT IN THE CASE OF ASSOCIATED CEMENT COMPANY [172 ITR 257 (SC)] AND L.H. SUGAR FACTORY LTD. [125 ITR 293 (SC)]. DURING THE COURSE OF THE SEARCH. DR. CSP HAD AGREED TO WITHDRAW THE DEDUCTION CLAIMED IN THE HANDS OF SIIL AND PIIPL OVER THE YEAR S AND TO OFFER THE ENTIRE INVESTMENT IN THE HANDS OF PFAPL FOR THE F .Y. 2011-12, I.E, THE YEAR OF SEARCH, CORRESPONDING TO A.Y. 2012-13 AMO UNTING TO 17 ITA NO.1703/PN/2014 RS.18,15,43,000/-. THE CIT IN THE REPORT UNDER RULE 9 HAS PROPOSED THAT THE INVESTMENT IN RESPECT OF THE ABOVE BUNGALOW SHOULD BE BROUGHT TO TAX FOR THE ASSTT.YEARS 2005-06 TO 2011-12. IN THIS CONNECTION, IT IS STATED BY THE AR THAT IF THE CIT'S P ROPOSAL IN THE ABOVE MATTER IS CONSIDERED, THEN THE EXPENDITURE OF R S.119.74 LAKHS INCURRED UPTO 31.03.2004 WOULD ESCAPE ASSESSMENT AND HEN CE, WITH A VIEW TO PUT A QUIETUS TO THE YEAR OF ASSESSABILITY OF THE ABOVE INVESTMENT, THE APPLICANT HAS OFFERED THE ENTIRE INVE STMENT FOR TAXATION IN THE YEAR 2012-13 IN THE HANDS OF PFAPL. WE HAVE CONSIDERED THE MATTER. IN THE FIRST PLACE, IT MAY BE MENTIONED THAT THE ABOVE ISSUE HAS BEEN RESOLVED DUE TO ADMISSION MADE BY DR. CSP FOR ITS ASSCSSABILITY IN THE HANDS OF PFA PL DURING THE COURSE OF A STATEMENT RECORDED FROM HIM BY THE SE ARCH PARTY, I.E. IN A.Y. 2012-13. FURTHER, IF THE CITS PROPOSAL ASSESSMEN T YEAR-WISE INVESTMENT IS CONSIDERED, THEN THERE WOULD BE ESCAPEME NT OF INVESTMENT TO THE TUNE OF RS.119.74 LAKHS INCURRED UPT O 31.3.2004. UNDER THE CIRCUMSTANCES. WE ARE OF THE CONSIDERED OPIN ION THAT THE OFFER MADE BY PFAPL FOR CONSIDERING THE ENTIRE INVEST MENT MADE IN THE ABOVE BUNGALOW AMOUNTING TO RS.18,15,43,000/- FO R THE ASSTT. YEAR 2012-13, AS ADMITTED BY IT, IN THE RETURN OF IN COME FOR THE ABOVE ASSESSMENT YEAR IS QUITE FAIR AND REASONABLE. WE, T HEREFORE, SETTLE THE ISSUE ACCORDINGLY. 29. SINCE THE ENTIRE AMOUNT HAS ALREADY BEEN OFFERED TO TAX BY THE ZSP GROUP AND THE SAME HAS BEEN ACCEPTED BY THE HONBLE SETTLEMENT COMMISSION, THEREFORE, TAXING THE SAME AMOUNT IN THE HANDS OF THE ASSESSEE WILL AMOUNT TO DOUBLE TAXATION. WE, THEREFORE, FIND MERIT IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ABOVE AMOUNT SHOULD BE ALLOWED AS A REVENUE EXPENDITURE IN THE HANDS OF THE ASSESSEE. 30. WE FIND AS PER THE CIRCULAR ISSUED BY CBDT NO.14 DATED 11-04-1955 THE OFFICERS OF THE DEPARTMENT MUST NOT TAKE ADVANTAGE OF THE IGNORANCE OF AN ASSESSEE AND TO HIS RIG HTS. IT IS ONE OF THEIR DUTIES TO ASSIST A TAXPAYER IN EVERY REASON ABLE WAY, PARTICULARLY IN THE MATTER OF CLAIMING AND SECURING RELIEFS AN D IN THIS REGARD THE OFFICERS SHOULD TAKE THE INITIATIVE IN GUIDIN G A TAXPAYER WHERE PROCEEDINGS OR OTHER PARTICULARS BEFORE THEM INDICATE THAT SOME REFUND OR RELIEF IS DUE TO HIM. 18 ITA NO.1703/PN/2014 31. WE FIND THE HONBLE BOMBAY HIGH COURT IN THE CASE OF C IT VS. PRUTHVI BROKERS AND SHAREHOLDERS