ITO, Ward-32(2), Kolkata, Kolkata V. M/S. Raghunath Exporters, Kolkata

ITA 2166/KOL/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4647 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 03-12-2014
• Court: TRIBUNAL
• Department Lawyers: RAJAT KUMAR KUREEL
• Assessee Lawyers: K M ROY; MANOJ KATARUKA A
• Keywords: Rule of consistency; Earning of tax free income; Additional evidence; Commercial expediency
• Section: 14A

Judgement Text

I.T.A. NO. 2166/KOL./2014 ASSESSMENT YEAR: 2010-2011 PAGE 1 OF 10 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA A(SMC) BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER I.T.A. NO. 2166 /KOL/ 2014 ASSESSMENT YEAR: 2010-2011 INCOME TAX OFFICER,................................ ...............................APPELLANT WARD-32(2), KOLKATA, 10B, MIDDLETON ROW, 2 ND FLOOR, KOLKATA-700 071 -VS.- M/S. RAGHUNATH EXPORTERS,.......................... .....................RESPONDENT 5F, PARK PLAZA, 71, PARK STREET, KOLKATA-700 016 [PAN: AADFR 8371 E] APPEARANCES BY: SHRI RAJAT KUMAR KUREEL, JCIT, D.R., FOR THE DEPARTMENT SHRI K.M. ROY, CA AND SHRI MANOJ KATARUKA, A.R., FO R THE ASSESSEE DATE OF CONCLUDING THE HEARING : JUNE 10, 2016 DATE OF PRONOUNCING THE ORDER : AUGUST 10, 2016 O R D E R THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-XIX, KOLKATA D ATED 16.09.2014. 2. IN GROUND NO. 1, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(APPEALS) IN DELETING THE ADDITION OF RS.2,50,00 0/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF COM MISSION. 3. THE ASSESSEE IN THE PRESENT CASE IS A PARTNERSHI P FIRM, WHICH IS ENGAGED IN THE BUSINESS OF PROCESSING, TRADING & EX PORT. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED B Y IT ON 24.09.2010 DECLARING TOTAL INCOME OF RS.2,50,350/-. IN THE PRO FIT & LOSS ACCOUNT FILED ALONG WITH THE SAID RETURN, A SUM OF RS.2,50,000/- WAS DEBITED BY THE ASSESSEE ON ACCOUNT OF COMMISSION PAID TO ITS SISTE R CONCERN M/S. REX I.T.A. NO. 2166/KOL./2014 ASSESSMENT YEAR: 2010-2011 PAGE 2 OF 10 AGRO PVT. LIMITED. IN THIS REGARD, THE ASSESSEE EXP LAINED BEFORE THE ASSESSING OFFICER THAT THE SAID COMMISSION WAS PAID TO M/S. REX AGRO PVT. LIMITED IN RESPECT OF SALES MADE TO DIFFERENT PARTI ES THROUGH THEM. THE ASSESSEE, HOWEVER, COULD NOT FURNISH THE RELEVANT E VIDENCE TO PROVE THE GENUINENESS OF THE COMMISSION AND ALSO COULD NOT FU RNISH THE EXACT DETAILS OF SALES CLAIMED TO BE MADE THROUGH M/S. RE X AGRO PVT. LIMITED. THE ASSESSING OFFICER, THEREFORE, DISALLOWED THE CL AIM OF THE ASSESSEE FOR COMMISSION OF RS.2,50,000/-. 