Dy. Commissioner of Income Tax -4, Kanpur V. M/s. Tread Stone .Ltd., Kanpur

ITA 216/LKW/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87782 (ITAT-LUCKNOW)
• Duration Of Justice: 2 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 24-02-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 24-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PUNIT KUMAR
• Keywords: Opportunity of being heard; Rule of consistency; Bad and doubtful debts; Deemed dividend; Notional interest; Commercial expediency
• Section: 40A(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI. A. K. GARODIA, ACCOUNTANT MEMBER ITA NO. 216/LKW/2012 ASSESSMENT YEAR: 2007 - 08 DCIT - 4 KANPUR V. M/S TREAD STONE LTD. 39, FACTORY AREA FAZALGANJ, KANPUR T AN /PAN : AAACL2544H (APP ELL ANT) (RESPONDENT) ITA NO. 523 & 524/LKW/2012 ASSESSMENT YEAR: 2008 - 09 & 2009 - 10 DCIT - 4 KANPUR V. M/S TREAD STONE LTD. 39, FACTORY AREA FAZALGANJ, KANPUR T AN /PAN : AAACL2544H (APP ELL ANT) (RE SPONDENT) APP ELL ANT BY: SHRI. PUNIT KUMAR, D.R. RESPONDENT BY: SHRI. RAKESH GARG, ADVOCATE DATE OF HEARING: 24 02 201 5 DATE OF PRONOUNCEMENT: 25 0 3 2015 O R D E R PER SUNIL KUMAR YADAV: THESE APPEALS ARE PREFERRED BY THE REVENUE AGAINST THE RESPECTIVE ORDERS OF THE LD. CIT(A) FOR ASSESSMENT YEARS 2007-08, 2008-09 AND 2009-10. :-2-: 2. SINCE THESE APPEALS WERE HEARD TOGETHER, THESE ARE BEING DISPOSED OF THROUGH THIS CONSOLIDATED ORDER. WE, HOWEVER, TAKE UP THESE APPEALS ONE AFTER THE OTHER. I.T.A. NO. 216/LKW/2012: 3. THROUGH THIS APPEAL, THE REVENUE HAS RAISED THE FOL LOWING GROUNDS ASSAILING THE ORDER OF THE LD. CIT(A):- 1. THAT THE ORDER OF LD. COMMISSIONER OF INCOME TAX (A ) - I, KANPUR ERRED IN LAW ON FACTS BY REDUCING THE DISALL OWANCE U/S 14A FROM RS.2,53,213/- TO RS.50,000/- PER ANNUM IGNORIN G THE FACTS THAT THE ASSESSEE COMPANY DURING THE COURSE OF ASSE SSMENT PROCEEDINGS WAS NOT ABLE TO PROVIDE THE DETAILS OF EXPENSES INCURRED IN RELATION TO EXEMPTED INCOME. 2. THAT THE ORDER OF LD. COMMISSIONER OF INCOME TAX (A ) - I, KANPUR ERRED IN LAW ON FACTS IN DELETING THE DISALL OWANCE OF PROPORTIONATE NOTIONAL INTEREST OF RS.31.25.663/- O N THE UNSECURED LOAN ADVANCED TO M/S SKYLINE HABITAT PVT. LTD. AND ROOPSHREE HOUSING CONSTRUCTION PVT. LTD. OUT OF INTEREST BEAR ING SECURED LOAN BARROWED FROM FINANCIAL INSTITUTIONS BY THE ASSESSE E COMPANY AS THIS WAS NOT USED FOR BUSINESS PURPOSES. 3. THAT THE ORDER OF LD. COMMISSIONER OF INCOME TAX (A ) - I, KANPUR BEING ERRONEOUS IN LAW AND ON THE FACTS DESE RVES TO BE VACATED AND THAT THE ORDER OF ASSESSING OFFICER IS RESTORED. 4. APROPOS GROUND NO.1, IT IS NOTICED THAT THE ASSESSE E HAS DECLARED INCOME AT RS.10,29,240/- WHICH DOES NOT FORM PART O F THE TOTAL INCOME, AS THE SAME HAS BEEN CLAIMED EXEMPT UNDER SECTION 10 O F THE INCOME-TAX ACT, 1961 (HEREINAFTER CALLED IN SHORT THE ACT'). HAVI NG INVOKED THE PROVISIONS OF SECTION 14A OF THE ACT, THE ASSESSING OFFICER HA S MADE DISALLOWANCE OF RS.2,53,213/- AS EXPENDITURE INCURRED TOWARDS EXEMP TED INCOME, RELYING UPON HIS ORDER FOR ASSESSMENT YEAR 2006-07. :-3-: 5. WHEN AN APPEAL WAS PREFERRED BEFORE THE LD. CIT(A), THE LD. CIT(A) OBSERVED THAT RULE 8D OF THE INCOME-TAX RULES (HERE INAFTER CALLED IN SHORT THE RULE') WOULD BE APPLICABLE ONLY FROM ASSESSMEN T YEAR 2008-09 AND NOT FOR EARLIER ASSESSMENT YEAR IN THE LIGHT OF THE JUD GMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE. SINCE RULE 8D OF THE RULES COULD NOT BE INVOKED IN THIS ASSESSMENT YEAR, THE LD. CIT(A) HAS ESTIMATED THE EXPENDITURE AT RS.50,000/- AND RESTRI CTED THE DISALLOWANCE FROM RS.2,53,213/- TO RS.50,000/-, HAVING RELIED UP ON HIS ORDER FOR ASSESSMENT YEAR 2006-07. 6. AGGRIEVED, THE REVENUE HAS PREFERRED AN APPEAL BEFO RE THE TRIBUNAL AND PLACED RELIANCE UPON THE ORDER OF THE ASSESSING OFFICER; WHEREAS THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT PROVISI ONS OF RULE 8D OF THE RULES WOULD NOT BE APPLICABLE DURING THE IMPUGNED A SSESSMENT YEAR, AS IT WOULD APPLY ONLY FROM ASSESSMENT YEAR 2008-09 IN TH E LIGHT OF THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CA SE OF GODREJ AND BOYCE. SINCE THE LD. CIT(A) HAS ESTIMATED THE EXPE NDITURE AT RS.50,000/- RELYING UPON HIS EARLIER ORDER FOR ASSESSMENT YEAR 2006-07, NO FURTHER DISALLOWANCE CAN BE MADE. 7. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWER A UTHORITIES, WE FIND THAT UNDISPUTEDLY THE PROVISIONS OF RULE 8D OF THE RULES WOULD NOT APPLY DURING THE IMPUGNED ASSESSMENT YEAR, AS IT WOULD BE APPLICABLE FROM 2008- 09 IN THE LIGHT OF THE JUDGMENT OF THE HON'BLE BOMB AY HIGH COURT IN THE CASE OF GODREJ AND BOYCE. SINCE THE LD. CIT(A) HA S MADE DISALLOWANCE FOLLOWING HIS OWN ORDER FOR IMMEDIATELY PRECEDING Y EAR, WE FIND NO INFIRMITY THEREIN, AS THE DISALLOWANCE IS TO BE ESTIMATED IN THE ABSENCE OF RULE 8D OF THE RULES. 8. THE NEXT GROUND IN THIS APPEAL RELATES TO THE DISAL LOWANCE OF PROPORTIONATE NOTIONAL INTEREST OF RS.31,25,663/- O N THE UNSECURED LOAN :-4-: ADVANCED TO M/S SKYLINE HABITAT PVT. LTD. AND M/S R OOPSHREE HOUSING CONSTRUCTION PVT. LTD. OUT OF INTEREST BEARING SECU RED LOAN BORROWED FROM FINANCIAL INSTITUTIONS BY THE ASSESSEE-COMPANY. 9. IN THIS REGARD, IT IS NOTICED FROM THE ORDERS OF TH E LOWER AUTHORITIES THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, T HE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE-COMPANY HAS ADVANCED LOANS TO M/S SKYLINE HABITAT PVT. LTD. AND M/S ROOPSHREE HOUSING CONSTRUCTION PVT. LTD., ON WHICH NO INTEREST HAS BEEN CHARGED. THE ASSESSI NG OFFICER FURTHER NOTICED THAT THE ASSESSEE-COMPANY HAS BORROWED FUND S AND HAD PAID INTEREST. ACCORDINGLY, THE ASSESSING OFFICER WORKE D OUT INTEREST @ 12% ON THE LOANS ADVANCED TO M/S SKYLINE HABITAT PVT. LTD. AND M/S ROOPSHREE HOUSING CONSTRUCTION PVT. LTD. AND DISALLOWED THE S AME. 10. AGAINST THE DISALLOWANCE, ASSESSEE PREFERRED AN APP EAL BEFORE THE LD. CIT(A) WITH THE SUBMISSION THAT A JOINT VENTURE AGR EEMENT HAS BEEN ENTERED UPON BETWEEN M/S SKYLINE HABITAT PVT. LTD. & M/S ROOPSHREE HOUSING CONSTRUCTION PVT. LTD. AND THE ASSESSEE-COM PANY. THESE COMPANIES HAVE JOINTLY PARTICIPATED IN A TENDER/AUC TION OF HUDA FOR PURCHASE OF LAND. THE LAND HAS BEEN PURCHASED IN T HE NAME OF M/S SKYLINE HABITAT PVT. LTD. AND M/S ROOPSHREE HOUSING CONSTRU CTION PVT. LTD. FROM HUDA. THE FUNDS HAD BEEN PROVIDED BY THE ASSESSEE- COMPANY. THUS, THE FUNDS ADVANCED TO M/S SKYLINE HABITAT PVT. LTD. AND M/S ROOPSHREE HOUSING CONSTRUCTION PVT. LTD., ARE AS A RESULT OF JOINT VENTURE AGREEMENT ENTERED UPON WITH THEM. THE JOINT VENTURE AGREEMEN T WAS ACCEPTED BY THE ASSESSING OFFICER AND HE HAS ADMITTED THE TRANSACTI ON WITH THE AFORESAID COMPANIES AS A MEASURE OF COMMERCIAL EXPEDIENCY. I T WAS FURTHER CONTENDED THAT ONCE THE TRANSACTION HAS BEEN CONSID ERED AS THAT ARISING OUT OF BUSINESS NECESSITY AND BEING COMMERCIAL IN N ATURE, QUESTION OF DISALLOWANCE OF INTEREST DOES NOT ARISE. IT WAS FU RTHER CONTENDED THAT THE DISALLOWANCE OF INTEREST WAS MADE FOR THE REASON TH AT INTEREST OUGHT TO :-5-: HAVE BEEN CHARGED BY THE ASSESSEE-COMPANY ON THE AM OUNT INVESTED BY IT IN THE JOINT VENTURE. 