LTD. (SUPRA) HAS HELD THAT THE APPELLATE AUTHORITIES HAVE POWER TO CONSIDER CLAIM NOT MADE IN THE RETURN. THE RELEVANT OBSERVATION OF THE HONBLE H IGH COURT READS AS UNDER (SHORT NOTES) : AN ASSESSEE IS ENTITLED TO RAISE NOT MERELY ADDITIONAL LEGAL SUBMISSIONS BEFORE THE APPELLATE AUTHORITIES BUT IS ALSO E NTITLED TO RAISE ADDITIONAL CLAIMS BEFORE THEM. THE APPELLATE AU THORITIES HAVE THE DISCRETION TO PERMIT SUCH ADDITIONAL CLAIMS TO BE RAISED. THE APPELLATE AUTHORITIES HAVE JURISDICTION TO DEAL NOT M ERELY WITH ADDITIONAL GROUNDS, WHICH BECAME AVAILABLE ON ACCOUN T OF CHANGE OF CIRCUMSTANCES OR LAW, BUT WITH ADDITIONAL GROUNDS WHI CH WERE AVAILABLE WHEN THE RETURN WAS FILED. THE WORDS 'COULD NOT HAVE BEEN RAISED' MUST BE CONSTRUED LIBERALLY AND NOT STRICT LY. THERE MAY BE SEVERAL FACTORS JUSTIFYING THE RAISING OF A NEW PLEA IN AN APPEAL AND EACH CASE MUST BE CONSIDERED ON ITS OWN FACTS. HELD, DISMISSING THE APPEAL, THAT THE ORDERS OF THE COM MISSIONER (APPEALS) AND THE TRIBUNAL CLEARLY INDICATED THAT BO TH THE APPELLATE AUTHORITIES HAD EXERCISED THEIR JURISDICTION TO CONSIDE R THE ADDITIONAL CLAIM. THE CONCLUSION THAT THE ERROR IN N OT CLAIMING THE DEDUCTION IN THE RETURN OF INCOME WAS INADVERTENT CO ULD NOT BE FAULTED FOR MORE THAN ONE REASON. IT WAS A FINDING OF FACT WHICH COULD NOT BE TERMED PERVERSE. THERE WAS NOTHING ON RE CORD THAT MILITATED AGAINST THE FINDING. THE REVENUE HAD NOT SUGGESTED MUCH LESS ESTABLISHED THAT THE OMISSION WAS DELIBERATE OR MALA FIDE. BOTH THE APPELLATE AUTHORITIES HAD THEMSELVES CONSIDERED THE ADDITIONAL CLAIM AND ALLOWED IT. THEY HAD NOT REMANDED THE MAT TER TO THE ASSESSING OFFICER TO CONSIDER IT. BOTH THE ORDERS EXPRESSLY DIRECTED THE ASSESSING OFFICER TO ALLOW THE DEDUCTION OF RS. 40 L AKHS UNDER SECTION 43B OF THE INCOME-TAX ACT, 1961. THE ASSESSING O FFICER HAD, THEREFORE, NOW ONLY TO COMPUTE THE ASSESSEE'S TAX LIABI LITY WHICH HE MUST DO IN ACCORDANCE WITH THE ORDERS ALLOWING THE ASSE SSEE A DEDUCTION OF RS. 40 LAKHS. 32. HOWEVER, WE FIND IN THE INSTANT CASE THE ASSESSEE HA S ALREADY MADE A CLAIM BEFORE THE ASSESSING OFFICER THROUGH A LETTER. IN OUR OPINION, THE FIRST OBJECTION OF THE ASSESSING OFFICER THAT THE ASSESSEE ITSELF HAS AGREED IN THE STATEMENT R ECORDED U/S.132(4) AS ADDITIONAL INCOME OF THE ASSESSEE FOR THE IMPU GNED ASSESSMENT YEAR AND THEREFORE CANNOT BE ALLOWED AS AN EXPENDITURE AND THE SAME HAS NOT BEEN REFLECTED IS MISPL ACED. SINCE THE ISSUE INVOLVED IS A PURE QUESTION OF LAW, A MERE 19 ITA NO.1703/PN/2014 ADMISSION OF THE ASSESSEE IS NOT BINDING ON HIM IN VIEW OF T HE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF BAMBINO INVESTMENT AND TRADING COMPANY LTD. CITED (SUPR A) WHERE IT HAS BEEN HELD THAT AN APPEAL AGAINST ASSESSMEN T OF CONCESSION IS MAINTAINABLE IF IT LATER TRANSPIRES THAT CONCES SION WAS GIVEN ON A MISTAKEN