4. ON APPEAL, THE LD. CIT(APPEALS) DELETED THE DISA LLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF COMMISSION FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO. 4.2 OF HIS IMPUGNED ORDER:- 4.2 I HAVE HEARD THE CONTENTIONS RAISED BY THE AR OF THE APPELLANT AND THE FINDINGS OF THE AO. THE DISALLOWA NCE OF COMMISSION OF RS.2,50,000/- PAID TO M/S. REX AGRO P VT. LTD. WAS ON ACCOUNT OF CONSULTANCY AND COMMISSION FOR EFFECT ING SATES. THE APPELLANT HAD MADE PAYMENT OF COMMISSION BY ACC OUNT PAYEE CHEQUE TO M/S. REX AGRO PVT. LTD. WHEREBY THE SAID PAYMENT HAS BEEN ACCOUNTED FOR BY M/S. REX AGRO PVT . LTD. AND SHOWN IN ITS INCOME TAX RETURN. IT IS ALSO NOTICED THAT TAX HAS BEEN DEDUCTED AT SOURCE BY THE APPELLANT ON THE PAY MENT MADE TO M/S. REX AGRO PVT. LTD. FROM THE COMPARATIVE STA TEMENT FILED, IT IS SEEN THAT THE PERCENTAGE OF COMMISSION ON TUR NOVER DURING THE YEAR WAS 0.27% WHICH HAS REDUCED FROM 0.78% IN AY 2007- 08, THE YEAR IN WHICH ASSESSMENT WAS DONE U/S 143(3 ) AND PAYMENTS OF COMMISSION TO M/S REX AGRO PVT. LTD. WA S ALLOWED. PRINCIPLE OF CONSISTENCY IS TO BE FOLLOWED UNLESS T HERE IS ANY MATERIAL CHANGE IN THE FACTS OF THE MATTER. THE GEN UINENESS OF THE COMMISSION PAYMENT BY THE APPELLANT IS NOT IN D OUBT AND IN THE ABSENCE OF ANY COUNTER MATERIAL FOR DISALLOWING THE SAME BY THE A.O., I DO NOT FIND ANY JUSTIFICATION IN THE AC TION OF THE AO, MOTE SO FOR THE FACT THAT IT HAS BEEN PAID ON REGUL AR BASIS SINCE THE PAST MANY YEARS FOR ARRANGING OF SALES AS WELL AS PROVIDING CONSULTANCY SERVICES TO THE APPELLANT. UNDER THE FA CTS AND CIRCUMSTANCES, THE ADDITION MADE BY THE AO OF RS.2, 40,000/- DOES NOT MERIT ANY SUSTENANCE AT THE APPELLATE STAGE FOR WHICH THE SAME STANDS DELETED. THE A.O. IS DIRECTED ACCORDING LY. 5. I HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS RIGHTLY S UBMITTED BY THE LD. D.R., THE FACT THAT THE COMMISSION IN QUESTION WAS PAID B Y CHEQUE AFTER I.T.A. NO. 2166/KOL./2014 ASSESSMENT YEAR: 2010-2011 PAGE 3 OF 10 DEDUCTION OF TAX AT SOURCE AND THE SAME WAS DULY SH OWN BY M/S. REX AGRO PVT. LIMITED IN ITS RETURN OF INCOME ALONE IS NOT S UFFICIENT TO ALLOW DEDUCTION TO THE ASSESSEE IN RESPECT OF SUCH COMMIS SION. THE ONUS IN THIS REGARD IS ON THE ASSESSEE TO ESTABLISH ON EVIDENCE THE SERVICES RENDERED BY M/S. REX AGRO PVT. LIMITED IN ORDER TO SECURE SA LES FOR THE ASSESSEE. IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESSEE AT TH E TIME OF HEARING BEFORE ME HAS SUBMITTED THAT THE ASSESSEE IS IN THE BUSINE SS OF TRADING AND EXPORT OF TEA AND THE COMMISSION IN QUESTION WAS PA ID TO M/S. REX AGRO PVT. LIMITED ON PURCHASES. HE HAS ALSO SUBMITTED TH AT SUCH COMMISSION PAYMENT WAS REGULARLY MADE BY THE ASSESSEE EVEN IN THE EARLIER YEARS AND THE SAME, IN FACT, WAS LOWER IN THE YEAR UNDER CONS IDERATION AS COMPARED TO THE IMMEDIATELY PRECEDING YEAR. HE, HOWEVER, HAS NOT BEEN ABLE TO EXPLAIN THE EXACT BASIS OF COMMISSION PAID TO M/S. REX AGRO PVT. LIMITED NOR COULD HE PRODUCE ANY EVIDENCE TO ESTABLISH THE SERVICES RENDERED BY THE SAID PARTY, WHICH IS A SISTER CONCERN OF THE AS SESSEE, TO SUPPORT AND SUBSTANTIATE THE PAYMENT OF COMMISSION