11. THE ASSESSEE HAS FURTHER PLACED RELIANCE UPON THE J UDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF S. A. BUILDERS , 288 ITR 1 (SC). THE ASSESSEE HAS ALSO PLACED RELIANCE UPON THE MINUTES OF THE MEETING OF THE BOARD OF DIRECTORS. IT WAS ALSO CONTENDED THAT BOT H THE COMPANIES ARE CLOSELY HELD COMPANIES, IN WHICH ALL THE SHAREHOLDE RS AND DIRECTORS OF THE ASSESSEE-COMPANY ARE INTERESTED AND THE JOINT VENTU RE AGREEMENT WAS EXECUTED BETWEEN THE AFORESAID TWO COMPANIES AND TH E ASSESSEE AND THIS JOINT VENTURE AGREEMENT WAS APPROVED IN THE MEETING OF THE RESPECTIVE BOARD OF DIRECTORS. IT WAS AGREED THAT THE LAND WO ULD BE PURCHASED FROM HUDA IN THE NAME OF M/S SKYLINE HABITAT PVT. LTD. A ND M/S ROOPSHREE HOUSING CONSTRUCTION PVT. LTD. FROM THE FUNDS OF TH E ASSESSEE-COMPANY. COPY OF THE JOINT VENTURE AGREEMENT WAS ALSO FILED BEFORE THE LD. CIT(A). THE ASSESSEE HAS FILED WRITTEN SUBMISSIONS BEFORE T HE LD. CIT(A) AND THE LD. CIT(A) HAS TAKEN INTO ACCOUNT THE COMPLETE DETAILS OF THE JOINT VENTURE AND THE RESOLUTIONS PASSED BY THE BOARD OF DIRECTORS AN D WAS OF THE VIEW THAT IF EARLIER PAYMENTS MADE BY THE ASSESSEE-COMPANY TO TH ESE COMPANIES HAVE BEEN CONSIDERED BY THE ASSESSING OFFICER AS ON ACCO UNT OF BUSINESS EXIGENCY, THERE IS NO REASON TO CONSIDER THE SUBSEQ UENT PAYMENTS MADE TO THE SAME COMPANIES FOR THE SAME PROJECT NOT FOR THE BUSINESS EXPEDIENCY. HE WAS ALSO OF THE VIEW THAT IT IS NOT NECESSARY TH AT EVERY PAYMENT TO THE PROJECT UNDERTAKEN BY A COMPANY HAS TO BE BACKED BY THE BOARDS RESOLUTION, ESPECIALLY WHEN SUCH APPROVAL WAS TAKEN AT THE START OF THE PROJECT. THE LD. CIT(A) ACCORDINGLY DELETED THE DI SALLOWANCE OF INTEREST. 12. AGGRIEVED, THE REVENUE HAS PREFERRED AN APPEAL BEFO RE THE TRIBUNAL AND HAS PLACED RELIANCE UPON THE ORDER OF THE ASSES SING OFFICER; WHEREAS THE LD. COUNSEL FOR THE ASSESSEE, BESIDES PLACING R ELIANCE UPON THE ORDER OF THE LD. CIT(A), HAS INVITED OUR ATTENTION TO THE ME MORANDUM OF :-6-: UNDERSTANDING APPEARING AT PAGES 12 AND 13 OF THE C OMPILATION OF THE ASSESSEE, IN WHICH IT HAS BEEN CATEGORICALLY SPECIF IED THAT THE PAYMENTS TO HUDA SHALL BE MADE DIRECTLY BY THE ASSESSEE IN RESP ECT OF THIS JOINT VENTURE. IT IS ALSO SPECIFIED IN THIS JOINT VENTUR E THAT THE APPLICATION FOR ALLOTMENT OF LAND/PLOT/BID TO HUDA SHALL BE MADE BY M/S SKYLINE HABITAT PVT. LTD. AND M/S ROOPSHREE HOUSING CONSTRUCTION PV T. LTD. ON BEHALF OF THE JOINT VENTURE AND NECESSARY FUNDS SHALL BE PROVIDED BY THE ASSESSEE. IT WAS FURTHER CLARIFIED THAT THE REGISTRATION AND ALL PAPER WORK SHALL BE DONE IN THE JOINT NAMES. THE LD. COUNSEL FOR THE ASSESS EE HAS FURTHER INVITED OUR ATTENTION TO OTHER CLAUSES OF THE MEMORANDUM OF UND ERSTANDING (MOU) WITH REGARD TO THE APPROPRIATION OF SALE PROCEEDS. SINCE THE ASSESSEE HAS MADE INVESTMENT IN LAND PURCHASED IN THE NAME OF TH ESE COMPANIES PURSUANT TO THE TERMS OF THE MOU, THE INVESTMENT MA DE CAN ONLY BE CALLED AS BUSINESS EXIGENCY AND NO DISALLOWANCE OF INTERES T CAN BE MADE ON THESE PAYMENTS FOR THE REASON THAT THE BORROWED FUNDS WER E DIVERTED FOR NON- BUSINESS PURPOSES. HE HAS ALSO INVITED OUR ATTENTI ON TO THE RESOLUTION PASSED BY THE BOARD OF DIRECTORS OF THE ASSESSEE-CO MPANY AS WELL AS THE OTHER COMPANIES ALSO, IN WHICH IT HAS BEEN RESOLVED THAT THE ASSESSEE- COMPANY WOULD FORM A CONSORTIUM WITH THESE COMPANIE S TO TAKE UP THE ACTIVITIES OF DEVELOPMENT OF PROJECT ON THE LAND WH ICH WOULD BE ALLOTTED BY HUDA. THEN THE PROPOSED MOU WAS PLACED BEFORE THE BOARD OF DIRECTORS AND IT WAS APPROVED IN THE BOARD MEETING. SINCE TH E PAYMENTS WERE MADE PURSUANT TO THE CLAUSES OF THE MOU, THE INVESTMENT CAN ONLY BE HELD TO BE FOR THE BUSINESS PURPOSES. THEREFORE, THE LD. CIT( A) HAS RIGHTLY APPRECIATED THE FACTS OF THE CASE WHILE DELETING THE ADDITION. 13. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWER A UTHORITIES IN THE LIGHT OF THE RIVAL SUBMISSIONS, WE FIND THAT THE AS SESSEE HAS ENTERED INTO TWO SEPARATE MOUS WITH M/S SKYLINE HABITAT PVT. LTD . AND M/S ROOPSHREE HOUSING CONSTRUCTION PVT. LTD. AS PER THE MOU, THE INITIAL APPLICATIONS FOR :-7-: ALLOTMENT OF LAND/PLOT/BID TO HUDA SHALL BE MADE BY M/S SKYLINE HABITAT PVT. LTD. AND M/S ROOPSHREE HOUSING CONSTRUCTION PV T. LTD. AND ALL THE PAYMENTS TO HUDA SHALL BE MADE BY THE ASSESSEE-COMP ANY UNDER INTIMATION TO BOTH THE COMPANIES. IT WAS ALSO CLAR IFIED IN THE MOU THAT THE LAND/PLOT ALLOTTED SHALL BE DEVELOPED JOINTLY BY TH E ASSESSEE AND THESE COMPANIES. THE COST IN THE PROJECT WOULD BE SHARED IN THE RATIO OF 50:50 BY THE ASSESSEE WITH THESE COMPANIES AND THE PROFIT /SURPLUS/LOSS SHALL BE APPORTIONED IN THE RATIO OF 70% AND 30% TO THE ASSE SSEE-COMPANY AND THESE COMPANIES RESPECTIVELY. WE HAVE ALSO CAREFUL LY PERUSED THE RESOLUTIONS PASSED BY THE BOARD OF DIRECTORS OF THE ASSESSEE-COMPANY WHEREFROM IT IS CLEAR THAT A PROPOSAL FOR FORMING A CONSORTIUM WITH THESE COMPANIES TO TAKE UP THE ACTIVITIES OF DEVELOPMENT OF PROJECT ON THE LAND, WHICH WOULD BE ALLOTTED BY HUDA, WAS APPROVED BY TH E BOARD OF DIRECTORS. THE BOARD OF DIRECTORS HAS ALSO APPROVED THE MOU EX ECUTED BETWEEN THE ASSESSEE-COMPANY AND THESE COMPANIES. 14. IT IS ALSO AN UNDISPUTED FACT THAT THESE COMPANIES I.E. M/S SKYLINE HABITAT PVT. LTD. AND M/S ROOPSHREE HOUSING CONSTRU CTION PVT. LTD. ARE CLOSELY HELD COMPANIES, AS MOST OF THE SHARES ARE H ELD BY THE ASSESSEE- COMPANY AND ITS DIRECTORS, ETC. IN THE LIGHT OF TH ESE FACTS, IT IS ABUNDANTLY CLEAR THAT THE ASSESSEE HAS MADE PAYMENTS AS PER TE RMS AND CONDITIONS OF THE MOU TO HUDA THROUGH THESE COMPANIES. THEREFORE , THE INVESTMENT MADE BY THE ASSESSEE IN LAND/PLOT WAS FOR THE PURPO SE OF BUSINESS EXIGENCY TO TAKE UP THE ACTIVITIES OF DEVELOPMENT OF PROJECT ON THE LAND ALLOTTED BY HUDA. SINCE THE INVESTMENT WAS MADE FOR THE BUSINE SS PURPOSES, CORRESPONDING DISALLOWANCE OF INTEREST PAID ON THE BORROWED FUNDS IS NOT POSSIBLE. THIS MOU WAS EXECUTED IN FEBRUARY, 2006 AND RESOLUTIONS WERE ALSO MADE IN FEBRUARY, 2006 AND IN THAT YEAR ALSO C ERTAIN PAYMENTS WERE MADE, BUT NO DISALLOWANCE OF CORRESPONDING INTEREST WAS MADE BY THE ASSESSING OFFICER AFTER TREATING THIS INVESTMENT/PA YMENTS FOR BUSINESS :-8-: EXIGENCIES. ONCE THE ASSESSING OFFICER HAS ACCEPTE D THE MOU AS GENUINE DOCUMENTS AND THE PAYMENTS MADE PURSUANT TO THE MOU WAS FOR BUSINESS EXIGENCY, SUBSEQUENT PAYMENT CANNOT BE TREATED TO B E DIVERSION OF FUNDS FOR NON-BUSINESS PURPOSES. THEREFORE, WE ARE OF TH E VIEW THAT THE PAYMENTS MADE BY THE ASSESSEE-COMPANY EITHER TO HUD A THROUGH THESE COMPANIES FOR ALLOTMENT OF LAND IS ON ACCOUNT OF BU SINESS EXIGENCY PURSUANT TO THE MOU AND THEREFORE, NO DISALLOWANCE OF CORRESPONDING INTEREST CAN BE MADE EVEN IF THE BORROWED FUNDS WER E UTILIZED FOR MAKING THE AFORESAID INVESTMENTS. THE LD. CIT(A) HAS ADJU DICATED THE ISSUE IN PARA 4.4 OF HIS ORDER AND IN THE LIGHT OF MOU AND BOARD RESOLUTIONS, AND WE FIND NO INFIRMITY THEREIN. WE, THEREFORE, CONFIRM HIS O RDER ON THIS ISSUE. I.T.A. NO. 523/LKW/2012: 15. THROUGH THIS APPEAL, THE REVENUE HAS ASSAILED THE O RDER OF THE LD. CIT(A) ON FOLLOWING GROUNDS:- 1. THAT THE ID. COMMISSIONER OF INCOME TAX (APPEALS) H AS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 24,384/- MADE BY THE AO ON ACCOUNT OF INSURANCE POLICY PREMIUM OF ITS MD PAID IN CASH WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE BROUGHT ON RECORD BY THE AO. 2. THAT THE ID. COMMISSIONER OF INCOME TAX (APPEALS) H AS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.50,00,000/- MADE BY AO ON ACCOUNT OF KEY MAN INSURANCE POLICY P REMIUM PAID FOR TWO DAUGHTERS OF MD WHO ARE ALSO EMPLOYEES OF THE ASSESSEE COMPANY WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AS ENUMERATED IN THE ASSESSMENT ORDER. 