IMPRESSION OF TRUE LEGAL POSITION. T HE RELEVANT OBSERVATION OF THE TRIBUNAL READS AS UNDER : 6. WE HAVE CAREFULLY CONSIDERED THE FACTS AND THE RIVAL CONTENTIONS. THE QUESTION WHETHER THE INTEREST ON DEBENTURES CAN BE CONSIDERED TO BE INTEREST FROM LOANS AND ADVANCES WITHIN THE MEAN ING OF S. 2(7) OF THE INTEREST-TAX ACT IS A QUESTION OF LAW AND NOT A MERE QUESTION OF FACT. THE JUDGMENTS OF THE HIGH COURTS AND THE ORD ERS OF THE TRIBUNAL CITED ON BEHALF OF THE ASSESSEE (SUPRA) BEAR OUT THIS POSITION. THE JUDGMENT OF BOMBAY HIGH COURT IN THE C ASE OF RAMESH CHANDRA & CO. (SUPRA) CITED ON BEHALF OF THE DEPARTM ENT IS A CASE OF A STATEMENT MADE OF A FACT. CERTAIN DISCREPANCIES IN T HE SARKI ACCOUNT WERE FOUND BY THE ITO AND THE ASSESSEE WAS ASKED TO RECONCILE-THE SAME. THE ASSESSEE EXPRESSED HIS INABILITY TO DO SO AND AGREED THAT THE AMOUNT MAY BE ADDED TO THE INCOME. THE ITO RECORDED THE SAME IN THE ORDER SHEET WHICH WAS ALSO SIGN ED BY THE PARTNER OF THE ASSESSEE-FIRM. IT WAS ON THESE FACTS THAT THE HIGH COURT HELD THAT THE APPEAL TO THE AAC WAS NOT MAINTA INABLE SINCE THE ASSESSEE HAD CONCEDED BEFORE THE AO THAT THE DISCREPANCI ES COULD NOT BE RECONCILED AND THAT THE AMOUNT MAY BE ADDED TO THE INCOME. THIS FACTUAL POSITION WAS NOT RESILED FROM BY THE ASSESSEE AT ANY TIME THEREAFTER BEFORE THE ITO. THE HIGH COURT, THE REFORE, HELD THAT SO LONG AS THE ASSESSEE'S STATEMENT STOOD, IT COULD NOT HAV E A GRIEVANCE IN THAT BEHALF AND WAS NOT ENTITLED TO APP EAL AGAINST THE SAME. IN OUR HUMBLE OPINION, THE JUDGMENT IS NOT APP LICABLE WHERE AN ADMISSION OR CONCESSION IS MADE BY THE ASSESSEE ON A PURE QUESTION OF LAW. NO TAX CAN BE IMPOSED OR COLLECTED W ITHOUT THE AUTHORITY OF LAW AND MERELY BECAUSE THE ASSESSEE ADMITS OR CONCEDES BEFORE THE AO THAT A PARTICULAR AMOUNT IS TA XABLE IN LAW, THERE BEING NO DISPUTE REGARDING THE FACTS, IT CANNOT BE BROUGHT TO TAX. IF STILL AO HAS BROUGHT THE SAME TO TAX BASED MERE LY ON CONCESSION MADE BY THE ASSESSEE, IT CANNOT BE EQUATED TO A CONCESSION AS REGARDS FACTS, AND IT CANNOT BE SAID THAT THE ASSESSEE CAN HAVE NO RIGHT OF APPEAL WHEN HE IS LATER ADVISED OR INFORMED OF THE CORRECT POSITION IN LAW. THE AO DERIVES THE POWER TO ASSESS A RECEIPT AS INCOME ONLY FROM THE PROVISIONS OF THE TAXI NG ENACTMENT AND NOT FROM THE CONCESSION MADE BY THE ASSESSEE THAT THE SAME IS TAXABLE UNDER THE ENACTMENT. SUCH A CONCESSION, ON A PURE QUESTION OF LAW SUCH AS THE ASSESSABILITY OF A RECEIPT AS 'INTEREST ON LOANS AND ADVANCES' UNDER THE PROVISIONS OF S. 2(7) OF THE INTERE ST-TAX ACT! DOES NOT RELIEVE THE AO OF HIS DUTY TO EXAMINE WHETHE R THE RECEIPT IS PROPERLY SO ASSESSABLE. IN THE JUDGMENT CITED BY THE LEA RNED DEPARTMENTAL REPRESENTATIVE (SUPRA), THE ASSESSEE ADMITT ED BEFORE THE AO THAT HE HAD NO EVIDENCE TO SUPPORT HIS CLAIM. THERE WAS NO DISPUTE THAT IF THERE IS NO EVIDENCE TO RECONCILE TH E DISCREPANCIES DETECTED BY THE AO, THE AMOUNT INVOLVED COULD BE BR OUGHT TO TAX. WE 20 ITA NO.1703/PN/2014 ARE NOT CONCERNED WITH A CASE WHERE THE ASSESSEE AGREED TO AN ADDITION ON GROUNDS OF LACK OF EVIDENCE. WE ARE CONC ERNED WITH A CASE WHERE THE ASSESSEE CONCEDED THAT IN LAW INTEREST F ROM DEBENTURES COULD BE ASSESSED AS INTEREST ON 'LOANS AND ADV ANCES'. THIS CONCESSION IS OF A LEGAL POSITION WHICH DOES NOT BIN D THE ASSESSEE. IF IT LATER TRANSPIRES THAT THE CONCESSION WAS GIV EN UNDER A MISTAKEN IMPRESSION OF THE TRUE LEGAL POSITION, THE ASSESSE E COULD FILE AN APPEAL AND CHALLENGE THE ASSESSMENT. (EMPHASIS SUPPLIED BY US) 33. SO FAR AS THE SECOND OBJECTION OF THE ASSESSING OFFICER THAT THESE DISPUTES WERE BETWEEN THE TWO BROTHERS, THEREFOR E, THE COMPANY NEED NOT INCUR THE EXPENDITURE AND CLAIM THE SA ME AS AN ALLOWABLE EXPENDITURE IS CONCERNED, WE ALSO DO NOT FIND ANY MERIT IN THE SAME. THE SUBMISSION OF THE LD. COUNSEL FOR T HE ASSESSEE THAT BECAUSE OF THE SETTLEMENT THE TURNOVER OF THE ASSESSEE COMPANY HAS INCREASED BY 25 TIMES COULD NOT B E CONTROVERTED BY THE LD. DEPARTMENTAL REPRESENTATIVE. I T HAS BEEN HELD IN VARIOUS DECISIONS THAT EXPENDITURE INCURRED FO R CARRYING ON BUSINESS OF ASSESSEE SMOOTHLY IS A DEDUCTIB LE EXPENDITURE. 34. WE FIND UNDER SOMEWHAT IDENTICAL CIRCUMSTANCES THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF CHEMOSYN LTD . VS. ACIT REPORTED IN 139 ITD 68 HAS HELD THAT EXPENDITURE INCURRED BY THE ASSESSEE COMPANY ON PAYMENT OF PREMIUM FOR PURC HASE OF ITS OWN SHARES FROM WARRING GROUP OF SHAREHOLDERS IS REVE NUE IN NATURE AND ALLOWABLE AS DEDUCTION. IN THAT CASE, THE SHA RES OF WARRING GROUP OF ASSESSEES WHO WERE CREATING PROBLEMS IN THE SMOOTH FUNCTIONING OF BUSINESS WERE PURCHASED BY THE ASS ESSEE COMPANY AT PREMIUM AS PER THE ORDERS OF THE COMPANY L AW BOARD AND THE SAID PREMIUM HAS BEEN CLAIMED AS DEDUCTIBLE EXPENDITURE BEING WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS. THE ASSESSING OFFICER DISALLOWED THE S AME. 21 ITA NO.1703/PN/2014 IN APPEAL THE LD.CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER HOLDING THAT THE EXPENDITURE IN QUESTION ON PAYMENT OF P REMIUM WAS INCURRED FOR THE PURPOSE OF ACQUIRING SHARES BY A GR OUP OF PERSONS AND NOT BY THE ASSESSEE COMPANY. HE HELD THA T THE SAID EXPENDITURE WAS OF PERSONAL IN NATURE AND IT CANNOT BE SAID THAT THE SAME WAS INCURRED FOR THE PURPOSE OF THE BUSINESS O F THE ASSESSEE COMPANY. WHEN THE ASSESSEE CHALLENGED THE OR DER OF THE CIT(A) BEFORE THE TRIBUNAL THE TRIBUNAL HELD THAT THE EXPENDITURE INCURRED FOR CARRYING ON BUSINESS OF ASSESSEE SMOOTHLY IS A DEDUCTIBLE EXPENDITURE. ON FURTHER APPEAL B Y THE REVENUE, THE HONBLE HIGH COURT DISMISSED THE APPEAL FILED B Y THE REVENUE BY OBSERVING AS UNDER : 9. SO FAR AS THE 2ND ISSUE AS RAISED IN QUESTION NOS. 3 AND 5 WITH REGARD TO THE NATURE OF EXPENDITURE, THE BRIEF FACT S ARE THAT THERE WAS A DISPUTE BETWEEN BROTHERS WHO TOGETHER OWNED THE RESPONDENT-ASSESSEE COMPANY. AS A CONSEQUENCE OF DIFFERENC ES BETWEEN THE TWO GROUPS, THE DISPUTE REACHED THE COMPA NY LAW BOARD AS WELL AS THE SUPREME COURT OF INDIA. THEREAFT ER, A SETTLEMENT WAS ARRIVED AT BETWEEN THE TWO WARRING GRO UPS OF SHAREHOLDERS AND AS PER DIRECTIONS OF THE COMPANY LAW B OARD THE ASSESSEE-COMPANY WAS DIRECTED TO BUY 34 % SHAREHOLDING O F ONE OF THE WARRING GROUP AND CANCEL THE SAME. THE RESPONDENT - ASSESSEE HAD CLAIMED BEFORE THE ASSESSING OFFICER THAT THE AMOUN T OF RS.6.81 CRORES (BEING THE DIFFERENCE BETWEEN CONSIDERATION PA ID AND FACE VALUE OF THE SHARES ACQUIRED FOR CANCELLATION) WAS RE VENUE EXPENDITURE. THIS ON THE BASIS THAT IN VIEW OF THE DISP UTE BETWEEN ITS SHAREHOLDERS, THE BUSINESS WAS ADVERSELY AFFECTED AND T HEREFORE, THE PAYMENT WAS EXPECTED TO BE INCURRED FOR PURPOSES O F BUSINESS. HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT THE SAME A ND HELD THE EXPENDITURE TO BE OF CAPITAL NATURE AND DISALLOWED T HE CLAIM OF REVENUE EXPENDITURE. 10. ON APPEAL, THE CIT(A) DID NOT ACCEPT THE RESPOND ENT-ASSESSEE'S CONTENTION AND UPHELD THE ORDER OF THE ASSESSING OFFICE R. ON FURTHER APPEAL, THE TRIBUNAL BY THE IMPUGNED ORDER SET ASIDE THE ORDER OF THE ASSESSING OFFICER AND THE CIT(A)'S ORDERS BY PLACING RELIANCE UPON ITS DECISION IN ECHJAY INDUSTRIES LTD VS DCIT 88 TTJ (MUMBAI) 1089 AND ON IDENTICAL FACTS AND CIRCUMSTANCES THE EXPENDITURE INCURRED BY THE ASSESSEE COMPANY TO PURCHAS E ITS SHARES WAS HELD TO DEDUCTIBLE AS REVENUE EXPENDITURE. A N APPEAL FROM THE ORDER OF THE TRIBUNAL IN ECHJAY INDUSTRIES LTD (SUPRA) WAS ALSO DISMISSED BY THIS COURT. BESIDES, THE TRIBUNAL REC ORDS A FINDING OF FACT THAT IN VIEW OF THE DISPUTE BETWEEN THE TWO WARRING GROUPS OF SHAREHOLDERS THE BUSINESS OF RESPONDENT ASSESSEE HAD SUFFERED. IT RECORDS THAT THE TOTAL SALES OF THE RESPOND ENT-ASSESSEE 22 ITA NO.1703/PN/2014 WHICH WAS IN THE RANGE OF RS.20 TO 25 CRORES PER ANNUM DURING THE PRE-DISPUTE PERIOD HAD COME DOWN TO AROUND RS 9 CRORE S IN THE FINANCIAL YEAR 1999-2000 WHEN DISPUTE AROSE AND REMAI NED IN THE RANGE OF RS.10 TO 14 CRORES DURING THE PERIOD OF LITI GATION BETWEEN ITS TWO GROUPS OF SHAREHOLDERS SPANNING OVER SIX YEARS. IT ALSO RECORDS THAT AFTER THE SETTLEMENT OF DISPUTE IN THE FINANCIAL YEAR 2005-06 THERE WAS A SUBSTANTIAL INCREASE IN THE SALES TO UCHING NEARLY RS.18 CRORES PER ANNUM. THE IMPUGNED ORDER OF THE TRIBUNAL ALSO NOTES THAT AFTER SETTLEMENT OF THE DISPUTE NEW PRO DUCTS WERE LAUNCHED BY THE RESPONDENT-ASSESSEE-COMPANY. ALL THIS WAS EVIDENCE OF THE FACT THAT THE DISPUTE BETWEEN TWO GR OUPS OF SHAREHOLDERS HAD AFFECTED THE BUSINESS OF THE COMPANY. 11. WE FIND THAT THE IMPUGNED ORDER RECORDS A FINDIN G OF FACT THAT THE AMOUNTS WHICH WERE PAID BY THE RESPONDENT ASSESSEE FO R THE PURPOSE OF PURCHASE OF ITS SHARES, TO ITS SHAREHOLDER FOR SUBSEQUENT CANCELLATION WAS EXPENDITURE INCURRED ONLY TO ENABLE SMOOTH RUNNING OF THE BUSINESS. THUS, THE EXPENDITURE WAS INCUR RED FOR CARRYING ON ITS BUSINESS SMOOTHLY AND THEREFORE, WAS A DE DUCTIBLE EXPENDITURE. THUS, THE IMPUGNED ORDER OF THE TRIBUNA L IS ESSENTIALLY A FINDING OF FACT. THE RESPONDENTS HAVE NOT BEEN ABLE TO SHOW THAT THESE FINDINGS ARE IN ANY MANNER PERVERSE OR ARBITRARY . THEREFORE, QUESTIONS NOS. 3 TO 5 DOES NOT GIVE ARISE TO ANY SUBSTANT IAL QUESTION OF LAW. THUS, QUESTION NOS.3 TO 5 ARE DISMISSED. 35. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE CONSIDER ED OPINION THAT THE EXPENDITURE OF RS.1,17,88,000/- INCURRED ON REPAIRS AND RENOVATION ON BUNGALOW LOCATED AT 70, KOREGA ON PARK, PUNE HAS TO BE ALLOWED AS A BUSINESS EXPENDITURE I N THE HANDS OF THE ASSESSEE COMPANY. WE THEREFORE SET ASIDE THE ORDER OF THE CIT(A). THE GROUND RAISED BY THE ASSESSEE IS ACCO RDINGLY ALLOWED. 36. GROUND OF APPEAL NO.4 BY THE ASSESSEE READS AS UNDER : 4(A) CONFIRMING THE PARTIAL DISALLOWANCE U/S.14A AMO UNTING TO RS.5,38,364/- IGNORING THE FACT THAT NO MATERIAL/PAP ERS WARRANTING THE DISALLOWANCE OF EXPENDITURE RELATING TO EARN EXE MPT INCOME IS FOUND AND IGNORING THE DECISIONS IN THE CASE OF ALL C ARGO GLOBAL LOGISTICS LTD. VS. DCIT 147 TTJ 513 (MUM.) (SB). (B) FAILED TO APPRECIATE THE FACT THAT DISALLOWANCE U/S.14A BY THE ASSESSING OFFICER IN ORDER U/S.143(3) R.W.S.147 AMOUNTS TO CHANGE OF OPINION. (REFER PARA 7 PAGE 15 TO 21 OF ORDER U/S.143(3) R. W.S.147 REFER PARA 6.8 PAGE 21 TO 29 OF THE CIT(A)S ORDER ). 23 ITA NO.1703/PN/2014 37. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSING OFFIC ER DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED FR OM THE COMPUTATION OF INCOME THAT THE ASSESSEE HAS CLAIMED RS.51,51,972/- AS INCOME EXEMPT U/S.10 WHICH CONSISTS OF INTEREST ON TAX FREE BOND RS.47,36,986/- AND DIVIDEND FROM DOMESTIC COMPANIES RS.4,14,986/-. THE ASSESSING OFFICER ASKE D THE ASSESSEE TO EXPLAIN AS TO WHY PROPORTIONATE EXPEND ITURE SHOULD NOT BE DISALLOWED U/S.14A R.W. RULE 8D. IT WAS EXP LAINED THAT DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDIN GS THE SAME QUESTION WAS RAISED BY THE ASSESSING OFFICER AND THE ASSESSEE HAD EXPLAINED IN DETAIL AND NO DISALLOWANCE WAS M ADE. HOWEVER, THE ASSESSING OFFICER REJECTED THE ABOVE CONTEN TION OF THE ASSESSEE AND MADE DISALLOWANCE OF RS.10,53,561/- BY APPLYING PROVISIONS OF SECTION 14A R.W. RULE 8D. IN APPEA L THE LD.CIT(A) HELD THAT ALTHOUGH PROVISIONS OF SECTION 14A ARE APPLICABLE, HOWEVER, PROVISIONS OF RULE 8D ARE NOT APPLICABLE. LINKING TO THE NATURE AND AMOUNT OF EXPENSES CLAIMED HE ESTIMATED THE EXPENDITURE AT RS.5,15,197/- BEING 10% OF T HE EXCEPT INCOME. THUS, HE SUSTAINED AN AMOUNT OF RS.5,15,197 /- AND DELETED THE BALANCE AMOUNT OF RS.5,38,364/-. 38. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 39. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE OWN CAPITAL AND FREE RESERVES OF THE ASSESSEE COMPANY ARE M UCH MORE THAN THE INVESTMENT. FURTHER, THE ASSESSING OFFICER HAS N OT PROVED THE NEXUS BETWEEN THE EXPENDITURE RELATABLE TO EARNING OF EXEMPT INCOME. IN THE ORIGINAL ASSESSMENT NO DISALLOWANCE WAS MADE U/S.14A. REFERRING TO THE DECISION OF THE THIRD MEMB ER OF 24 ITA NO.1703/PN/2014 THE TRIBUNAL IN THE CASE OF WIMCO SEEDLINGS LTD. VS. DCIT REPORTED IN 107 ITD 267 (DELHI) (TM) HE SUBMITTED THAT T HE TRIBUNAL HAS HELD THAT ONLY EXPENDITURE WHICH HAS BEEN P ROVED TO HAVE BEEN INCURRED IN RELATION TO EARNING OF TAX FREE IN COME CAN BE DISALLOWED AND SECTION 14A CANNOT BE EXTENDED TO DISALLOW SUCH EXPENDITURE WHICH IS ASSUMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF EARNING TAX FREE INCOME. REFERRING TO THE DECIS ION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIA NCE UTILITIES AND POWER LTD. HE SUBMITTED THAT THE HONBLE HIGH COURT IN THE SAID DECISION HAS HELD THAT IF THERE WERE FUNDS AVA ILABLE BOTH INTEREST FREE AND OVERDRAFT AND OR LOANS TAKEN, TH EN PRESUMPTION WOULD ARISE THAT INVESTMENT WOULD BE OUT OF T HE INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPAN Y. IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTM ENTS, THEN INTEREST IS DEDUCTIBLE U/S.36(1)(III). HE SUBMITTED THAT S INCE IN THE INSTANT CASE THE FREE RESERVES OF THE ASSESSEE COMPANY ARE MORE THAN THE INVESTMENTS MADE AND SINCE THE INTEREST RECEIVED IS MORE THAN THE INTEREST PAID, THEREFORE, NO DISALLOWANCE IS CALLED FOR. 40. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND HEAVILY RELIED ON THE ORDER OF THE CIT(A). 41. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE P APER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDER ED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE ASSESSIN G OFFICER APPLYING THE PROVISIONS OF SECTION U/S.14A R.W. RULE 8D DISALLOWED AN AMOUNT OF RS.10,53,561/- ON THE INCOME OF RS.51,51,972/- CLAIMED AS EXEMPT U/S.10. WE FIND IN APPEAL TH E 25 ITA NO.1703/PN/2014 LD.CIT(A) HELD THAT WHILE PROVISIONS OF SECTION 14A ARE APPLIC ABLE, HOWEVER, PROVISIONS OF RULE 8D ARE NOT APPLICABLE. HOWEVER, CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE HE HELD THAT 10% OF THE EXEMPT INCOME RECEIVED AS ATTRIBUTABLE TO EARNING SUCH EXEMPT INCOME. THEREFORE, HE SUSTAINED THE DISALLOWANCE AT RS.51,51,197/- AND DELETED THE BALANCE AMOUNT OF RS. 5,38,364/-. REVENUE IS NOT IN APPEAL BEFORE US FOR THE RELIEF GRANTED BY THE CIT(A). 42. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSE E THAT IN THE ORIGINAL ASSESSMENT NO DISALLOWANCE WAS MADE. FURTHER THE OWN CAPITAL AND FREE SERVES OF THE ASSESSEE COMPANY ARE MORE THAN THE INVESTMENTS MADE. IT IS ALSO HIS ARGUM ENT THAT ONLY EXPENDITURE WHICH HAS BEEN PROVED TO HAVE BEEN IN CURRED IN RELATION TO EARNING OF TAX FREE INCOME CAN BE DISALLOWED AND SECTION 14A CANNOT BE EXTENDED TO ADDITION OF SUCH EXP ENDITURE WHICH IS PRESUMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF EARNING TAX FREE INCOME. IT IS ALSO THE ARGUMENT OF THE L D. COUNSEL FOR THE ASSESSEE THAT WHEN BOTH INTEREST FREE AND INTERE ST BEARING FUNDS ARE AVAILABLE, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST FREE FUNDS GENER ATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. 43. WE FIND MERIT IN THE ABOVE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE. ADMITTEDLY, NO DISALLOWANCE WAS MADE U/S.14 A IN THE ORIGINAL ASSESSMENT PROCEEDINGS. THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE SHARE CAPITAL AND RES ERVES ARE MUCH MORE THAN THE INVESTMENT ON WHICH TAX FREE INCOME HAS BEEN EARNED COULD NOT BE CONTROVERTED BY THE LD. DEPA RTMENTAL 26 ITA NO.1703/PN/2014 REPRESENTATIVE. FURTHER, THE ASSESSING OFFICER HAS NOT PR OVED ANY NEXUS BETWEEN THE EXPENDITURE INCURRED AND EARNING OF TAX FREE DIVIDEND INCOME. THE THIRD MEMBER OF THE DELHI BENCH O F THE TRIBUNAL IN THE CASE OF WIMCO SEEDLINGS LTD. (SUPRA) HA S HELD THAT ONLY EXPENDITURE, WHICH HAS BEEN PROVED TO HAVE B EEN INCURRED IN RELATION TO EARNING OF TAX FREE INCOME CAN BE DISALLOWED AND SECTION 14A CANNOT BE EXTENDED TO DISALLOW SUCH EXPENDITURE WHICH IS ASSUMED TO HAVE BEEN INCURRED FOR T HE PURPOSE OF EARNING TAX FREE INCOME. 44. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. (SUPRA) HAS HELD THAT IF THERE WERE FUNDS AVAILABLE BOTH INTEREST FREE AND OVERDRAFT AND OR LOANS TA KEN, THEN PRESUMPTION WOULD ARISE THAT INVESTMENT WOULD BE OU T OF THE INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE CO MPANY. IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVES TMENTS. SINCE IN THE INSTANT CASE ADMITTEDLY RESERVES AND SURPLU S OF THE ASSESSEE COMPANY WAS RS.463.58 CRORES AS ON 31-03-200 5 AND THE INVESTMENTS ARE ONLY RS.200.18 CRORES, THEREFORE IN V IEW OF THE DECISIONS CITED SUPRA, WE ARE OF THE CONSIDERED OPINIO N THAT NO DISALLOWANCE U/S.14A IS CALLED FOR. IN THIS VIEW OF THE MAT TER, WE SET ASIDE THE ORDER OF THE CIT(A) AND ALLOW THE GROUND RAISED BY THE ASSESSEE. 45. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PART LY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 30-11-2016. SD/- SD/- (VIKAS AWASTHY) (R.K. PANDA) JUDICIAL MEMBER ACCOUNT ANT MEMBER PUNE; DATED : 30 TH NOVEMBER, 2016. 27 ITA NO.1703/PN/2014 ( )'+ , / COPY OF THE ORDER FORWARDED TO : / BY ORDER , // ' $ / TRUE COPY // // TRUE COPY // %& $ ) / SR. PRIVATE SECRETARY ), / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT (A ) - I I, PU NE 4. 5. THE CIT - II, PUNE ' $$), ), A BENCH / DR, ITAT, A BENCH PUNE; 6. 1 / GUARD FILE.