IN QUESTION. HAVING REGARD TO ALL THESE FACTS OF THE CASE, I AM OF THE VIEW THAT THE ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH ON EVIDENCE THAT THE EXPENDITURE INCURRED ON ACCOUNT OF PAYMENT OF COMMISSION IN QUESTION IS WHOLLY AND EXC LUSIVELY FOR THE PURPOSE OF ITS BUSINESS. I, THEREFORE, FIND NO JUST IFICATION IN THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) DELETING THE DISALLOW ANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF COMMISSION AND SETT ING ASIDE THE SAME ON THIS ISSUE, I RESTORE THAT OF THE ASSESSING OFFICER . GROUND NO. 1 IS ACCORDINGLY ALLOWED. 6. IN GROUND NO. 2, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(APPEALS) IN DELETING THE DISALLOWANCE MADE BY T HE ASSESSING OFFICER IN RESPECT OF PAYMENT OF SALARY MADE BY THE ASSESSE E-FIRM TO ITS PARTNERS. 7. THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOU NT OF REMUNERATION PAID TO PARTNERS AMOUNTING TO RS.2,40,000/- UNDER S ECTION 40A(2)(B) WAS DISALLOWED BY THE ASSESSING OFFICER ON THE GROUND T HAT THERE WAS NO MENTION OR CLAUSE IN THE PARTNERSHIP DEED ALLOWING SUCH REMUNERATION. I.T.A. NO. 2166/KOL./2014 ASSESSMENT YEAR: 2010-2011 PAGE 4 OF 10 BEFORE THE LD. CIT(APPEALS), THE ASSESSEE, HOWEVER, PRODUCED A SUPPLEMENTARY DEED MADE ON 1 ST DAY OF APRIL, 2008 INCORPORATING THE CLAUSE FOR PAYMENT OF SALARY TO PARTNERS AND RELYI NG ON THE SAME, THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF P ARTNERS REMUNERATION WAS DISALLOWED BY THE LD. CIT(APPEALS). 8. I HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE LIMITED CONTENTION RAISED BY THE LD. D.R. BEFORE ME IS THAT THE SUPPLEMENTARY PA RTNERSHIP DEED FILED BY THE ASSESSEE FOR THE FIRST TIME BEFORE THE LD. CIT( APPEALS) WAS RELIED UPON BY HIM TO GIVE RELIEF TO THE ASSESSEE ON THIS ISSUE WITHOUT GIVING ANY OPPORTUNITY TO THE ASSESSING OFFICER TO VERIFY THE SAME, WHICH IS IN VIOLATION OF RULE 46A OF THE INCOME TAX RULES. ALTH OUGH THE LD. COUNSEL FOR THE ASSESSEE HAS NOT DISPUTED THE FACT THAT THE SUPPLEMENTARY PARTNERSHIP DEED WAS FILED BEFORE THE LD. CIT(APPEA LS) FOR THE FIRST TIME, HE HAS SUBMITTED THAT THE ASSESSING OFFICER NEVER A SKED ANY QUERY ON THIS ISSUE DURING THE COURSE OF ASSESSMENT PROCEEDINGS A ND, THEREFORE, THE ASSESSEE GOT THE OPPORTUNITY TO SUPPORT AND SUBSTAN TIATE ITS CLAIM FOR DEDUCTION ON ACCOUNT OF PARTNERS REMUNERATION BY F ILING THE RELEVANT SUPPLEMENTARY PARTNERSHIP DEED FOR THE FIRST TIME B EFORE THE LD. CIT(APPEALS). IT IS, HOWEVER, OBSERVED THAT RULE 46 A OF THE INCOME TAX RULES IS VERY CLEAR IN THIS REGARD AND AS PROVIDED THEREIN, THE LD. CIT(APPEALS) OUGHT TO HAVE GIVEN AN OPPORTUNITY TO THE ASSESSING OFFICER TO VERIFY THE ADDITIONAL EVIDENCE FILED BY THE ASSE SSEE IN THE FORM OF RELEVANT SUPPLEMENTARY PARTNERSHIP DEED BEFORE GIVI NG RELIEF TO THE ASSESSEE ON THIS ISSUE BY RELYING ON THE SAME. I, T HEREFORE, SET ASIDE THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) ON THIS ISSU E AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR DEC IDING THE SAME AFRESH AFTER VERIFYING THE SUPPLEMENTARY PARTNERSHIP DEED. GROUND NO. 2 IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURP OSES. I.T.A. NO. 2166/KOL./2014 ASSESSMENT YEAR: 2010-2011 PAGE 5 OF 10 9. IN GROUND NO. 3, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(APPEALS) IN DELETING THE ADDITION OF RS.29,16,3 99/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF INT EREST. 10. AS FOUND BY THE ASSESSING OFFICER DURING THE CO URSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD GIVEN SUBSTANTIAL ADV ANCES TO ITS SISTER CONCERN DURING THE YEAR UNDER CONSIDERATION. IN THI S REGARD, IT WAS EXPLAINED BY THE ASSESSEE BEFORE THE ASSESSING OFFI CER THAT THE ADVANCES TO M/S. CAMELLIA TEA GROUP (P) LIMITED AND M/S. RAG HUNATH EXPORTS (P) LIMITED HAD BEEN GIVEN AGAINST PURCHASES AND EVEN T HE ADVANCE GIVEN TO M/S. RAGHUNATH EXPORTS COMPANY WAS FOR COMMERCIAL E XPEDIENCY. THE ASSESSING OFFICER, HOWEVER, HELD THAT THE CLAIM OF THE ASSESSEE OF COMMERCIAL EXPEDIENCY FOR GIVING ADVANCE TO M/S. RA GHUNATH EXPORTS CO. WAS NOT PROPERLY ESTABLISHED. HE ALSO FOUND THAT NO ADVANCES WERE GIVEN BY THE ASSESSEE AGAINST PURCHASES MADE FROM UNRELAT ED PARTIES WHILE SUCH ADVANCES AGAINST PURCHASES WERE GIVEN ONLY TO THE RELATED CONCERNS. KEEPING IN VIEW THESE FINDINGS AS WELL AS OTHER FIN DINGS RECORDED BY HIM IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HELD THAT THERE WAS A DIVERSION OF BORROWED FUNDS BY THE ASSESSEE FOR NON -BUSINESS PURPOSE AND THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCO UNT OF INTEREST PAID ON SUCH BORROWED FUNDS AMOUNTING TO RS.29,16,399/- WAS DISALLOWED BY HIM. 11. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST WAS CHALLENGED BY THE ASSESSEE IN THE APPE AL FILED BEFORE THE LD. CIT(APPEALS) AND AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE AS WELL AS THE MATERIAL AVAILABLE ON RECORD, THE LD . CIT(APPEALS) DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO. 6.2 TO 6.4 OF HIS IMPUGNED O RDER:- 6.2 I HAVE HEARD AND CONSIDERED THE CONTENTIONS RA ISED BY THE AR AND PERUSED THE DETAILS ON RECORD AND THE ASSESSMENT OR DER. THE AO HAS MADE DISALLOWANCE OF THE ENTIRE AMOUNT OF INTEREST OF RS.29,16,399/- DEBITED TO THE PROFIT & LOSS ACCOUNT ON THE SOLE RE ASON THAT THE APPELLANT HAD GIVEN INTEREST FREE ADVANCES TO SISTE R CONCERNS AND MADE INVESTMENT IN SHARES OF RELATED PARTIES. THE AO HAS DISCUSSED THE ORDER THE DETAILS OF THE COMPANIES TO WHOM THE ADVANCES W ERE GIVEN FOR AN I.T.A. NO. 2166/KOL./2014 ASSESSMENT YEAR: 2010-2011 PAGE 6 OF 10 AGGREGATE AMOUNT OF AROUND RS.1.5 CRORES AND INVEST MENT IN SHARES MADE TO THE EXTENT OF RS.2.42 CRORES. IN DOING SO, THE AO HAS RELIED UPON DECISION OF CIT VS. ABHISHEK INDUSTRIES 286 IT R 1 WHEREIN IT HAS BEEN HELD THAT PAYMENTS MADE TO SISTER CONCERNS WIT HOUT BEARING ANY INTEREST AGAINST BORROWED FUNDS RESULTED IN DISALLO WANCE OF INTEREST IN THE HANDS OF THE PERSON MAKING THE PAYMENTS. THE DI SALLOWANCE MADE AND UPHELD BY THE PUNJAB & HARYANA HIGH COURT WAS O N THE REASON THAT THE BURDEN OF ONUS COULD NOT BE DISCHARGED BY THE T AX PAYER. THE PUNJAB & HARYANA HIGH COURT HAS DISCUSSED THE DECIS ION OF THE CALCUTTA HIGH COURT IN CIT VS. BRITANNIA INDUSTRIES LTD. 280 ITR 525 (CAL.) AND NOT ACCEPTED THE SAME. AS IT CLEARLY TRA NSPIRES FROM THE JUDGMENT OF THE PUNJAB & HARYANA HIGH COURT NOT ACC EPTING THE DECISION OF JURISDICTIONAL HIGH COURT WOULD IMPLY T HAT TWO DIFFERENT HIGH COURTS HAVE TAKEN TWO DIFFERENT VIES, THE CALC UTTA HIGH COURT IN THE CASE OF CIT V. BRITANNIA INDUSTRIES LTD. (SUPRA ) HAS HELD AT PARAGRAPH 8 AS UNDER:- 'FROM THE ABOVE DISCUSSION, WE FIND IN RELATION TO EACH ASSESSMENT YEARS INVOLVED IN THIS APPEAL THAT THE R ECIPIENT OF INTEREST-FREE LOAN WAS NOT A FIRM OF RELATIVES THE ADVANCE WAS MADE FOR THE PURPOSE OF BUSINESS WITHIN THE MEANING OF SECTION 36(1)(III), THAT THERE WAS REGULAR COURSE O F BUSINESS BETWEEN THE ASSESSEE AND THE FIRM, AND THAT THE ADV ANCES WERE MADE TO MCAP IN REGULAR COURSE OF BUSINESS; SUCH AD VANCES WERE MADE IN THE COURSE OF BUSINESS FOR COMMERCIAL EXPEDIENCY AND FOR THE PURPOSE OF BUSINESS, THE FIN DINGS ARRIVED AT BY THE LEARNED TRIBUNAL WEE NOT PERVERSE THE ENTIRE EXP EXPENDITURE WAS MADE FROM THE MIXED ACCOUNT, TH EREFORE, THERE WOULD BE A PRESUMPTION THAT THE AMOUNT WAS MA DE OUT OF OWN FUND OF TILE ASSESSEE AND NOT FROM THE BORRO WED CAPITAL, THAT THERE WERE SUFFICIENT FUND AND THAT T HE ADVANCES WERE MADE FROM THE MIXED ACCOUNT, THEREFORE. THE CI T(A) AND THE LEARNED TRIBUNAL BOTH WERE RIGHT IN PRESUMING T HAT THE ADVANCE WAS MADE OUT FROM THE ASSESSEES OWN FUND E LIGIBLE FOR THE BENEFIT OF SECTION 36(1)(III). 6,3 THE DECISION OF TNE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT.- VS.-ABHISHEK INDUSTRIES (SUPRA) BEING IN CONT RARY TO THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS, BRITANNIA INDUSTRIES L.TD. (SUPRA), THE SAME CANNOT BE ACCEPT ED AND FOLLOWED AND THE DECISION OF THE CALCUTTA HIGH COURT IS TO BE RE SPECTFULLY FOLLOWED. IN ANOTHER DECISION BY THE PUNJAB AND HARYANA HIGH COU RT IN CASE OF CIT VS. HERO CYCLES 323 ITR 518 IT HAS BEEN HELD THAT W HERE THERE ARE MIXED FUNDS, PRESUMPTION IS THAT THE INVESTMENTS ARE MADE OUT OF OWN CAPITAL. IN THIS DECISION OF THE PUNJAB & HARYANA H IGH COURT, RELIANCE WAS PLACED ON CIT VS.- WINSOME TEXTILE INDUSTRIES L IMITED, WHEREIN DECISION OF ABHISHEK INDUSTRIES WAS DISTINGUISHED A S HAVING NO APPLICATION, THE APPELLANT HAS SUBMITTED THAT THE D ECISION OF ABHISHEK INDUSTRIES LTD. (SUPRA) EVEN THOUGH NOT APPLICABLE DUE TO THE DECISION OF THE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. B RITANNIA INDUSTRIES LTD IS ALSO DISTINGUISHABLE FROM THE FACTS OF THE C ASE, THE APPELLANT HAS MADE PAYMENT OF INTEREST ON FUNDS BORROWED AGAINST SECURITY, IN OTHER WORDS, THE ENTIRE LOAN TAKEN BY THE APPELLANT ARE S ECURED LOANS WHICH I.T.A. NO. 2166/KOL./2014 ASSESSMENT YEAR: 2010-2011 PAGE 7 OF 10 ARE EITHER SECURED AGAINST THE STOCK OR AGAINST BOO K DEBTS AND PACKING CREDIT LOANS. THESE LOANS ARE ENTIRELY USED IN THE APPELLANTS BUSINESS FOR PURCHASE OF TEA AND SALE OF TREA. A PERUSAL OF THE ACCOUNTS SHOWS THAT THE TOTAL PURCHASES MADE BY THE ASSESSEE OF RS .8.52 CRORES HAS BEEN PAID BY THE BANKS EXCEPT FOR A LIABILITY OF SU NDRY CREDITORS FOR GOODS OF RS.8,71,467/-. THE APPELLANT IS HAVING SUN DRY DEBTORS OF RS.75,65,330/- AND STOCK IN HAND OF RS.1.69 CRORES. THE PAYMENTS MADE AGAINST THE PURCHASES BY THE APPELLANT ARE ALL AGAI NST THE SECURED LOANS WHICH ARE DIRECTLY OR INDIRECTLY AGAINST SUCH PURCHASES WHICH IS ASCERTAINABLE FROM THE ACCOUNTS AS WELL AS FROM THE BANK STATEMENTS. THE TOTAL SECURED LOANS BY THE APPELLANT ARE OF RS. 1.72 CRORES WHICH IS LESS THAN THE STOCK AND SUNDRY DEBTORS IN THE BALAN CE SHEET. 6.4 THE ADVANCES MADE BY THE APPELLANT TO THE PARTI ES WERE IN THE COURSE OF BUSINESS FOR PURCHASE OF TEA AND THE ADVA NCE MADE TO REX AGRO PVT. LTD. WAS FOR SHARE APPLICATION AND FOR TH E PURPOSE OF CONTROLLING INTEREST. THE APPELLANT IS HAVING ITS O WN CAPITAL OF RS.6.11 CRORES AND THE AGGREGATE ADVANCES MADE IS RS.1.75 C RORES AND THE ENTIRE AMOUNT IS FROM APPELLANTS OWN CAPITAL. THE M ADRAS HIGH COURT IN THE CASE OF CIT VS. RPG TRANSMISSIONS LTD. 359 I TR 673 (MAD.) HAS HELD THAT INVESTMENTS MADE IN SHARES BY THE ASSESSE E, EVEN IF IT WAS OUT OF BORROWED FUNDS, WERE FOR THE PURPOSE OF CONTROLL ING INTEREST OF THE ASSESSEE, THE INTEREST WAS ALLOWABLE U/S 36(1 )(III ) OF THE ACT. SIMILAR VIEW HAS BEEN DECIDED BY THE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. RAJIV LOCHAN KANORIA 208 ITR 616 (CAL.). 12. I HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. BESIDES REIT ERATING THE ARGUMENTS RAISED ON BEHALF OF THE ASSESSEE BEFORE THE AUTHORI TIES BELOW SHOWING THE COMMERCIAL EXPEDIENCY OF THE ADVANCES IN QUESTION G IVEN TO THE SISTER CONCERNS, THE LD. COUNSEL FOR THE ASSESSEE HAS INVI TED MY ATTENTION TO THE BALANCE-SHEET OF THE ASSESSEE PLACED AT PAGE NO. 21 OF HIS PAPER BOOK, WHICH CLEARLY SHOWS THAT THE ASSESSEE AT THE RELEVA NT TIME WAS HAVING OWN FUNDS OF RS.6.61 CRORES, WHICH WERE SUFFICIENT TO GIVE THE IMPUGNED ADVANCES TO ITS SISTER CONCERN. ON THE OTHER HAND, THE LOANS TAKEN BY THE ASSESSEE AT THE RELEVANT TIME STOOD ONLY AT RS.1.65 CRORES, WHICH WERE ENTIRELY USED FOR THE PURPOSE OF ITS BUSINESS. IN M Y OPINION, THESE FACTS AND FIGURES CLEARLY EVIDENT FROM THE RELEVANT BALAN CE-SHEET OF THE ASSESSEE, WHICH HAVE REMAINED UNDISPUTED OR UNCONTR OVERTED BY THE LD. D.R., ARE SUFFICIENT TO SHOW THAT THERE WAS NO DIVE RSION OF BORROWED FUNDS BY THE ASSESSEE FOR NON-BUSINESS PURPOSE AND THE DI SALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST WAS UN SUSTAINABLE. IN THAT I.T.A. NO. 2166/KOL./2014 ASSESSMENT YEAR: 2010-2011 PAGE 8 OF 10 VIEW OF THE MATTER, I UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFF ICER ON ACCOUNT OF INTEREST AND DISMISS GROUND NO. 3 OF THE REVENUES APPEAL. 13. IN GROUND NO. 4, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(APPEALS) IN DELETING THE ADDITION OF RS.1,16,08 4/- MADE BY THE ASSESSING OFFICER BEING DISALLOWANCE OF 20% OUT OF THE BUSINESS PROMOTION EXPENSES CLAIMED BY THE ASSESSEE. 14. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E CLAIM OF THE ASSESSEE FOR BUSINESS PROMOTION EXPENSES AMOUNTING TO RS.5,80,241/- WAS FOUND TO BE NOT FULLY SUPPORTED BY PROPER BILLS /VOUCHERS BY THE ASSESSING OFFICER. HE, THEREFORE, MADE A DISALLOWAN CE OF 20% OF SUCH EXPENSES. ON APPEAL, THE LD. CIT(APPEALS) DELETED T HE SAID DISALLOWANCE MADE BY THE ASSESSING OFFICER ON AD HOC BASIS ON TH E GROUND THAT NO SPECIFIC DEFECT WHATSOEVER WAS POINTED OUT BY THE A SSESSING OFFICER IN RESPECT OF ASSESSEES CLAIM FOR BUSINESS PROMOTION EXPENSES. 15. I HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS RIGHTLY O BSERVED BY THE LD. CIT(APPEALS), NO SPECIFIC INSTANCE WAS POINTED OUT BY THE ASSESSING OFFICER TO SHOW ANY UNVERIFIABLE ELEMENT INVOLVED I N THE EXPENSES CLAIMED BY THE ASSESSEE ON BUSINESS PROMOTION AND T HIS POSITION CLEARLY EVIDENT FROM THE ORDER OF THE ASSESSING OFFICER IS NOT DISPUTED EVEN BY THE LD. D.R. I, THEREFORE, FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) DELETING THE AD HOC DISALLOWANCE OF 20 % MADE OUT OF BUSINESS PROMOTION EXPENSES WITHOUT POINTING OUT AN Y SPECIFIC DEFECT IN THE CLAIM OF THE ASSESSEE AND UPHOLDING THE SAME, I DISMISS GROUND NO. 4 OF THE REVENUES APPEAL. 16. IN GROUND NO. 5, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(APPEALS) IN DELETING THE DISALLOWANCE OF RS.1,1 8,942/- MADE BY THE I.T.A. NO. 2166/KOL./2014 ASSESSMENT YEAR: 2010-2011 PAGE 9 OF 10 ASSESSING OFFICER UNDER SECTION 14A READ WITH RULE 8D OF THE INCOME TAX RULES. 17. DURING THE YEAR UNDER CONSIDERATION, THE ASSESS EE HAD MADE SUBSTANTIAL INVESTMENT IN SHARES AND ALTHOUGH NO DI VIDEND INCOME ON SUCH SHARES WAS ACTUALLY EARNED BY THE ASSESSEE, TH E ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE OUGHT TO HAVE OFF ERED A DISALLOWANCE OF EXPENSES INCURRED IN RELATION TO THE INVESTMENT IN SHARES UNDER SECTION 14A. SINCE NO SUCH DISALLOWANCE WAS OFFERED BY THE ASSESSEE, THE ASSESSING OFFICER INVOKED RULE 8D AND WORKED OUT TH E EXPENSES INCURRED BY THE ASSESSEE IN RELATION TO THE INVESTMENT MADE IN SHARES AT RS.1,18,942/-. ACCORDINGLY, THE DISALLOWANCE TO THA T EXTENT WAS MADE BY HIM UNDER SECTION 14A. 18. ON APPEAL, THE LD. CIT(APPEALS) DELETED THE DIS ALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A FOR THE FOL LOWING REASONS GIVEN IN PARAGRAPH NO. 8.2 AND 8.3 OF HIS IMPUGNED ORDER:- 8.2. I HAVE HEARD THE CONTENTIONS RAISED BY THE AR AND PERUSED THE DETAILS AND THE ASSESSMENT ORDER. IN TH E CASE OF CIT VS.- M/S. LAKANI MKTG. INCL. IN ITA 970 OF 2008, T HE PUNJAB & HARYANA HIGH COURT IN DEALING WITH SEC. 14A HAS HEL D THAT WHERE THERE IS NO EXEMPT INCOME OR NO TAXABLE INCOM E IN THE YEAR, NO DISALLOWANCE U/S 14A CAN BE MADE. FURTHER, THE GUJARAT HIGH COURT IN THE CASE OF CIT VS.- COMTECH ENERGY PVT. LTD. IN ITA NO. 239 OF 2014 VIDE ORDER DTD. 24.3.14 HAS UPHELD THE JUDGMENT OF THE TRIBUNAL WHICH HAD OBSERVED AND STATED THAT THERE CANNOT BE ANY DISALLOWANCE U/S 14A WHEN THERE IS NO EXEMPT INCOME IN THE HANDS OF THE ASSESSEE. FURTHER MORE, IN THE CASE OF CIT VS.- SIVAM MOTORS (P) LTD. IN ITA NO. 88 OF 2014, THE ALLAHABAD HIGH COURT HAS AGAIN HELD THAT WHERE THERE IS NO TAXABLE INCOME, NO DISALLOWANCE U/S 14A CAN BE MADE . THE HONBLE TRIBUNAL, CHENNAI BENCH, IN THE CASE OF ACI T VS.- N. BHASKARAN IN ITA NO. 1717/MDS/2013 HAS HELD THAT TH E CBDT CIRCULAR NO. 5/2014 DATED 11.02.14 IS NOT A GOOD LA W AND NO DISALLOWANCE CAN BE MADE IF THERE IS NO EXEMPT INCO ME. 8.3. THEREFORE, IN VIEW OF THE CLEAR LANGUAGE OF TH E STATUTE U/S 14A, INTERPRETED BY THE HIGH COURT AND THE I.T. TRIBUNAL WHERE THERE IS NO EXEMPT INCOME, NO DISALLOWANCE CA N BE MADE U/S 14A OF THE ACT. IN VIEW OF THE ABOVE, THE DISAL LOWANCE MADE BY THE AO U/S 14A CANNOT BE SUSTAINED AND IS HEREBY DIRECTED TO BE DELETED. I.T.A. NO. 2166/KOL./2014 ASSESSMENT YEAR: 2010-2011 PAGE 10 OF 10 19. I HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS RIGHTLY H ELD BY THE LD. CIT(APPEALS), THE DISALLOWANCE UNDER SECTION 14A CA NNOT BE MADE WHERE THERE IS NO EXEMPT INCOME EARNED BY THE ASSESSEE DU RING THE RELEVANT YEAR AND THIS POSITION IS DULY SUPPORTED BY THE VAR IOUS JUDICIAL PRONOUNCEMENTS DISCUSSED BY THE LD. CIT(APPEALS) IN HIS IMPUGNED ORDER. I, THEREFORE, FIND NO INFIRMITY IN THE IMPUGNED ORD ER OF THE LD. CIT(APPEALS) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE AND UPHOLDING THE SAME, I DISMISS GROUND NO. 5 OF THE REVENUES APPEA L. 20. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON AUGUST 10, 20 16. SD/- (P.M. JAGTAP) ACCOUNTANT MEMBER KOLKATA, THE 10 TH DAY OF AUGUST, 2016 COPIES TO : (1) INCOME TAX OFFICER, WARD-32(2), KOLKATA, 10B, MIDDLETON ROW, 2 ND FLOOR, KOLKATA-700 071 (2) M/S. RAGHUNATH EXPORTERS, 5F, PARK PLAZA, 71, PARK STREET, KOLKATA-700 016 (3) COMMISSIONER OF INCOME TAX (APPEALS)-XIX, KOL KATA; (4) COMMISSIONER OF INCOME TAX- , (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.