3. THAT THE ID. COMMISSIONER OF INCOME TAX (APPEALS) H AS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 1,24,000/- DENYING BAD DEBT CLAIM OF THE ASSESSEE BEING MADE UNDER THE GUISE OF BOGUS ADJUSTMENT ENTRIES WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AS ENUMERATED IN THE ASSESSME NT ORDER. :-9-: 4. THAT THE ID. COMMISSIONER OF INCOME TAX (APPEALS) H AS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 4,09,640/- MADE BY THE AO ON ACCOUNT OF PAYMENT MADE IN CASH TO ITS MD UNDER THE GUISE OF BOOK TRANSFER FROM M/S CANADIAN SADDLE RY WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE BROUGHT ON RECORD BY THE AO. 5. THAT THE ID. COMMISSIONER OF INCOME TAX (APPEALS) H AS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 11,27,396/- MADE BY THE AO ON ACCOUNT OF FOREIGN CURRENCY FLUCT UATION WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE . 6. THAT THE ID. COMMISSIONER OF INCOME TAX (APPEALS) H AS ERRED IN LAW AND ON FACTS IN ALLOWING RELIEF TO THE ASSES SEE COMPANY TO THE TUNE OF RS.32,05,316/-OUT OF ADDITION OF RS.32, 35,326/- MADE U/S 40A(IA), RS.77,171/- OUT OF ADDITION OF RS.96,4 64/- MADE U/S 40A(3) AND RS.1,28,198/- OUT OF ADDITION OF RS.7,37 ,042/- MADE ON ACCOUNT OF PRIOR PERIOD EXPENSES WITHOUT PROPERL Y APPRECIATING THE FACTS OF THE CASE BROUGHT ON RECORD BY THE AO. 7. THAT THE ID. COMMISSIONER OF INCOME TAX (APPEALS) H AS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 1,28,865/- OUT OF TOTAL ADDITION OF RS.1,92,973/- MADE BY THE AO O N ACCOUNT OF UNACCOUNTED SALES WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE. 8. THAT THE ID. COMMISSIONER OF INCOME TAX (APPEALS) H AS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 2,24,853/- MADE BY THE AO ON ACCOUNT OF UNEXPLAINED RECEIPTS AND CL AIM OF BOGUS EXPENSES WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE. 9. THAT THE ID. COMMISSIONER OF INCOME TAX (APPEALS) H AS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 20,29,261/- MADE BY THE AO ON ACCOUNT OF DEEMED DIVIDEND U/S 2( 22)(E) WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AS ENUMERATED BY THE AO IN THE ASSESSMENT ORDER. 10. THAT THE ORDER OF THE ID. COMMISSIONER OF INCOME TA X :-10- : (APPEALS) BEING ERRONEOUS IN LAW AND ON FACTS DESER VES TO BE VACATED AND THE ORDER OF THE ASSESSING OFFICER BE R ESTORED. 16. APROPOS GROUND NO.1, IT IS NOTICED THAT THE ASSESSE E-COMPANY HAS PAID RS.24,384/- AS INSURANCE PREMIUM FOR ICICI POL ICY OF THE MANAGING DIRECTOR IN CASH, WHICH WAS CONSIDERED TO BE VIOLAT ION OF THE PROVISO TO SECTION 269T OF THE ACT AND THE SAME WAS ADDED BY T HE ASSESSING OFFICER TO THE INCOME OF THE ASSESSEE. 17. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT (A) WITH THE SUBMISSION THAT THE PROVISO TO SECTION 269T OF THE ACT IF APPLIED, THE ADDITION CANNOT BE MADE. SECTION 269T OF THE ACT S PEAKS ABOUT PENALTY CONSEQUENCES AND NOT FOR ADDITION OF INCOME ON ACCO UNT OF DISALLOWANCE OF EXPENDITURE. EVEN OTHERWISE, THERE IS NO CASH PAYM ENT BY THE COMPANY TO THE DIRECTOR. THE PAYMENT HAS BEEN MADE BY ACCOUNT PAYEE CHEQUE TO THE INSURANCE COMPANY AND DEBITED UNDER THE HEAD INSURA NCE AND AT THE END OF THE YEAR I.E. ON 31.3.2008 WAS DEBITED TO THE AC COUNT OF SHRI. K. K. WADHWA, ONE OF THE DIRECTORS BY ADJUSTMENT ENTRY. THE LD. CIT(A) RE- EXAMINED THE CLAIM IN THE LIGHT OF THE SUBMISSIONS ON BEHALF OF THE ASSESSEE AND HE WAS OF THE VIEW THAT THE COMPANY HA S PAID INSURANCE PREMIUM THROUGH ACCOUNT PAYEE CHEQUE IN RESPECT OF SHRI. K. K. WADHWA, DIRECTOR OF THE COMPANY. LATER ON, THE AMOUNT OF R S.24,384/- HAD BEEN DEBITED TO THE ACCOUNT OF THE DIRECTOR, AS THE SAID AMOUNT OF PREMIUM RELATES TO THE DIRECTOR. NO CASH PAYMENT HAS BEEN MADE, THEREFORE, THERE WAS NO VIOLATION OF THE PROVISO TO SECTION 40A(3) O F THE ACT. 18. THESE FINDINGS OF THE LD. CIT(A) WAS NOT REBUTTED B Y THE REVENUE. THE LD. D.R. HAS SIMPLY PLACED RELIANCE UPON THE OR DER OF THE ASSESSING OFFICER. :-11- : 19. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWER A UTHORITIES IN THE LIGHT OF THE RIVAL SUBMISSIONS, WE FIND THAT THE AS SESSING OFFICER HAS MADE THE ADDITION ON THE BASIS OF SURMISES WITHOUT ASCER TAINING THE FACTS THAT NO CASH TRANSACTION WAS INVOLVED IN THIS PAYMENT. THE LD. CIT(A) HAS CATEGORICALLY GIVEN A FINDING THAT THE PAYMENT OF R S.24,384/- WAS MADE THROUGH ACCOUNT PAYEE CHEQUE BY THE ASSESSEE TO ICI CI IN RESPECT OF INSURANCE PREMIUM RELATING TO SHRI. K. K. WADHWA. CONSEQUENTLY THE SAID AMOUNT WAS DEBITED TO THE ACCOUNT OF SHRI. WADHWA. THEREFORE, THERE IS NO INFIRMITY IN THIS TRANSACTION AND MORE SO NO CAS H PAYMENT WAS EVER MADE. THEREFORE, WE FIND NO JUSTIFICATION IN INVOK ING THE PROVISIONS OF SECTION 40A(3) OF THE ACT FOR MAKING THE DISALLOWAN CE. ACCORDINGLY WE FIND NO MERIT IN THIS GROUND OF THE REVENUE AND WE CONFI RM THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. 20. APROPOS GROUND NO.2, IT IS NOTICED THAT THE ASSESSE E HAS CLAIMED DEBIT OF RS.50,00,000/- AS KEY MAN INSURANCE PREMIU M ON THE LIVES OF KM. NIDHI WADHWA AND MRS PRIYANKA WADHWA (RS.25 LAKHS E ACH). BOTH THESE INSURERS ARE DAUGHTERS OF THE MANAGING DIRECTOR, SH RI. K. K. WADHWA AND ARE EMPLOYED IN THE ASSESSEE-COMPANY. THE ASSESSIN G OFFICER HAS ALSO NOTED THAT THEY ARE GETTING SALARY AT RS.3.60 LAKHS EACH FROM THE ASSESSEE- COMPANY. RELYING UPON THE ASSESSMENT ORDER FOR ASS ESSMENT YEAR 2006- 07, IN WHICH DETAILED DISCUSSIONS WERE MADE WITH RE GARD TO THE CLAIM OF KAY MAN INSURANCE PREMIUM ON THE LIVES OF KM. NIDHI WAD HWA AND MRS PRIYANKA WADHWA, THE ASSESSING OFFICER HAS MADE DIS ALLOWANCE OF THE PAYMENT OF RS.50 LAKHS AS KEY MAN INSURANCE PREMIUM , AS THERE WAS NO CHANGE IN THE CIRCUMSTANCES OF THE CASE. FOR THE S AKE OF REFERENCE, THE OBSERVATIONS OF THE ASSESSING OFFICER ARE EXTRACTED HEREUNDER IN ORDER TO UNDERSTAND THE NATURE OF DISALLOWANCE:- 'THE ASSESSEE HAS CLAIMED DEBIT OF RS. 5000000 AS K EY MAN INSURANCE PREMIUM ON THE LIVES OF KM. NIDHI WADHWA AND MRS. :-12- : PRIYANKA WADHWA (25 LACS EACH) BOTH THESE INSURERS ARE DAUGHTER OF MANAGING DIRECTOR SHRI.K.K. WADHWA BOTH IS EMPLO YED IN THE ASSESSEE COMPANY AND ARE GETTING A SALARY OF RS. 36 0000 EACH FROM THE ASSESSEE'S COMPANY. IT IS ALSO REPORTED TH AT KM. NIDHI WADHWA IS STUDYING AT UK AND RS. 1409552 HAS BEEN I NCURRED ON HER TRAINING AND STUDIES AT UK BY THE ASSESSES COMP ANY. ON THIS ISSUE OF THE KEY MAN INSURANCE PREMIUM, THE ASSESSEE COMPANIES VIDE ITS SUBMISSION DATED 21/06/2011 AND DATED 23/06/2011 SUBMITTED THAT THE POLICIES WERE ISSUED IN ACCORDANCE WITH IRDA CIRCULAR NO. IRDAL LIFE/006/2005-06 DATED 27-04- 2005.THE COUNSEL FOR THE ASSESSEE ALSO SUBMITTED TH AT THIS ISSUE IS COVERED BY MUMBAI TRIBUNAL ORDER IN CASE OF ITO VS. MODI MOTORS (2010) 1 ITR (TRIB) MUMBAI AND ACCORDINGLY, SUBNITT ED THAT THE EXPENDITURE MADE BY THE COMPANY AS KEY MAN INSURANC E PREMIUM ON THE LIVES OF KM NIDHI WADHWA AND MRS PRIYANKA WA DHWA SHOULD ALLOWED. ABOUT THE APPLICABILITY OF THE REFERRED CIRCULAR OF IRDA, DETAILED DISCUSSION HAD BEEN MADE IN ASSESSMENT ORDER FOR A. Y 2006-2007 AND THEREAFTER THE ISSUE WAS CONSIDERED IN THE LIGH T OF APPLICABILITY OF PROVISION OF SECTION 40A OF THE I.T ACT, 1961 BA SED ON THE CONCLUSION DRAWN VIDE THE ASSESSMENT ORDER FOR A.Y 2006-07 & 2007-2008, THE AMOUNT OF RS 50,00,00/-. FACTS OF TH E CASE ARE SIMILAR. THERE IS NO CHANGE IN THE CIRCUMSTANCES O F THE CASE EITHER. THE KAY MAN INSURANCE ARE SUPPOSED TO BE ALLOWED TO THE KEY MAN OF THE BODY CORPORATE WHILE PRESENTLY BOTH THESE DA UGHTERS ARE NOT KEY MAN OF THE COMPANY AND ONE OF THE DAUGHEERS IS STILL CONTINUING WITH HER STUDIES IN ABROAD, HENCE THE EX PENDITURE INCURRED ON MRS. PRIYANKA WADHWA WILL NOT BE ALLOWE D TO THE ASSESSEE COMPY AND THE SAME WILL BE ADDED TO THE IN COME OF THE ASSESSEE. THE CASE REFERRED TO BY THE COUNSEL OF T HE ASSESSEE IS ALSO NOT MUCH HELP TO THE ASSESSEE AS THE CASE CITE D BY THE COUNSEL TO THE ASSESSEE IS REGARDING THE ALLOWABILI TY OF THE EXPENDITURE INCURRED ON THE KEY MAN INSURANCE W.R.T . THE CASES OF :-13- : MANAGING DIRECTOR AND DIRECTOR AND NOT FOR THE DEPE NDENT SON OR DAUGHTER OF MD/DIRECTOR THE PAYMENT MADE ARE EXCESS IVE WITH REFERENCES RENDERED BY HIS DAUGHTERS HENCE ALSO THE SUM OF 50,00,000 IS LIABLE TO BE DISALLOW AND ADDED TO THE INCOME OF THE ASSESSEE COMPANY. THE EXPENDITURE INCURRED ON ACCOU NT OF STUDIES OF KM. NIDHI WADHWA IN UK TO THE EXTENT OF RS.14095 52 IS ALSO DISALLOWED BEING IN THE NATURE OF PERSONAL EXPENSES . I AM ALSO FORTIFIED IN THIS REGARD BY THE RATIO IN THE CASE O F K SUBRAMANIIUM BROS VS CIT (MAD) 250 ITR 769; S.N. NAIK VS CIT (IT AT), PUNE 104 ITD 516 AND ENKAY (INDIA) RUBBER CO. PVT. LTD . VS CIT (DEL) 263 ITR 521 IN WHICH INTER ALIA IT WAS HELD THAT ON EDU CATION ABROAD OF SON (WHO IS ALSO PARTNER) IS NOT ALLOWABLE EXPENDIT URE. ACCORDINGLY THE EXPENSES ON ACCOUNT OF FOREIGN EDUCATION OF THE DAUGHTER OF MANAGING DIRECTOR WILL BE ADDED TO THE INCOME OF TH E ASSESSEE COMPANY OTHER EXPENSES AS REPORTED BY THE SPECIAL A UDITOR ON ACCOUNT OF EXPENDITURE INCURRED ON KM. NIDHI WADHWA AND PRIIYANKA WADHWA ARE BEING ALLOWED AS THEY ARE EMPL OYEES OF THE ASSESSEE COMPANY. 21. THE MATTER WAS BROUGHT BEFORE THE LD. CIT(A). THE LD. CIT(A) FOLLOWED THE ORDER OF HIS PREDECESSOR FOR ASSESSMEN T YEARS 2007-08 AND 2006-07 AND DELETED THE ADDITION. 22. AGGRIEVED, THE REVENUE HAS PREFERRED AN APPEAL BEFO RE THE TRIBUNAL AND PLACED RELIANCE UPON THE ORDER OF THE ASSESSING OFFICER. THE LD. D.R., DURING THE COURSE OF HEARING OF THE APPEAL, HAS INV ITED OUR ATTENTION TO THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FO R ASSESSMENT YEAR 2006- 07 WITH THE SUBMISSION THAT UNDISPUTEDLY DURING THE ASSESSMENT YEAR 2006- 07 THE ADDITION MADE ON ACCOUNT OF KEY MAN INSURANC E PREMIUM FOR KM. NIDHI WADHWA AND MRS PRIYANKA WADHWA WAS DELETED BY THE LD. CIT(A) AND BEFORE THE TRIBUNAL THE REVENUE HAS NOT CHALLEN GED THE ORDER OF THE LD. CIT(A) ON THIS COUNT. THEREFORE, THE REVENUE HAS A CCEPTED THE FINDINGS OF :-14- : THE LD. CIT(A) WITH REGARD TO THE PAYMENT OF KEY MA N INSURANCE PREMIUM FOR KM. NIDHI WADHWA AND MRS PRIYANKA WADHWA. SIMI LAR IS THE POSITION IN ASSESSMENT YEAR 2007-08, IN WHICH THE ADDITION MADE ON ACCOUNT OF PAYMENT OF KEY MAN INSURANCE PREMIUM WAS DELETED BY THE LD. CIT(A) AND THE REVENUE HAS PREFERRED AN APPEAL BEFORE THE TRIB UNAL, BUT THE ORDER OF THE LD. CIT(A) IN THIS REGARD WAS NOT CHALLENGED. THE APPEAL FOR ASSESSMENT YEAR 2007-08 HAS BEEN ADJUDICATED BY US IN THE FOREGOING PARAS. THEREFORE, WHERE THE REVENUE HAS ACCEPTED T HE ORDER OF THE LD. CIT(A) DELETING THE ADDITION MADE ON ACCOUNT OF DIS ALLOWANCE OF PAYMENT OF KEY MAN INSURANCE PREMIUM IN THE IMMEDIATELY PRE CEDING YEAR, WE FIND NO JUSTIFICATION IN THE DISALLOWANCE MADE IN THE IM PUGNED ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2008-09. THE REVENUE CANNOT B LOW HOT AND COLD IN THE SAME BREATH. IN ONE ASSESSMENT YEAR IT HAD ACC EPTED THE CLAIM OF THE ASSESSEE AND IN OTHER ASSESSMENT YEAR THEY WANT TO MAKE DISALLOWANCE. FOLLOWING THE RULE OF CONSISTENCY, THE REVENUE IS N OT PERMITTED TO TAKE CONTRARY VIEW IN DIFFERENT ASSESSMENT YEARS. SINCE THE ORDER OF THE LD. CIT(A) FOR ASSESSMENT YEARS 2006-07 AND 2007-08 DEL ETING THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF PAYMENT OF KEY M AN INSURANCE PREMIUM HAS ATTAINED FINALITY, WE DECIDE THIS ISSUE FOLLOWING THE VIEW TAKEN IN THE IMMEDIATELY PRECEDING YEAR BY THE FIRST APPE LLATE AUTHORITY, AS THE REVENUE HAS NO MORAL TO CHALLENGE THIS ADDITION IN SUCCEEDING YEARS HAVING ACCEPTED THE DELETION OF THE SAID ADDITION IN EARLI ER YEARS. SINCE THE LD. CIT(A) HAS DECIDED THE ISSUE FOLLOWING THE ORDER OF HIS PREDECESSOR IN EARLIER YEAR, WE DO NOT FIND ANY INFIRMITY IN THE O RDER OF THE LD. CIT(A). ACCORDINGLY, WE CONFIRM THE SAME. 23. APROPOS GROUND NO.3, IT IS NOTICED THAT THE ASSESSI NG OFFICER HAS NOTICED FROM THE ACCOUNTS OF THE ASSESSEE THAT THE ASSESSEE HAS SHOWN A DEBIT OF RS.1.24 LAKHS IN THE CASE OF M/S SPG CARGO AGENCY PVT. LTD. AND RS.1,65,702/- IN THE CASE OF M/S PRAHLAD RAI & CO., WHICH HAS BEEN :-15- : ADJUSTED THROUGH BOGUS ENTRIES AND THE ASSESSEE COU LD NOT GIVE ANY SATISFACTORY EXPLANATION WITH REGARD TO SUCH BOGUS ADJUSTMENT OF THESE DEBIT BALANCES. THE ASSESSING OFFICER ACCORDINGLY MADE ADDITION OF RS.1.24 LAKHS TO THE TOTAL INCOME OF THE ASSESSEE, AGAINST WHICH AN APPEAL WAS FILED BEFORE THE LD. CIT(A) WITH THE SUBMISSION THAT A SU M OF RS.1.24 LAKHS WAS DUE TO BE REALIZED FROM M/S SPG CARGO AGENCY PVT. L TD. THE AFORESAID AMOUNT COULD NOT BE RECOVERED AND IT HAS BECOME A B AD DEBT. INSTEAD OF WRITING IT OFF DIRECTLY AS BAD DEBT, THE SAME HAS B EEN ADJUSTED AGAINST THE AMOUNT OUTSTANDING TO BE PAID BUT NOT PAID. THE AS SESSEE COMPANY HAS ACCOUNTED FOR ALL THE ENTRIES THROUGH A SIMPLE ADJU STMENT ACCOUNT, WHICH HAS RESULTED INTO THIS MISUNDERSTANDING. IT WAS FU RTHER CONTENDED THAT THE FACT REMAINS THAT THE AMOUNTS NOT PAYABLE HAVE BEEN CONSIDERED AS INCOME AND AMOUNT NOT REALIZABLE HAVE BEEN TREATED AS BAD DEBTS NOT RECOVERABLE. 24. THE LD. CIT(A) HAS EXAMINED THIS ISSUE IN THE LIGHT OF THESE CONTENTIONS AND HAVING CONVINCED WITH IT, HE DELETE D THE ADDITION. THE RELEVANT OBSERVATIONS OF THE LD. CIT(A) ARE ALSO EX TRACTED HEREUNDER FOR THE SAKE OF REFERENCE:- I HAVE CONSIDERED THE FACTS AND CIRCUMSTANCES OF T HE CASE. THE CASE OF THE ASSESSEE IS THAT THE IMPUGNED AMOUNTS HAD BE COME BAD DEBTS AND. INSTEAD OF WRITING OFF AS BAD DEBTS, THE SAME HAD BEEN DEBITED IN ADJUSTMENT ACCOUNT AND HAVE BEEN ADJUSTED AGAINS T THE AMOUNTS PAYABLE BY THE COMPANY TO DIFFERENT PERSONS (WHICH HAVE BEEN CONSIDERED AS NOT PAYABLE ANY MORE). THE AMOUNT OF RS.1,24,000/- AND RS.1,65,702/- WHICH WERE DEBTS AND WHICH WERE N OT RECOVERABLE, COULD HAVE BEEN DEBITED IN THE INCOME AND EXPENDITU RE ACCOUNT AS BAD DEBTS, BUT INSTEAD, THE APPELLANT COMPANY CHOSE TO ADJUST THESE AMOUNTS AGAINST THE INCOME ACCRUING TO THE COMPANY ON ACCOUNT OF WRITING OFF THE CREDIT BALANCES OF VARIOUS PERSONS STANDING IN ITS BOOKS. THE MANNER OF DOING SO MAY NOT BE A NICE AND CLEAN WAY OF DOING THINGS, BUT THE REALITY AND TRUE NATURE OF TH E ENTRIES CANNOT BE :-16- : IGNORED OR DISREGARDED. THE AMOUNT WRITTEN OFF (THR OUGH ADJUSTMENTS) WERE DEBTS THAT HAD BEEN INCURRED IN T HE NORMAL COURSE OF BUSINESS, HENCE WRITING OFF THE SAME IS AN ALLOW ABLE EXPENDITURE. THE ADDITION MADE IS, THEREFORE, DELETED. 25. AGGRIEVED, THE REVENUE HAS PREFERRED AN APPEAL BEFO RE THE TRIBUNAL, BUT HAS SIMPLY PLACED RELIANCE UPON THE ORDER OF TH E ASSESSING OFFICER. NO DEFECT WAS POINTED OUT BY THE LD. D.R. IN THE ORDER OF THE LD. CIT(A) DURING THE COURSE OF HEARING; WHEREAS THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THE ASSESSEE HAS SIMPLY MADE ADJUSTM ENT ENTRIES AND NO DISALLOWANCE CAN BE MADE. 26. HAVING CAREFULLY EXAMINED THE ENTIRE ISSUE IN THE L IGHT OF THE RIVAL SUBMISSIONS, WE FIND THAT INSTEAD OF CLAIMING BAD D EBT AND INCOME UNDER SECTION 41(1) OF THE ACT, THE ASSESSEE HAS ADJUSTED THE AMOUNT OUTSTANDING TO BE PAID, BUT NOT PAID AGAINST THE BAD DEBT AND W E, THEREFORE, DO NOT FIND ANY INFIRMITY IN THE ADJUSTMENT ENTRIES, AS THERE W AS NO LOSS TO THE REVENUE. ACCORDINGLY, WE CONFIRM THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. 27. APROPOS GROUND NO.4, IT IS NOTICED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS O BSERVED THAT THE ASSESSEE-COMPANY HAS PAID A SUM OF RS.4,29,640/- IN CASH TO SHRI. K. K. WADHWA, MANAGING DIRECTOR OF THE COMPANY IN THE ACC OUNT OF M/S GRAND INTERNATIONAL THROUGH BOOK TRANSFER FROM M/S CANADI AN SADDLER WHICH IS IN VIOLATION OF SECTION 269T OF THE ACT AND ACCORDINGL Y RS.4,09,640/- WAS ADDED TO THE INCOME OF THE ASSESSEE IN THE YEAR UND ER CONSIDERATION HAVING ALLOWED MINIMUM EXEMPTED AMOUNT OF RS.20,000/-. 28. AN APPEAL WAS FILED BEFORE THE LD. CIT(A) WITH THE SUBMISSION THAT THE ASSESSING OFFICER HAS MADE ADDITION BY APPLYING THE PROVISIONS OF SECTION 269T OF THE ACT, THOUGH THE ASSESSING OFFIC ER HAS HELD THAT :-17- : PROVISIONS OF SECTION 269T OF THE ACT ARE APPLICABL E, BUT AT THE SAME TIME HE HAS TREATED THE SAID AMOUNT AS TAXABLE INCOME. IT WAS FURTHER CONTENDED BEFORE THE LD. CIT(A) THAT PROVISIONS OF SECTION 269T OF THE ACT SPEAKS OF PENAL CONSEQUENCES AND NOT FOR ADDITION O F INCOME OR EXPENDITURE. IT WAS FURTHER CONTENDED THAT PROVISI ONS OF SECTION 269T OF THE ACT ARE NOT EVEN APPLICABLE, AS THERE IS NO ACT UAL CASH FLOW. THE LD. CIT(A) RE-EXAMINED THE CLAIM OF THE ASSESSEE IN THE LIGHT OF THE SUBMISSION OF THE ASSESSEE AND HE WAS OF THE VIEW THAT NO ADDI TION CAN BE MADE HAVING APPLIED THE PROVISIONS OF SECTION 269T OF TH E ACT. IF THERE IS ANY VIOLATION OF PROVISIONS OF SECTION 269T OF THE ACT, PENALTY IS LEVIABLE AND NO ADDITION CAN BE MADE TO THE TOTAL INCOME OF THE ASS ESSEE. THE RELEVANT OBSERVATIONS OF THE LD. CIT(A) ARE EXTRACTED HEREUN DER FOR THE SAKE OF REFERENCE:- I HAVE CONSIDERED THE FACTS AND CIRCUMSTANCES OF T HE CASE. THE AO HAS MADE THE ADDITION OF RS. 4,29,640/- BY APPLYING THE PROVISIONS OF SEC. 269T OF THE .ACT. I FAIL TO UNDERSTAND AS TO H OW AN ADDITION CAN BE MADE TO THE TOTAL INCOME BY APPLYING THE PROVISI ONS OF SEC. 269T. IF THERE IS ANY VIOLATION OF THE PROVISIONS OF SEC. 269T, PENALTY IS LEVIABLE AND NO ADDITION CAN BE MADE TO THE TOTAL I NCOME. SINCE THERE IS NO MANDATE IN THE STATUTE TO MAKE SUCH ADDITION, THE ADDITION MADE IS LIABLE TO BE DELETED ON THIS ACCOUNT ITSELF . EVEN OTHERWISE, THE TRANSACTION REFERRED TO IS ONLY ADJUSTMENT ENTR IES BETWEEN THE CLOSELY HELD ENTITIES OF THE ASSESSEE COMPANY AND T HE PARTNERSHIP FIRM IN WHICH THE MD IS A PARTNER. THE LD. A.R HAS ALSO EXPLAINED THE CIRCUMSTANCES IN WHICH SUCH ADJUSTMENT ENTRY HAD TO BE PASSED WHICH IS PART OF THE SUBMISSIONS MADE AND EXTRACTED ABOVE, WHICH CLEARLY SHOWS THERE WAS NO CASH PAYMENT ACTUALLY. T HE ADDITION MADE IS, THEREFORE, DELETED. :-18- : 29. AGGRIEVED, THE REVENUE HAS PREFERRED AN APPEAL BEFO RE THE TRIBUNAL AND HAS SIMPLY PLACED RELIANCE UPON THE ORDER OF TH E ASSESSING OFFICER. NO DEFECT WAS POINTED OUT IN THE ORDER OF THE LD. CIT( A). THE LD. COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE UPON THE ORDER OF THE LD. CIT(A). 30. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWER A UTHORITIES, WE FIND THAT SECTION 269T OF THE ACT IS A PENAL PROVIS ION AND NO ADDITION IS PERMISSIBLE UNDER SECTION 269T OF THE ACT. THEREFO RE, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER HAS WRONGLY APPLIED SECT ION 269T OF THE ACT TO THE PRESENT FACTS OF THE CASE. ACCORDINGLY, WE FIN D NO MERIT IN THE ADDITION. SINCE THE LD. CIT(A) HAS PROPERLY ADJUDICATED THE I SSUE, WE CONFIRM HIS ORDER ON THIS ISSUE. 31. APROPOS GROUND NO.5, IT IS NOTICED THAT THE ASSESSI NG OFFICER HAS MADE ADDITION ON ACCOUNT OF CURRENCY FLUCTUATION, A S THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE-COMPANY SHOULD HA VE VALUED THE FOREIGN CURRENCY CREDITED IN ITS EEFC ACCOUNT AND BALANCE S TANDING IN THE NAMES OF DEBTORS AS PER PREVAILING RATES AS THE END OF THE F INANCIAL YEAR. ACCORDINGLY AN ADDITION OF RS.11,27,396/- WAS MADE, AGAINST WHI CH AN APPEAL WAS FILED BEFORE THE LD. CIT(A) WITH THE SUBMISSION THAT THE ASSESSEE IS HAVING AN EEFC ACCOUNT WITH THE BOB AND THE ENTIRE AMOUNT REC EIVED IS CREDITED TO THE SAID ACCOUNT STANDS CONVERTED INTO INDIAN CURRE NCY. THE BALANCE AS APPEARING IN THE BANK STATEMENT HAVE BEEN SHOWN IN THE BALANCE SHEET, THEREFORE, THERE ARISES NO GAIN IN THIS RESPECT. M OREOVER, IF THE DIFFERENCE, IF ANY, TAKEN CARE ITSELF IN THE SUBSEQUENT YEAR WH EN THE FOREIGN EXCHANGE IS UTILIZED. IT WAS FURTHER CONTENDED THAT THERE I S NO CHANGE IN THE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE. IT WAS ALS O CONTENDED THAT IF THE METHOD ADOPTED BY THE ASSESSING OFFICER IS TO BE FO LLOWED, THEN NECESSARY EFFECT IS TO BE GIVEN TO THE OPENING BALANCE IN THE SAID ACCOUNT. THE LD. CIT(A) RE-EXAMINED THE CLAIM OF THE ASSESSEE IN THE LIGHT OF THE SUBMISSIONS AND HAVING CONVINCED WITH IT, HE DELETE D THE ADDITION. THE :-19- : RELEVANT OBSERVATIONS OF THE LD. CIT(A) ARE EXTRACT ED HEREUNDER FOR THE SAKE OF READY REFERENCE:- I HAVE CONSIDERED THE FACTS AND GONE THROUGH THE A SSESSMENT ORDER. I FIND THAT THERE IS NO CHANGE IN THE SYSTEM OF ACC OUNTING REGULARLY EMPLOYED BY THE ASSESSEE WHICH IS BEING CONSISTENTL Y FOLLOWED AND ACCEPTED BY THE DEPARTMENT YEAR AFTER YEAR. THE A.O . HAS HELD THAT THE ASSESSEE SHOULD HAVE CREDITED FOREIGN CURRENCY FLUCTUATION A/C BY REVALUING THE AMOUNT STANDING IN THE NAME OF THE CR EDITORS/DEBTORS AND ALSO IN THE EEFC ACCOUNT AS ON 31.03.2008 I.E. THE DATE OF THE DRAWING OF THE FINAL ACCOUNTS. IF THIS IS TO BE ACC EPTED, THEN THE OPENING BALANCE BROUGHT FORWARD FROM EARLIER YEARS ON ACCOUNT OF REALIZABLE DEBT (IN FOREIGN EXCHANGE) HAVE ALSO TO BE REVALUED. IT IS NOT THE CASE OF THE AO THAT THE FLUCTUATION IN FORE IGN CURRENCY HAS NOT BEEN ACCOUNTED FOR BY THE ASSESSEE AT ALL. THE ASSESSEE HAS BEEN ACCOUNTING FOR THE FLUCTUATION IN THE FOREIGN CURRE NCY AS AND WHEN REALIZED INSTEAD OF ACCOUNTING SUCH FLUCTUATION ON NOTIONAL BASIS AT THE END OF THE FINANCIAL YEAR. SUCH PRACTICE WOULD NOT MAKE ANY DIFFERENCE TO THE PROFITS OF THE COMPANY, SINCE SUC H FLUCTUATION WOULD BE CAPTURED AT THE TIME OF ACTUAL RECEIPTS/CONVERSI ON INTO THE INDIAN RUPEE: SUCH METHOD OF ACCOUNTING IS NOT ALIEN TO TH E INCOME-TAX ACT AS SEC. 43A OF THE ACT ITSELF MANDATES THAT ADJUSTM ENT ON ACCOUNT OF FLUCTUATION IN THE RATE' OF FOREIGN EXCHANGE WOULD NOT BE MADE ON NOTIONAL BASIS BUT ONLY AT THE TIME OF PAYMENT IRRE SPECTIVE OF THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE). FURT HER, THERE WOULD BE NO LOSS TO THE REVENUE AS THE ASSESSEE COM PANY IS ASSESSED TO TAX AT THE HIGHEST RATE AND THE RATE OF TAX IN ALL THE YEARS IS THE SAME. AS THE S ASSESSEE IS REGULARLY FOLLOWI NG THIS PARTICULAR SYSTEM OF ACCOUNTING, I SEE NO REASON TO DISTURB TH E SAME ESPECIALLY WHEN, IT IS NOT PREJUDICIAL TO THE INTEREST OF REVE NUE, IT WOULD ALSO BE WORTHWHILE TO STATE HERE THAT THE INSTANT ISSUE IS ALSO COVERED BY THE ''PRINCIPLE OF CONSISTENCY' WHICH HAS BEEN CONSTANT LY FOLLOWED BY VARIOUS; TRIBUNALS, HIGH COURTS AND ALSO THE HON'BL E APEX COURT. IN PARTICULAR, REFERENCE IS MADE TO THE DECISION OF TH E HON'BLE SUPREME :-20- : COURT IN THE CASE OF RADHA SWAMI SATSANG (193 ITR 3 21) WHEREIN IT WAS OBSERVED. THOUGH, EACH ASSESSMENT YEAR BEING A URN YEAR MIGHT NOT APPLY IN THE FOLLOWING YEAR; BUT WHE RE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTIES HA VE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORD ER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHAN GED IN A SUBSEQUENT YEAR.' IN VIEW OF THE ABOVE DISCUSSION, THE ADDITIO N ON THIS ACCOUNT AMOUNTING TO RS.11,27,396/- IS HEREBY DELETED. 32. NOW THE REVENUE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL AND HAS PLACED RELIANCE UPON THE ORDER OF THE ASSESSING OFFICER. 33. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND , HAS CONTENDED THAT IF THE STAND OF THE ASSESSING OFFICER IS ACCEP TED, THEN THE OPENING BALANCE ON ACCOUNT OF REALIZABLE DEBTS I.E. FOREIGN EXCHANGE ALSO TO BE REVALUED. THEREFORE, NO FRUITFUL PURPOSE WOULD BE SERVED BY ACCEPTING THE CONTENTIONS OF THE REVENUE. 34. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWER A UTHORITIES IN THE LIGHT OF THE RIVAL SUBMISSIONS, WE FIND THAT THE AS SESSEE HAS BEEN FOLLOWING THE SAME METHOD OF ACCOUNTING CONSISTENTLY FOR THE LAST SO MANY YEARS. IF THERE IS ANY CHANGE IN THE METHOD OF ACCOUNTING IN THE IMPUGNED ASSESSMENT YEAR, IT WOULD AFFECT THE OPENING BALANC E OF THE EARLIER YEAR AND IT WILL MAKE THE ACCOUNTS OF THE ASSESSEE MORE COMPLICATED. WE, THEREFORE, FIND NO JUSTIFICATION THEREIN. ACCORDIN GLY, WE FIND NO MERIT IN THIS ADDITION. THE LD. CIT(A) HAS PROPERLY ADJUDICATED THE ISSUE IN THE LIGHT OF THE ASSESSEES CONTENTIONS. WE ACCORDINGLY CONFIRM THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. 35. APROPOS GROUND NO.6, THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF RS.40,68,832/- UNDER SECTION 40(A)(IA) AND 40A(3 ) OF THE ACT AND ALSO ON :-21- : ACCOUNT OF PRIOR PERIOD EXPENSES. VARIOUS DISALLOW ANCES ARE MADE UNDER THESE HEADS AND IN ORDER TO UNDERSTAND THE NATURE O F DISALLOWANCES, WE EXTRACT THE RELEVANT PORTION OF THE ASSESSMENT ORDE R AS UNDER:- HE ASSESSEE HAS NOT DEDUCTED TDS ON PAYMENT OF RS 87,885/- TO M/S AVON AWNINGS, RS 7,93,782/- ON ACCOUNTS OF PAYM ENT TO M/S SARLA SPAIN ART PAYMENT OF RS 75,708/- TO M/S FEDER AL EXPRESS CORPORATION AND THE ASSESSEE COULD NOT ALSO GIVE AN Y SATISFACTORILY, EXPLANATION FOR NON DEDUCTION OF SUCH TDS. HENCE, T OTAL SUM AGGREGATION TO RS.3,57,375/- WILL BE ADDED TO THE I NCOME OF THE ASSESSEE ON ACCOUNT OF NON-DEDICATION OF TDS IN THE ABOVE PAYMENT. ASSESSEE HAD MADE A PAYMENT OF RS 27,945/- IN CASH ON ACCOUNT OF VEHICLE EXPENSES AND RS 27,945/- TO M/S KENTRON WHI CH IS IN VIOLATION TO 40A(3)OF THE I.T. ACT. SO THE AMOUNT O F RS 74,464/- WILL BE ADDED TO THE INCOME OF THE ASSESSED. ASSESSEE HAD NOT DEDUCTED TDS ON ACCOUNT OF PAYMENT OF RS 1,09,660/- TO M/S GAS LOGISTIC (P) LTD RS.5,275/- O N ACCOUNT OF PAYMENT TO M/S MOVERS INTERNATIONAL (P) LTD AND PAY MENT OF RS.20,936/- TO M/S SIKKAS QUIK HANDLING SERVICES (P ) LTD AND THE ASSESSEE COULD NOT ALSO GIVE ANY SATISFACTORILY EXP LANATION FOR NON - DEDUCTION OF SUCH TDS. HENCE, TOTAL SUM AGGREGATING TO RS.70,405/- WILL BE ADDED TO THE INCOME OF THE ASSESSEE ON ACCO UNTS OF NON- DEDUCTION OF TDS IN THE ABOVE PAYMENT. ASSESSEE HAS NOT DEDUCTED TDS AMOUNTING TO RS.2,42, 541/- ON ACCOUNT OF COMMISSION PAID TO DIFFERENT PARTIES AND THE ASSESSEE COULD NOT ALSO GIVE ANY SATISFACTORILY EXPLANATION FOR NON-DEDUCTION OF SUCH TDS. HENCE, TOTAL SUM AGGREGATING TO RS 2,4 2,541/- WILL ADDED TO THE 'INCOME OF THE ASSESSEE ON ACCOUNT OF NON-DEDUCTION OF TDS IN THE ABOVE PAYMENT. ASSESSEE HAD DEBITED RS.7,37,042/- ON ACCOUNTS OF P RIOR PERIOD EXPENSES INCLUDING RS.5,50,000/- ON ACCOUNT OF DEBI T NOTE IN THE CASE OF M/S TREAD WORLD AB, SWEDEN AND EARLIER YEAR P.F., EX-GRATIA :-22- : AND FOODING EXPENSES AND ON ACCOUNT OF REPAIR MAINT ENANCE OF CAR AND THE ASSESSEE COULD NOT ALSO GIVE ANY SATISFACTO RILY EXPLANATION FOR SUCH ADJUSTMENT. HENCE, TOTAL SUM AGGREGATING T O RS7,37,042/- WILL BE ADDED TO THE INCOME OF THE ASSESSEE ON ACCO UNT O NON- DEDUCTION OF TDS IN THE ABOVE PAYMENT. SIMILARLY ,IN THE FOLLOWING CASES, THE EXPENSES U/S 40A(IA)OF THE I.T ACT WILL ALSO BE DISALLOWED ON ACCOUNT OF INTEREST PAID TO VARIOUS PRIVATE BANK/FINANCIAL INSTITUTE AND OTHER PARTIES WITHOUT DEDUCTION OF TDS AND THE ASSESSEE COULD NOT ALSO GIVE ANY SAT ISFACTORILY EXPLANATION FOR NON-DEDUCTION OF SUCH TDS. NAME OF THE BANK/FINANCIAL INSTITUTION AMOUNT INTEREST PAID WITHOUT TDS CHOLAMANDLUM DBS FINANCE LTD. RS.27,268/- INDIA BULLS HOUSING FINANCE SERVICE LTD: RS.9,03,5 03/- INDIA BILL FINANCE SERVICE LTD RS.11,81,353/- ICICI HFC LTD. RS.2,34,699/- MANILYING CREDIT LTD RS.23,200/- RAPS ASSOCIATES RS.50,000/- TAFA MOTORS FINANCE (P) LTD. RS.8,087/- SIDDHU CARGO SERVICES (P) LTD RS.33,235/- ADARSH ENTERPRISES (40A (3)) RS.22,000/- TOTAL RS. 40,68,832/- ACCORDINGLY, EXPENSES AMOUNTING TO RS.40,832?- WILL BE ADDED TO THE INCOME OF THE ASSESSEE U/S40A(IA)&40A(3) OF THE IT ACT.' 36. THE MAIN REASON FOR MAKING THE DISALLOWANCES, AS ST ATED BY THE ASSESSING OFFICER IN HIS ORDER, WAS NON-FURNISHING OF PROPER EXPLANATION FOR :-23- : NON-DEDUCTION OF TDS ON CERTAIN PAYMENTS AND ALSO P AYMENTS MADE IN VIOLATION OF THE PROVISIONS OF SECTION 40A(3) OF TH E ACT. 37. THE ASSESSEE PREFERRED AND APPEAL BEFORE THE LD. CI T(A) AND FILED WRITTEN SUBMISSIONS WHICH WERE EXTRACTED BY THE LD. CIT(A) IN HIS ORDER IN PARA 13.1.1. FROM THE ORDER OF THE LD. CIT(A), IT IS NOT CLEAR WHETHER THE EXPLANATIONS FURNISHED BY THE ASSESSEE BEFORE HIM W AS EVER CONFRONTED TO THE ASSESSING OFFICER. THE LD. CIT(A), HOWEVER, HA S EXAMINED THE ISSUE OF DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT IN THE LIGHT OF THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ME RILYN SHIPPING TRANSPORT CO. LTD. VS. ACIT, 146 TTJ 01 (VISAKHA)(SB) AND DEL ETED THE ADDITION OF RS.32,35,326/- MADE UNDER SECTION 40(A)(IA) OF THE ACT. 38. AGGRIEVED, THE REVENUE HAS PREFERRED AN APPEAL BEFO RE THE TRIBUNAL AND DURING THE COURSE OF HEARING OF THE APPEAL, OUR ATTENTION AS INVITED TO THE FACT THAT THE OPERATION OF THE ORDER OF THE TRI BUNAL IN THE CASE OF MERILYN SHIPPING TRANSPORT CO. LTD. VS. ACIT (SUPRA ) WAS STAYED BY THE HON'BLE ANDHRA PRADESH HIGH COURT. BESIDES, THE IS SUE OF TDS PAYABLE AND PAID WAS ALSO EXAMINED BY THE TRIBUNAL OF THIS BENC H IN THE CASE OF DCIT VS. AMA MEDICAL & DIAGNOSTIC CENTRE IN I.T.A. NO. 1 19/LKW/2013 IN THE LIGHT OF VARIOUS JUDGMENTS OF DIFFERENT HIGH COURTS INCLUDING THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. VE CTOR SHIPPING SERVICES (P) LTD. IN I.T.A. NO. 1220 OF 2013 AND THE TRIBUNAL HA S CONCLUDED THAT PROVISIONS OF SECTION 40(A)(IA) OF THE ACT WOULD CO VER NOT ONLY THE AMOUNTS WHICH WERE PAYABLE AS ON 31 ST MARCH OF A PARTICULAR YEAR, BUT ALSO WHICH ARE PAYABLE AT ANY TIME DURING THE YEAR. BESIDES, THE TRIBUNAL HAS ALSO EXAMINED THE SCOPE OF PROVISO TO SECTION 40(A)(IA) OF THE ACT IN THE CASE OF CIT VS. SHRI. RAJA CHKRAVARTY IN I.T.A. NO. 49/LKW/ 2013, IN WHICH THE TRIBUNAL HAS HELD THAT ONCE IT IS PROVED THAT THE D EDUCTEE HAS PAID TAXES ON THE AMOUNT RECEIVED FROM THE ASSESSEE, THE ASSESSEE SHALL BE DEEMED TO HAVE DEDUCTED AND PAID TAX OF SUCH SUM ON THE DATE OF FURNISHING THE :-24- : RETURN OF INCOME AND NO DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT CAN BE MADE. SINCE THE LD. CIT(A) HAS NOT EXAMINED THE ISSUE IN THE LIGHT OF THIS LEGAL PROPOSITION, WE ARE OF THE VIEW THAT THI S ISSUE SHOULD BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER TO RE-ADJ UDICATE IT AFRESH IN THE LIGHT OF THE AFORESAID ORDERS OF THE TRIBUNAL. RESTORATI ON OF THE MATTER TO THE ASSESSING OFFICER FOR RE-ADJUDICATION IS ALSO NECES SARY IN THE LIGHT OF THE FACT THAT THE ASSESSEE HAS NOT FURNISHED PROPER EXPLANAT ION BEFORE THE ASSESSING OFFICER AND IT IS ALSO NOT CLEAR FROM THE ORDER OF THE LD. CIT(A) AS TO WHETHER THE LD. CIT(A) HAS EVER CONFRONTED THE E XPLANATIONS FURNISHED BY THE ASSESSEE BEFORE HIM TO THE ASSESSING OFFICER WHILE ADJUDICATING THE ISSUE. ACCORDINGLY WE SET ASIDE THE ORDER OF THE L D. CIT(A) IN THIS REGARD AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO RE-ADJUDICATE THE ISSUE AFRESH IN THE LIGHT OF THE AFORESAID ORDERS OF THE TRIBUNAL. 39. SO FAR AS THE DISALLOWANCE MADE UNDER SECTION 40A(3 ) OF THE ACT IS CONCERNED, WE DO NOT FIND ANY SPECIFIC DISCUSSION I N THE ORDER OF THE LD. CIT(A). THE LD. CIT(A) HAS DEALT WITH THE ISSUE OF ADDITION OF RS.7,37,042/- UNDER THE HEAD PRIOR PERIOD EXPENSES OUT OF WHICH AN ADDITION OF RS.6,08,884/- RELATING TO PAYMENT TO UMBRIA EQUATE ZONA WAS CONFIRMED. ADDITION MADE ON ACCOUNT OF OTHER PAYMENTS OF RS.12 ,046/-; RS.98,617/- AND RS.6,500/- WERE DELETED. AS PER THE ORDER OF T HE LD. CIT(A), THESE ADDITIONS WERE MADE UNDER SECTION 40A(3) OF THE ACT ; WHEREAS THE ASSESSING OFFICER HAS MADE THE ADDITION OF RS.46,51 9/- ON ACCOUNT OF VEHICLE EXPENSES TO SUNNY TOYOTA AND RS.27,945/- TO KETRON IN VIOLATION OF THE PROVISIONS OF SECTION 40A(3) OF THE ACT. THESE ADDITIONS WERE NOT EXAMINED BY THE LD. CIT(A). THEREFORE, THE GROUND RAISED BY THE REVENUE IN THIS APPEAL RELATING TO DELETION OF ADDITIONS MA DE ON ACCOUNT OF DISALLOWANCE UNDER SECTION 40A(3) OF THE ACT IS NOT SUSTAINABLE IN THE EYES OF LAW, AS IT DOES NOT BORNE OUT FROM THE ORDER OF THE LD. CIT(A). MOREOVER, :-25- : WE DO NOT FIND ANY FINDING ADVERSE TO THE REVENUE. ACCORDINGLY, WE DECLINE TO ENTERTAIN THE GROUND RELATING TO DISALLO WANCE MADE UNDER SECTION 40A(3) OF THE ACT. 40. APROPOS GROUND NO.7, THE ASSESSING OFFICER HAS NOTI CED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT THE ASSESSEE HAS MADE UNACCOUNTED SALE OF RS.1,28,865/-; RS.1,28,865/- AN D RS.64,108/- TO M/S UMBRIA EQUITAZOINE. SINCE THE ASSESSEE COULD NOT G IVE ANY SATISFACTORY EXPLANATION FOR SUCH UNACCOUNTED SALES, THE ASSESSI NG OFFICER HAS MADE AN ADDITION OF RS.1,92,973/- TO THE INCOME OF THE ASSE SSEE. 41. BEFORE THE LD. CIT(A), IT WAS CONTENDED THAT THE AF ORESAID AMOUNT CONSIST OF TWO AMOUNTS NAMELY RS.64,108/- AND RS.1, 28,865/-. THERE IS NO SALE BILL FOR RS.1,28,865/-. THEREFORE, QUESTION O F UNDERSTATING THE SALES DOES NOT ARISE. WITH REGARD TO RS.64,108/-, IT WAS CONTENDED THAT WHATEVER SALES WERE MADE HAVE BEEN RECORDED IN THE BOOKS OF ACCOUNT. THE SAID AMOUNT HAS BEEN CALCULATED BY THE SPECIAL AUDITOR O N ASSUMPTION BASIS ALLEGING THAT THE SAID AMOUNTS HAVE BEEN RECEIVED A S ADVANCE; WHEREAS THE DIFFERENCE WAS PURELY ON ACCOUNT OF EXCHANGE FLUCTU ATION. IT WAS FURTHER EXPLAINED THAT THE DISALLOWANCE OF RS.1,28,865/- RE LATES TO THE FARIDABAD UNIT SALE BILL NO.TRR/42 OF 2007-08, DATED 29.3.200 8. SINCE THESE GOODS WERE NOT DISPATCHED BEFORE 31.3.2008, INVOICES WERE CANCELLED. THESE GOODS WERE SUBSEQUENTLY DISPATCHED BY INVOICE NO.TR R/01.2008-09 DATED 1.4.2008 AND WERE ACCOUNTED FOR APPROPRIATELY. BEI NG CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEE, THE LD. CIT(A) HAS DE LETED THE ADDITION OF RS.1,28,865/-. HE, HOWEVER, CONFIRMED THE ADDITION OF RS.64,108/-. 42. DURING THE COURSE OF HEARING OF THE APPEAL BEFORE U S, THE LD. D.R. COULD NOT POINT OUT ANY DEFECT IN THE ORDER OF THE LD. CIT(A). SINCE THE ASSESSEE HAS PROPERLY EXPLAINED THE DISCREPANCIES A LONG WITH EVIDENCE, WE :-26- : FIND NO JUSTIFICATION TO INTERFERE WITH THE ORDER O F THE LD. CIT(A), AS HE HAS APPRECIATED THE EVIDENCE FILED BEFORE HIM WHILE DEL ETING THE ADDITION. 43. APROPOS GROUND NO.8, IT IS NOTICED THAT THE DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS N OTICED THAT THE ASSESSEE HAS SHOWN TO HAVE RECEIVED RS.2,04,038/- I N CASH FROM M/S VISHAKRMA INDUSTRIAL SEWING MACHINE LTD. AND HAS AL SO CLAIMED BOGUS EXPENSES IN REPAIR AND MAINTENANCE OF PLANT AND MAC HINERY AMOUNTING TO RS.11,927/-. SINCE THE ASSESSEE COULD NOT SUBSTANT IATE THE GENUINENESS OF THIS RECEIPT AND EXPENSE, THE ASSESSING OFFICER HAS MADE AN ADDITION OF RS.2,24,853/- AS UNDISCLOSED INCOME OF THE ASSESSEE . 44. BEFORE THE LD. CIT(A), IT WAS CONTENDED THAT A SUM OF RS.2,57,053.64 WAS RECOVERABLE FROM M/S VISHAKRMA INDUSTRIAL SEWIN G MACHINE LTD. THE SAME HAS BEEN RECOVERED IN CASH FROM THEM, BUT THE ASSESSING OFFICER HAS DISBELIEVED THE SAME. IT WAS FURTHER CONTENDED THA T THE FIGURE OF RS.2,24,853/- WORKED OUT BY THE ASSESSING OFFICER I S NOT CLEAR FROM WHERE HE HAS PICKED UP THIS FIGURE. BEING CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEE, THE LD. CIT(A) HAS DELETED THE ADDITION. 45. NOW THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL WI TH THE SUBMISSION THAT WHATEVER EXPLANATIONS WERE FURNISHE D BEFORE THE LD. CIT(A), HE SHOULD HAVE CONFRONTED TO THE ASSESSING OFFICER AND ALSO TO ASCERTAIN FROM WHERE HE HAS MADE DISALLOWANCE OF RS .2,24,853/-. THE LD. D.R. HAS FURTHER CONTENDED THAT THE ASSESSING OFFIC ER HAS SPECIFICALLY RECORDED IN HIS ORDER THAT THE ASSESSEE HAS SHOWN T O HAVE RECEIVED A SUM OF RS.2,04,038/- IN CASH FROM M/S VISHAKRMA INDUSTR IAL SEWING MACHINE LTD. AND HAS ALSO CLAIMED EXPENSES OF RS.11,927/- I N REPAIR AND MAINTENANCE ON PLANT AND MACHINERY. BUT NO DOCUMEN TARY EVIDENCE WAS SHOWN IN SUPPORT THEREOF. THE LD. CIT(A) HAS OUT-R IGHTLY BRUSHED ASIDE THE OBSERVATIONS OF THE ASSESSING OFFICER AND HAS DELET ED THE ADDITION. :-27- : 46. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND , HAS PLACED RELIANCE UPON THE ORDER OF THE LD. CIT(A). 47. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWER A UTHORITIES IN THE LIGHT OF THE RIVAL SUBMISSIONS, WE FIND THAT THE AS SESSING OFFICER HAS GIVEN A CATEGORICAL FINDING IN HIS ORDER WITH REGARD TO THE RECEIPT OF RS.2,04,038/- AND EXPENSES OF RS.11,927/-. IT IS ALSO OBVIOUS FR OM THE ORDER OF THE ASSESSING OFFICER THAT NO DOCUMENTARY EVIDENCE WAS FILED IN SUPPORT THEREOF AND THE ASSESSING OFFICER HAS MADE ADDITION OF THE SAME. BEFORE THE LD. CIT(A), THE ASSESSEE HAS TAKEN ALTOGETHER A DIFFERENT STAND AND THE LD. CIT(A) DID NOT MAKE ANY EFFORT TO VERIFY THE FA CTS BY CONFRONTING THE EXPLANATIONS FURNISHED BEFORE HIM TO THE ASSESSING OFFICER. HE HAS SIMPLY ACCEPTED THE CLAIM OF THE ASSESSEE AND DELETED THE ADDITION; WHEREAS THE RIGHT COURSE WOULD HAVE BEEN TO CONFRONT THE EXPLAN ATIONS TO THE ASSESSING OFFICER AND TO FIND OUT AS TO FROM WHERE HE HAS PIC KED UP THE FIGURE OF RS.2,04,038/- AS RECEIPT AND EXPENSES OF RS.11,927/ -. WE ARE, THEREFORE, OF THE VIEW THAT THIS ISSUE REQUIRES PROPER ADJUDIC ATION BY THE ASSESSING OFFICER IN THE LIGHT OF THE EXPLANATIONS FURNISHED BY THE ASSESSEE. WE ACCORDINGLY SET ASIDE THE ORDER OF THE LD. CIT(A) A ND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR RE-ADJUDICATI ON OF THE ISSUE AFRESH AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSE E. 48. APROPOS GROUND NO.9, IT IS NOTICED THAT THE ASSESSI NG OFFICER HAS OBSERVED THAT DURING THE RELEVANT PREVIOUS YEAR, TH E ASSESSEE HAS OPENING DEBIT BALANCE OF RS.20,29,261/- FROM M/S TREAD STON E PVT. LTD. HAVING DISCUSSED THE SHAREHOLDING PATTERN OF M/S TREAD STO NE PVT. LTD. AND M/S TREAD STONE INDIA PVT. LTD., THE ASSESSING OFFICER HAS INVOKED THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT AND HAS M ADE AN ADDITION OF RS.20,29,261/-. :-28- : 49. BEFORE THE LD. CIT(A), IT WAS CONTENDED THAT DESPIT E OBSERVING THAT THE ASSESSEE HAS OPENING BALANCE OF RS.20,29,261/- IN THE NAME OF M/S TREAD STONE INDIA PVT. LTD., THE ASSESSING OFFICER HAS INVOKED THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT; WHEREAS THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT CAN ONLY BE INVOKED ON THE CRED IT BALANCE IN THE ASSESSEES ACCOUNT. THE LD. CIT(A) TOOK NOTE OF TH IS FACT AND WAS OF THE VIEW THAT THE ASSESSEE-COMPANY HAD ACTUALLY ADVANCE D LOAN TO M/S TREAD STONE INDIA PVT. LTD. AND NOT OTHER. THEREFORE, TH E ADDITION ON ACCOUNT OF DEEMED DIVIDEND COULD NOT BE MADE IN THE HANDS OF T HE LOAN GIVING COMPANY I.E. ASSESSEE-COMPANY. THE LD. CIT(A) ACCO RDINGLY DELETED THE ADDITION. 50. BEFORE US, NEITHER THE FACTS WERE DISPUTED BY THE R EVENUE NOR ANY DEFECT WAS POINTED OUT IN THE ORDER OF THE LD. CIT( A); WHEREAS THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THE ASS ESSEE HAS ADVANCED LOAN TO M/S TREAD STONE INDIA PVT. LTD. AND PROVISI ONS OF SECTION 2(22)(E) OF THE ACT CAN ONLY BE IVOKED IN THE HANDS OF THE R ECIPIENT AND NOT THE PAYER. 51. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWER A UTHORITIES IN THE LIGHT OF THE RIVAL SUBMISSIONS, WE FIND FORCE IN TH E CONTENTIONS OF THE LD. COUNSEL FOR THE ASSESSEE. SINCE THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT CANNOT BE INVOKED IN THE HANDS OF THE PAYER, AD DITION WAS RIGHTLY DELETED BY THE LD. CIT(A) AND WE FIND NO INFIRMITY THEREIN. ACCORDINGLY WE CONFIRM THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. I.T.A. NO. 524/LKW/2012: 52. IN THIS APPEAL, THE REVENUE HAS ASSAILED THE ORDER OF THE LD. CIT(A) MAINLY ON TWO GROUNDS WHICH ARE AS UNDER:- 1. THAT THE ID. COMMISSIONER OF INCOME TAX (APPEALS) H AS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.50,00,000/- :-29- : MADE BY AO OH ACCOUNT OF KEY MAN INSURANCE POLICY P REMIUM PAID FOR TWO DAUGHTERS OF MD WHO ARE ALSO EMPLOYEES OF T HE ASSESSEE COMPANY WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AS ENUMERATED IN THE ASSESSMENT ORDER. 2. THAT THE ID. COMMISSIONER OF INCOME TAX (APPEALS) H AS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.18,90,204/- MADE BY THE AO ON ACCOUNT OF EXPENSES INCURRED ON T RAINING AND STUDY ON ONE OF ITS EMPLOYEE WITHOUT PROPERLY APPRE CIATING THE FACTS OF CASE BROUGHT ON RECORDS BY THE AO. 53. APROPOS GROUND NO.1 RELATING TO DISALLOWANCE ON ACC OUNT OF KEY MAN INSURANCE POLICY PREMIUM PAID TO TWO DAUGHTERS OF T HE MANAGING DIRECTOR, THIS ISSUE WAS EXAMINED IN THE FOREGOING APPEAL. F OLLOWING THE SAME, WE DECIDE THIS ISSUE ACCORDINGLY AND CONFIRM THE ORDER OF THE LD. CIT(A), WHO HAS RIGHTLY DELETED THE ADDITION FOLLOWING THE ORDE R OF HIS PREDECESSOR. 54. APROPOS GROUND NO.2, DURING THE COURSE OF ASSESSMEN T PROCEEDINGS, THE ASSESSING OFFICER HAS NOTICED THAT AN EXPENDITU RE WAS INCURRED ON ACCOUNT OF STUDIES OF MS. NIDHI WADHWA IN UK TO THE EXTENT OF RS.18,90,200/-. SINCE IT WAS A PERSONAL EXPENDITUR E, DISALLOWANCE WAS MADE. 55. AN APPEAL WAS PREFERRED BEFORE THE LD. CIT(A) WITH THE SUBMISSION THAT NO EXPENDITURE WAS INCURRED BY THE COMPANY ON MS. NIDHI WADHWA DURING THE IMPUGNED ASSESSMENT YEAR. THEREFORE, NO DISALLOWANCE SHOULD HAVE BEEN MADE. IN FACT THE EXPENDITURE HAS BEEN I NCURRED ON TRAINING OF EMPLOYEE, MS. PRIYANKA WADHWA. IN RESPONSE TO A QU ERY RAISED BY THE ASSESSING OFFICER AS TO WHY EXPENDITURE INCURRED ON EDUCATION OF MS. PRIYANKA WADHWA FOR FULL TIME MASTERS IN BUSINESS A DMINISTRATION (MBA) IN UK SCHOOL SHORTLISTED FOR THE COURSE YEAR 2008 TO 2 009 BE NOT DISALLOWED, IT WAS CONTENDED THAT MS. PRIYANKA WADHWA IS A FULL TI ME EMPLOYEE OF THE :-30- : COMPANY SINCE 2000 AND SHE HAS BEEN DRAWING A REMUN ERATION OF RS.3.60 LAKHS SINCE 2005. SHE HAS BEEN RENDERING SERVICE T O THE COMPANY WHICH HAS BEEN BENEFICIAL AND THE REMUNERATION PAID TO HE R EVER SINCE SHE WAS APPOINTED HAVE ALL BEEN ALLOWED. BEING CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEE, THE LD. CIT(A) HAS OBSERVED THAT NO E XPENDITURE WAS INCURRED ON MS. NIDHI WADHWA ON EDUCATION WHEREAS EXPENDITUR E OF RS.18,90,200/- RELATES TO THE EDUCATIONAL EXPENDITURE OF MS. PRIYA NKA WADHWA. THE RELEVANT OBSERVATIONS OF THE LD. CIT(A) ARE EXTRACT ED HEREUNDER FOR THE SAKE OF REFERENCE:- I HAVE GONE THRU THE FACTS, THE ASSESSMENT ORDER A ND THE SUBMISSIONS FILED BY THE LD. AR. IT IS SEEN THAT TH E DISALLOWANCE MADE BY THE AO IS ERRONEOUS IN AS MUCH AS THERE IS NO EXPENDITURE INCURRED BY THE APPELLANT OVER MS. NIDHI WADHWA'S E DUCATION. SINCE THE PREMISE ON WHICH THE DISALLOWANCE HAS BEEN MADE IS FACTUALLY INCORRECT, THE ADDITION MADE IS LIABLE TO BE DELETE D IN THIS GROUND ALONE. HOWEVER, AFTER GOING THRU THE DETAILS, I FIN D THAT THE SAID EXPENDITURE OF RS.18,90,200/- RELATES TO THE EDUCAT ION EXPENSES OF MS. PRIYANKA WADHWA, THE LD. AR HAS SUBMITTED A COP Y OF THE REPLY AS FILED BY HIM BEFORE THE AO AND HAS EXTRACTED THE RELEVANT PORTION IN HIS SUBMISSION BEFORE ME. I HAVE GONE THROUGH TH E SAME AND FIND THAT MS. PRIYANKA WADHWA IS A WHOLE TIME EMPLOYEE O F THE COMPANY FOR THE LAST SEVERAL YEARS AND HAS BEEN DRAWING REM UNERATION WHICH HAS NEVER BEEN DISPUTED IN THE PAST. RATHER WHATEVE R REMUNERATION HAS BEEN PAID TO HER HAS BEEN ALLOWED BY THE AO HIM SELF. SHE IS BEING PAID RS.3,60,000/- P.A. SINCE 2005; SHE IS A KEY PERSON/EMPLOYEE. AS PER THE RETAILS FURNISHED, MS P RIYANKA WADHWA HAD JOINED STRATHELYDE BUSINESS SCHOOL (UK) TO DO M ASTERS' IN BUSINESS ADMINISTRATION. THIS COURSE WAS FOR A PERI OD OF ONE YEAR. THE COMPANY, IN ITS OWN BUSINESS INTEREST, KEEPING IN VIEW THE COMMERCIAL EXPEDIENCY INCURRED THE SAID EXPENDITURE . THE BOARD OF DIRECTORS OF THE COMPANY HAD PASSED A RESOLUTION IN THIS REGARD, WHICH IS EXTRACTED BELOW:- :-31- : 'EXTRACT OF THE MINUTES OF THE MEETING OF THE BOARD OF DIRECTORS HELD ON 30TH JUNE, 2008 THE BOARD CONSIDERED AN APPLICATION RECEIVED FROM M ISS PRIYANKA WADHAVA, INFORMING THE BOARD THAT SHE HAS APPLIED F OR ADMISSION TO POST GRADUATION BUSINESS ADMINISTRATION, AT THE UNI VERSITY OF STRATHCLYDE, FOR THE COURSE STARTING ON 30 SEP-08 A ND ENDING ON 1 OCT 09. SHE HAS REQUESTED FOR THE COMPANY SPONSORSHIP FOR A TTENDING THE COURSE AND MEETING ALL THE EXPENSES FOR THE COURSE AND STAY AT THE UNIVERSITY. AFTER DISCUSSIONS, THE BOARD APPROVED T HE SPONSORSHIP AND PASSED THE FOLLOWING RESOLUTION. RESOLVED THAT MISS PRIYANKA WADHWA BE SPONSORED FO R ATTENDING THE POST GRADUATE EXAMINATION IN MBA BUSINESS ADMINISTR ATION, AT THE UNIVERSITY OF STRATHCLYDE, DURING THE YEAR 2008-09 AND THE COMPANY SHALL BEAR ALL THE EXPENSES AND THE COURSE FEES ETC FOR ATTENDING THE COURSE, SUBJECT TO THE CONDITION THAT SHE WILL SERV E THE COMPANY AFTER THE COMPLETION OF THE COURSE FOR THE PERIOD TO BE D ECIDED BY THE COMPANY. 5.2.1 THE AFORESAID BOARD RESOLUTION IS SELF EXPLAN ATORY. EVEN AFTER OBTAINING THE MBA DEGREE SHE IS STILL IN THE SERVIC E OF THE COMPANY. HAVING CONSIDERED THE FACTS AND CIRCUMSTANCES OF TH E CASE AND LOOKING TO THE QUALIFICATION AND WORK EXPERIENCE OF MS WADHWA AS WELL THE FACT THAT THE EXPENDITURE HAS BEEN INCURRE D OVER THE EMPLOYEE BY THE COMPANY, IT IS TO BE HELD THAT THE EXPENDITURE CLAIMED IS FOR THE PURPOSES OF BUSINESS AND HENCE T HE SAME IS BEING ALLOWED. 56. AGGRIEVED, THE REVENUE HAS PREFERRED AN APPEAL BEFO RE THE TRIBUNAL AND HAS PLACED RELIANCE UPON THE ORDER OF THE ASSES SING OFFICER; WHEREAS THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THE DISALLOWANCE WAS MADE FOR THE EXPENSES INCURRED FOR MS. NIDHI WADHWA , WHEREAS NO EXPENDITURE WAS INCURRED ON HER EDUCATION. :-32- : 57. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWER A UTHORITIES IN THE LIGHT OF THE RIVAL SUBMISSIONS, WE FIND THAT UNDISP UTEDLY DISALLOWANCE WAS MADE ON ACCOUNT OF EXPENDITURE INCURRED ON EDUCATIO N OF MS. NIDHI WADHWA IN U.K. WHEREAS NO EXPENDITURE WAS INCURRED ON HER EDUCATION. THE REMUNERATION PAID TO MS. PRIYANKA WADHWA WAS AL LOWED BY THE ASSESSING OFFICER. IN FACT, NO EXPENDITURE WAS INC URRED ON EDUCATION OF MS. NIDHI WADHWA. WE, THEREFORE, FIND OURSELVES IN AGR EEMENT WITH THE ORDER OF THE LD. CIT(A) WHO HAS PROPERLY EXAMINED THE ISS UE IN THE LIGHT OF THE RELEVANT EVIDENCE AND ACCORDINGLY WE CONFIRM THE SA ME. 58. IN THE RESULT, APPEAL OF THE REVENUE IN I.T.A. NOS. 216 & 524/LKW/2012 ARE DISMISSED AND I.T.A. NO. 523/LKW/2 012 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTIONED PAGE. SD/ - SD/ - [ A. K. GARODIA ] [ S UNIL KUMAR Y ADAV ] ACCOU NTANT MEMBER JUDICIAL MEMBER DATED:25 TH MARCH, 2015 JJ:101103 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR