ITO, Faridabad V. M/s. Patram Lease Holder, Faridabad

ITA 2134/DEL/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81974 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 28-08-2014
• Assessment Year: 1997-1998
• Appeal Filed On: 29-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANOJ KUMAR CHOPRA
• Assessee Lawyers: VIVEK SH SURESH ARORA; HARISH MANGLA ADVS
• Keywords: Business income; Depreciation; Non compliance
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: F NEW DELHI BEFORE SHRI B. C. MEENA, ACCOUNTANT MEMBER AND SHRI C. M. GARG, JUDICIAL MEMBER I.T.A .NO. - 2134 /DEL/201 1 (ASSESSMENT YEAR - 1997 - 98 ) ITO, VS. M/S PATRAM LEASE HOLDER WARD - II(4), VILLAGE MANGER, FARIDABAD. FARIDABAD. PAN:AAIFP1647A (APPELLANT) (RESPONDENT) REVENUE BY: - SH. MANOJ KUMAR CHOPRA, SR. DR ASSESSEE BY: - SH. VIVEK, SH. SURESH ARORA , & SH. HARISH MANGLA, ADVS. ORDER PER C. M. GARG, JM. THIS APPEAL OF THE REVENUE HAS BEEN PREFERRED AGAI NST THE ORDER OF CIT (APPEALS), FARIDABAD , VIDE DATED 28 .0 1 .201 1 IN APPEAL NO. 2 71/2009 - 1 0 FOR THE ASSESSMENT YEAR 1997 - 98 . 2. THE REVENUE DEPARTMENT HAS RAISED FOLLOWING GROUNDS IN THIS APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN RESTRICTING THE ADDITION AT RS.10,99,631/ - AGAINST THE ADDITIONS OF RS.2,15,78,511/ - , RS.11,16,332/ - AND RS.9,80,098/ - MADE AFTER DISALLOWING THE EXPENSES CLAIMED IN THE TRADING AN D PROFIT AND LOSS ACCOUNT, IN SPITE OF THE FACTS THAT THE ASSESSEE COULD NOT PRODUCE THE BILLS/VOUCHERS FOR VERIFICATION. 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN COMPUTING THE INCOME BASED UPON RETURN OF THE ASSESSEE FOR THE ASSTT. YEAR 1996 - 97, THE AUTHENTICITY OF RESULTS DECLARED BY THE ASSESSEE IN THIS RETURN IS NOT RELIABLE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE A DDITION MADE BY DISALLOWING THE INTEREST OF RS.36,376/ - . 3. BRIEFLY STATED THE FACT; GIVING RISE TO THIS APPEAL ARE AS UNDER: (I) RETURN DECLARING AN INCOME OF RS.7,00,560/ - WAS FILED ON 31.10.1997. ORIGINAL A SSESSMENT IN THIS CASE WAS COMPLETED U/S 14 3(3) OF THE INCOME TAX ACT, 1961 ON 16.03.2000 AT AN INCOME OF RS.1,49,24,236/ - AFTER MAKING AN ADDITION OF RS.1,42,23,676/ - U/S 37 OF THE INCOME TAX ACT, 1961 ON ACCOUNT OF ROYALTY DEBITED TO TRADING ACCOUNT. ON APPEAL, THE ENTIRE ADDITION OF RS.1,42,23,6 76/ - WAS DELETED BY THE LD. COMMISSIONER OF INCOME TAX (APPEAL), FARIDABAD, VIDE ORDER DATED 15.09.2000 FOR THE PRECEDING A. YR. 1996 - 97. AGAINST THE ORDER OF LD. CIT(A), THE DEPARTMENT PREFERRED 2 ND APPEAL BEFORE THE HON BLE ITAT, NEW DELHI ON 17.11.2000 WHICH WAS DISMISSED ON 06.05.2005 IN ITA NO. 4559/DEL/2000. (II) IN THE MEANTIME THE ASSESSMENT ORDER DATED 16.03.2000 PASSED BY THE THEN A.O. WAS CANCELLED BY THE THEN COMMISSIONER OF INCOME TAX, FARIDABAD BY PASSING ORDER U/S 263 OF THE I.T ACT ON 27.03.2002, TREATING THE SAME ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE ON VARIOUS ISSUES, OTHER THAN THAT PENDING BEFORE THE HON BLE ITAT WITH THE DIRECTIONS TO F RAME THE ASSESSMENT AFRESH AS PER LAW AFTER ALLOWING REASONABLE OPPORTUNITY TO THE ASSESSEE OF BEING HEARD. THE WORTHY 3 COMMISSIONER OF INCOME TAX, FARIDABAD OBSERVED THAT THE A.O. HAS FAILED TO, SEEK CLARIFICATION AND MAKE ENQUIRY AS PER DETAILS GIVEN HERE UNDER: - A) DETAILS OF EXPENSES RELATING TO TRADING ACCOUNT SUCH AS EXCAVATION, WARDER, ROAD REPAIR AND MAINTENANCE AND CARTAGE, WHICH WERE NEITHER CALLED FOR NOR ANY VERIFICATIONS WERE MADE. B) SIMILARLY THE EXPENSES DEBITED TO P & L ACCOUNT, SUCH AS SALARY, LEGAL EXPENSES, STATIONARY, NURSERY, REPAIRING, DEPRECIATION AND STAFF WELFARE HAVE NOT BEEN CALLED FOR NON VERIFIED. C) VERIFICATION OF INTRODUCTION OF CAPITAL DURING THE YEAR UNDER CONSIDERATION BY SH. REGHUNATH SHARMA, SH. SURI NDER MALIK AND SH. BHARAT SINGH AMOUNTING TO RS.4,00,000/ - , RS.75,000/ - AND RS.72,000/ - RESPECTIVELY HAVE NOT PROPERLY BE MADE. EVEN THE WITHDRAWALS MADE BY EACH PARTNER AT RS.72,000/ - HAVE NOT BEEN VERIFIED PROPERLY. D) ADDITIONS MADE TO FIXED ASSETS HAVE N OT BEEN VERIFIED. E) LISTS OF LOANS AND ADVANCE AMOUNTING TO RS.23,82,592/ - HAVE NOT BEEN VERIFIED. EVEN DETAILS HAVE NOT BEEN OBTAINED AND PLACED ON RECORD. (III) THE ASSESSEE FILED AN APPEAL AGAINST THE ORDER U/S 263 PASSED BY THE COMMISSIONER OF INCOME TA X, FARIDABAD ON 27.03.2002. THE CASE WAS TIME BARRING ON 31.03.2003 AND THE DECISION OF THE HON BLE ITAT WAS PENDING AS ON 31.03.2003. THE THEN AO HAD COMPLETED ASSESSMENT U/S 143(3) ON 31.03.2003 DUE TO LIMITATION MATTER AT AN INCOME OF RS.2,46,14,871/ - . THE HON BLE ITAT VIDE ITA NO.2366/DEL/2002 DATED 14.07.2006 SET ASIDE THE ORDER PASSED BY THE COMMISSIONER OF INCOME 4 TAX, FARIDABAD ON 27.03.2002 U/S 263 WITH THE DIRECTION TO MAKE THE ORDER AFRESH AFTER AFFORDING THE ASSESSEE AN OPPORTUNITY. AS PER THE DI RECTIONS OF THE HON BLE ITAT, NEW DELHI VIDE ITA NO. 2366/DEL/2002 DATED 14.07.2006, THE COMMISSIONER OF INCOME TAX, FARIDABAD HAS PASSED ORDER U/S 263 ON 26.03.2009 AFTER AFFORDING AN OPPORTUNITY TO THE ASSESSEE. 4. IN COMPLIANCE TO THE DIRECTIONS OF LD. CIT(A), FARIDABAD VIDE ORDER U/S 263 DATED 26.3.2009 STATUTORY NOTICES WERE ISSUED AND SERVED ON THE ASSESSEE. THE AO MADE CERTAIN ADDITIONS PERTAINING TO INCOME TAX AN D PENALTY DEBITED TO P & L A/C, PART DISALLOWANCE, DEPRECIATION AND INTEREST AND ADD ITION IN REGARD TO CAPITAL INVESTED BY PARTNERS. THE AO FINALIZE THE ASSESSMENT U/S 143(3) OF THE ACT , IN PURSUANCE TO ORDER OF LD. CIT(A), FARIDABAD U/S 263 OF THE ACT AT ASSESSED INCOME OF RS.2,53,39,920/ - AS AGAINST RETURNED INCOME OF RS.7,00,560/ - . AGG RIEVED ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A) WHICH WAS PARTLY ALLOWED BY PASSING THE IMPUGN ORDER, NOW THE REVENUE DEPARTMENT IS BEFORE THIS TRIBUNAL IN THE SECOND APPEAL WITH THE GROUNDS AS MENTIONED HEREINABOVE. GROUND NOS. 1 & 2 5. APROPOS GRO UND NOS. 1 & 2 OF THE REVENUE , THE LD. DEPARTMENTAL REPRESENTATIVE (DR) SUBMITTED THAT THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN RESTRICTING THE ADDITION AT RS.10, 99,631/ - AGAINST THE HUGE ADDITIONS MADE BY THE AO AFTER ASSUMING 50% OF THE EXPENSES CLAIMED IN THE TRADING IN THE P & L A/C IN SPITE OF THE FACT THAT THE ASSESSEE COULD NOT PRODUCE SUPPORTING BILLS, 5 VOUCHERS AND OTHER DOCUMENTS AND DETAILS FOR EXAMINATIO N AND VERIFICATION BEFORE THE AO. 6. THE LD. DR FURTHER CONTENDED THAT THE LD. CIT(A) HAS ERRED IN COMPUTING THE TOTAL INCOME BASED UPON THE RETURN OF THE ASSESSEE FOR A.Y. 1996 - 97. AS THE AUTHENTICITY OF THE RESULTS DECLARED BY THE ASSESSEE IN THIS RETUR N WAS NOT RELIABLE AND ABSOLUTELY ACCEPTABLE. THE LD. DR PRAYED THAT THE IMPUGN ED ORDER MAY BE SET ASIDE BY RESTORING THAT OF THE AO . 7 . THE LD. COUNSEL FOR THE ASSESSEE SUPPORTED THE IMPUGN ED ORDER AND DRAWN OUR ATTENTION TOWARDS OBSERVATIONS OF THE LD. CIT(A) AT PAGE 21 AND SUBMITTED THAT THE LD. CIT(A) SUSTAINED THE ACTION OF THE AO, REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE, THEREFORE, THE LD. CIT(A) RIGHTLY PROCEEDED TO ESTIMATE THE INCOME OF THE ASSESSEE ON THE BASIS OF ACCOUNTING RESULTS OF THE ASSESSEE PERTAINING TO ASSESSMENT YEAR 1996 - 97 AND TAKING THE GP RATE OF 11.22%. 8 . THE LD. COUNSEL FOR THE ASSESSEE FURTHER CONTENDED THAT THE G.P. RATE OF 11.22% WAS ACCEPTED BY THE REVENUE FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR THAT WAS 1996 - 97 IN ASSESSEE S CASE WHICH WAS RIGHTLY ACCEPTED BY THE LD. CIT(A) HAS A GOOD COMPARABLE FOR ESTIMATION OF INCOME OF THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. THE LD. AR OF THE ASSESSEE PLACED HIS RELIANCE ON THE DECISION OF HON BLE SUPREME CO URT IN THE CASE OF BRIJ BHUSHAN LAL PRADUMAN KUMAR VS. CIT 115 ITR 524 (SC) AND IN THE CASE OF K.Y. PILLIAH AND SONS 63 ITR 411 (SC) AND SUBMITTED THAT ONCE THE BOOKS OF ACCOUNT OF THE 6 ASSESSEE WERE REJECTED AND FIRM FURNISHED NO EXPLANATION AT ALL AS TO WHY PROFIT AT THE NORMAL RATE WAS NOT EARNED, THEN WAS OPENED TO THE INCOME TAX OFFICER TO ESTIMATE THE GROSS PROFIT AT THE RATE AND WHICH PROFIT WAS EARNED IN THE SIMILAR BUSINESS BY THE OTHER MERCHANTS. IN THE PRESENT CASE THE LD. CIT(A) ACCEPTED THE RES ULTS OF THE ASSESSEE FOR THE IMMEDIATELY PRECEDING YEAR AS A GOOD COMPARABLE WHICH WERE ALREADY ACCEPTED BY THE AO IN THAT YEAR. 9 . ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS, WE OBSERVE THAT THE LD. CIT(A) HAS RESTRICTED THE DISALLOWANCE OF RS.10,99,6 31/ - BY OBSERVING AND CONCLUDING AS UNDER: HAVING SUSTAINED THE REJECTION OF THE BOOKS OF ACCOUNTS, THE NEXT ISSUE THAT NEEDS CONSIDERATION IS WITH REGARD TO THE COMPUTATION OF INCOME BY ESTIMATION OF INCOME. I HAVE ALREADY HELD THAT THE AO WAS NOT AT ALL JUSTIFIED IN DISALLOWING 50% OF THE TOTAL EXPENSED CLAIMED BY THE APPELLANT . THE AO HAS NEITHER BROUGHT ANY MATERIAL ON RECORD TO ESTABLISH THE FACT THAT 50% OF THE EXPENSES WERE EITHER UNVOUCHED OR NOT SUPPORTED OR SUPPORTED BY BOGUS VOUCHERS. THE HON'BL E SUPREME COURT IN THE CASE OF K . Y. PILLIAH AND SONS (63 ITR 411), HAS HELD THAT ONCE THE BOOKS OF ACCOUNT OF THE ASSESSEES WERE REJECTED AND FIRM FURNISHED NO EXPLANATION AT ALL AS TO WHY PROFIT AT THE NORMAL RATE WAS NOT EARNED, IT WAS OPEN TO THE INCOM E - TAX OFFICER TO ESTIMATE THE GROSS PROFIT AT A RATE AT WHICH PROFIT WAS EARNED IN SIMILAR BUSINESS BY OTHER MERCHANTS. FURTHER, IT HAS BEEN HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF DHAKESHWARI 7 COTTON MILLS LTD. VS. C IT (26 ITR 775) THAT THE ITO IS NOT ENTITLED TO MAKE A PURE GUESS AND MAKE AN ASSESSMENT WITHOUT REFERENCE TO ANY MATERIAL OR EVIDENCE. THERE MUST BE SOMETHING MORE THAN BARE SUSPICION TO SUPPOR T THE ASSESSMENT . IT IS ALSO A WELL SETTLED LAW THAT IT IS THE ACTUAL REAL INCOME EARNED WHIC H IS TO BE TAXED AND THE AO MUST ASCERTAIN ACTUAL REAL INCOME OF THE ASSESSEE . HE MUST NOT CALCULATE THE INCOME OF THE ASSESSEE BY FORMING A MATHEMATICAL FORMULA. THE HON'BLE SUPREME COURT IN THE CASE OF CIT V. SIMON CARVES (105 ITR 205) HAS HELD THAT TAX AUTHORITIES WOULD NOT BE ACTING PROPERLY AND JUDICIALLY IF THEY EXERCISE THEIR POWER IN THE MANNER MOST BENEFICIAL TO THE REVENUE AND CONSEQUENTLY MOST ADVERSE TO THE ASSESSEE. IT IS ALSO SETTLED LAW THAT THE POWERS GIVEN TO THE AO UNDER THE ACT ARE COUPLE D WITH A DUTY TO EXERCISE THEM WHEN THE STATUTORY PROVISIONS WARRANT THEIR EXERCISE . IT HAS ALSO BEEN HELD BY HON'BLE SUPREME COURT IN THE CASE OF BRIJ BHUSHAN LAL PRADUMAN KUMAR VS . CIT (115 ITR 524) THAT EVEN THE BEST JUDGMENT ASSESSMEN T SHOULD BE MADE I N ACCORDANCE WITH FAIR PLAY AND NATURAL JUSTIC E. TH E ASSESSING OFFICER MUST NOT ACT VINDICTIVELY OR CAPRICIOUS L Y OR WITH A VI E W O PUNISH THE ASSESSEE FOR NON COMPLIANCE. THE LEARNED COUNS EL H AS SO RELIED UPON SEVERAL JUDICIAL RULINGS TO SUPPORT HIS CO NT ENT I O N THAT AFTER REJECTING THE BOOKS OF ACCOUN T S , THE AO WAS REQU I RED TO EST I MA TE TH E INCOME TO THE BEST OF HIS JUDGEMENT AND NO T BY DIS A LLO WI NG THE EXPENSES PURELY ON GUESS WORK AND ESTIMATE BASIS. THE D E CIS I ONS R ELIE D UPON BY THE LEARNED COUNSEL SUPPORT THE CASE O F APPELLAN T O N 8 T H IS CONTENTION. IN THE PRECEDING A. Y . 1996 - 97 , THE APPELLANT H AS D EC L ARED NE T PROFIT O F RS.24,85 , 527 / - O N TH E T UR NOVE R O F R S.2,21,51,608/ - RE SULTING INTO GP R A T E O F 1 1 .22%. T HE A O AS WEL L A S T H E APPELLANT HAVE NOT CITED ANY COMPARABLE CASE FOR ESTIMATION OF INCOME. HENCE, THE PAS T HISTORY OF THE APPELLANT CAN BE CONSIDERED TO BE THE BEST JUDGE. IN T HE YEAR UNDER APPEAL, THE APPELLANT HAS SHOWN GROSS PROFIT OF RS.59,98,881/ - ON THE TOTAL SALES OF RS.6,33,79,579/ - LEADING TO GP RATE OF 9 . 47%. HENCE, THERE IS DECLINE IN GP BY 1 . 75% DURING THE YEAR UNDER APPEAL. KEEPING IN VIEW THE FACTUAL AND LEGAL POSITION DISCUSSED ABOVE, IT WOULD BE FAIR AND REASONABLE TO ESTIMATE THE INCOME BY APPLYING GP RATE OF 11 . 20%. HENCE, THE TOTAL GP W ORKS OUT TO RS.70,98,512/ - AS AGAINST THE GP OF RS.59,98,881/ - DECLARED BY THE APPELLANT. THEREFORE, THE ADDITION TO THE EXTENT OF DIFFERENCE IN GP AMOUNTING TO RS. 1 0,99,631/ - IS CON F IRMED AND BALANCE ADDITION MADE BY THE AO BY DISALLOWING 50% OF THE EXPENSES IS DELETED. IN THE CASE OF CIT VS. BANWARI LAL BANSHIDHAR, THE HON'BLE HIGH COURT OF ALLAHABAD (229 ITR 229) HAS HELD THAT WHERE INCOME OF ASSESSEE WAS COMPUTED BY APPLYING GROSS PROFIT RATE AND WHEN NO DEDUCTION WAS CLA IMED OR ALLOWED TO ASSESSEE IN RESPECT OF PURCHASES, NO DISALLOWANCE UNDER SECTION 40A(3), READ WITH RULE 6DD(J), COULD BE MADE . THE HON'BLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF CIT VS. AGGARWAL ENGINEERING CO . (156 TAXMAN 40) HAS HELD THAT ONCE NE T PROFIT RATE WAS APPLIED ON CONTRACT RECEIPTS OF ASSESSEE FOR ESTIMATING INCOME FROM CONTRACT 9 WORK, NO FURTHER ADDITION WAS CALLED FOR IN RESPECT OF PURCHASES AND INTRODUCTION OF CASH. THEREFORE, WHEN THE BOOKS OF ACCOUNT ARE REJECTED AND INCOME IS COMPUT ED BY APPLYING THE NET PROFIT RATE, THE SAME BOOKS OF ACCOUNTS CANNOT BE MADE THE BASIS FOR MAKING DISALLOWANCE OF SPECIFIC EXPENSES. 1 0 . HAVING HEARD IN VIEW OF ABOVE, WE ARE OF THE CONSIDERED OPINION THAT THE LD. CIT(A) SUSTAIN THE REJECTION OF BOOKS O F ACCOUNT BY THE AO AND THE LD. CIT(A) FURTHER PROCEEDED TO ESTIMATE THE INCOME OF THE ASSESSEE BY TAKING G.P. RATE OF 11.22% OF THE ASSESSEE FOR IMMEDIATELY PRECEDING YEAR I.E. 1996 - 97 WHICH WAS ALSO ACCEPTED BY THE DEPARTMENT. THE LD. CIT(A) RIGHTLY HELD THAT THE ASSESSEE HAS SHOWN GROSS PROFIT OF RS.59,98 ,881/ - ON THE TOTAL SALES OF RS.6,33,79,579/ - LEADING TO G.P. RATE OF 9.47%. HENCE, THE LD. CIT(A) NOTICED DECLINE IN G.P. RATE OF 1.75% OF THE TOTAL SALES DURING THE YEAR UNDER CONSIDERATION. WE ALSO IN AGREEMENT WITH THE CONCLUSION OF THE LD. CIT(A) WHEREIN THE FIRST APPELLATE AUTHORITY ESTIMATED THE INCOME OF THE ASSESSEE BY TAKING G.P. RATE OF 11.2 0% WHICH WAS WORKED OUT TO 70,98,512/ - AS AGAINST THE DECLARED G.P. OF RS.59,98,881/ - DECLARED BY THE A SSESSEE IN THE RETURN OF INCOME. THUS THE LD. CIT(A) WAS QUITE JUSTIFIED IN MAKING THE ADDITION AND WE ARE UNABLE TO SEE ANY PERVERSITY OR AMBIGUITY OR ANY OTHER VALID REASON TO SEE WITH THE FINDINGS OF THE LD. CIT(A) AND WE UPHELD THE SAME. ACCORDINGLY GR OUND NOS. 1 & 2 OF THE REVENUE ARE DISMISSED. 10 GROUND NO. 3 1 1 . APROPOS GROUND NO. 3 THE LD. DR SUBMITTED THAT THE AO MADE ADDITION OF RS.36,376/ - BY OBSERVING THAT THE ASSESSEE HAS SHOWN LOAN AND ADVANCE OF RS.7 ,05,000/ - BUT NO INTEREST HAS BEEN CHARGED ON THESE ADVANCES WHEREAS THE ASSESSEE PAID INTEREST OF RS.36,376/ - HAS SHOWN IN THE P & L A/C THEREFORE, THE SAME WAS RIGHTLY DISALLOWED BY THE AO. 1 2 . THE LD. DR VEHEMENTLY CONTENDED THAT THE LD. CIT(A) HAS ERR ED ON FACTS AND IN LAW IN DELETING THE IMPUGNED ADDITION. THE LD. DR FINALLY PRAYED THAT THE IMPUGNED ORDER MAY BE SET ASIDE BY RESTORING THAT BY THE AO. 1 3 . REPLYING TO THE ABOVE THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AO MADE ADDITION WITHOUT ESTABLISHING THE NEXUS OF BORROWED FUNDS WITH THE FUNDS ADVANCED AS INTEREST FREE LOAN, THEREFORE, THE DISALLOWANCE OF INTEREST IS NOT LEGALLY SUSTAINABLE AN D THE SAME WAS RIGHTLY DISALLOWED BY THE LD. CIT(A). 1 4 . FROM THE CAREFUL PERUSAL IN THE IMPUGNED ORDER WE OBSERVE THAT THE LD. CIT(A) HAS DELETED THE IMPUGNED ADDITION TAKING TO INTEREST WITH FOLLOWING FINDINGS: 6.7. IN THE ASSESSMENT ORDER DATED 31 . 03 . 2003 PASSED PURSUANT TO THE ORDER UNDER SECTION 263 O F THE ACT, THE AO HAS NOT MADE ANY ADDITION ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION AND DISALLOWANCE OF INTEREST. HOWEVER, IN THE ORDER UNDER APPEAL, THE AO HAS DISALLOWED DEPRECIATION OF RS.6,67,005/ - AND 11 INTEREST OF RS.36,376/ - . THE APPELLANT HAS FILED COPIES OF BILLS OF ADDITIONS IN THE ASSETS DULY CERTIFIED BY THE PRESENT AO WHICH LEADS TO THE INFERENCE THAT THE AO HAS NOT CONSIDERED THESE EVIDENCE ALREADY ON HIS RECORDS AND DISALLOWED ENTIRE DEPRE CIATION. FURTHER, THE DISALLOWANCE OF INTEREST IS ALSO WITHOUT ESTABLISHING THE NEXUS OF BORROWED FUNDS WITH THE FUNDS ADVANCES INTEREST FREE. THE DISALLOWANCE OF INTEREST IS THEREFORE, NOT LEGALLY SUSTAINABLE. KEEPING IN VIEW THE FACT THAT THE BILLS FOR T HE PURCHASES OF ASSETS WERE ALREADY IN THE FILE OF ASSESSEE AND THE PREVIOUS AO HAS NOT DRAWN ANY ADVERSE INFERENCE ON THIS ISSUE, THE DISALLOWANCE OF DEPRECIATION IS NOT JUSTIFIED. HENCE, THE GROUNDS OF APPEAL TAKEN UP BY THE APPELLANT IN GROUND NO.1(E) & (F) OF APPEAL ARE ALLOWED. 1 5 . ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS AND OPERATIVE PART IN THE IMPUGN ORDER WE NOTE THAT THE AO HAS MADE DISALLOWANCE OF INTEREST OF RS.36,376/ - BUT THE AO HAS NOT BROUGHT OUT ANY ADVERSE MATERIAL OR FACT TO SUPPOR T THE DISALLOWANCE OF INTEREST AND THE ADDITION HAS BEEN MADE WITHOUT ESTABLISHING THE NEXUS OF BORROWED FUNDS WITH THE FUNDS ADVANCED AS INTEREST FREE LOAN. WE ALSO OBSERVE THAT THE AO HAS PICKED UP INTEREST FREE LOAN AN ADVANCE OF RS.7,0,5,000/ - GIVEN TO MS. SALINI SAXENA AND TO PYTHEN MINES P. AND HAS MADE DISALLOWANCE OF ENTIRE AMOUNT OF INTEREST CLAIMED BY THE ASSESSEE IN P& L A/C BUT WE ARE UNABLE TO SEE ANY NEXUS OF BORROWED FUNDS WITH THE FUNDS ADVANCED TO THE AFOREMENTIONED DEBTORS AS INTEREST FREE LOAN. THUS, WE 12 UPHELD THE FINDINGS AND CONCLUSION OF THE LD. CIT(A) IN THIS REGARD. FINALLY GROUND NO. 3 OF THE REVENUE BEING DEVOID OF MERIT IS ALSO DISMISSED. 1 6 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 /10/2014. SD/ - SD/ - (B. C. MEENA ) (C. M. GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 31 /10/2014 *AK VERMA* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR