The ITO, Ward-4(1), Ahmedabad V. Grace Castings Pvt.Ltd., Ahmedabad

ITA 2182/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89497 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-05-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 20-05-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 01-09-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: HITESH P SHAH
• Keywords: Depreciation; Additional evidence
• Section: 143(3); 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD BEFORE S/SHRI RAJPAL YADAV, JM & ANIL CHATURVEDI, AM ITA NO.2182/AHD/2011 ASST. YEAR 2008-09 .INCOME-TAX OFFICER, WARD-4(1), AHMEDABAD. VS GRACE CASTING (P) LTD., 3-6 LIBERTY COMPLEX, OPP. ST. XAVIERS LADIES HOSTEL, NAVRANGPURA, AHMEDABAD- 380009 (APPELLANT) (RESPONDENT) PA NO. AAACG 5597K APPELLANT BY SHRI NIMESH YADAV, SR. DR RESPONDENT BY SHRI HITESH P. SHAH, AR DATE OF HEARING: 20/5/2015 DATE OF PRONOUNCEMENT: 26/5/2015 O R D E R PER SHRI RAJPAL YADAV, JUDICIAL MEMBER. REVENUE IS IN APPEAL BEFORE US AGAINST THE ORDER O F CIT(A) DATED 14 TH JUNE, 2011 PASSED FOR ASST. YEAR 2008-09. GROUND N OS. 3 & 4 ARE THE GENERAL GROUNDS OF APPEAL WHICH DO NOT REQUIRE ANY SPECIFIC FINDING TO BE RECORDED AT THE END OF TRIBU NAL, THEREFORE, THESE GROUNDS ARE REJECTED. ITA NO.2182/AHD/2011 ASST. YEAR 2008-09 2 2. GROUND NOS. 1 & 2 ARE THE SUBSTANTIAL GROUNDS OF APPEAL. THEY PROJECT THE GRIEVANCE OF REVENUE AS UNDER :- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.21,82,772/- MADE BY THE AO ON ACCOUN T OF COMMISSION PAID WHICH WAS NOT INCURRED WHOLLY AND E XCLUSIVELY FOR THE BUSINESS PURPOSE AS PER SECTION 37. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.18,00,000/- MADE BY THE AO ON ACCOUN T OF RENT PAID WHICH WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSE AS PER SECTION 37. 3. THE LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUT SET SUBMITTED THAT IDENTICAL ISSUES AROSE BEFORE THE TRIBUNAL IN AY 2007-08. THE TRIBUNAL HAS SET ASIDE THE ORDER OF CIT(A) AND REST ORED THESE ISSUES TO THE FILE OF AO FOR RE-ADJUDICATION. HE FURTHER P OINTED OUT THAT SIMILAR ISSUES HAD ARISEN IN AY 2006-07 AND THESE ISSUES WE RE RESTORED TO THE FILE OF AO FOR READJUDICATION. THE CIT(A) IN TH E IMPUGNED ORDER HAS BASED HIS FINDING ON THE ORDER OF HIS PREDECESS OR IN AY 2006-07. THE TRIBUNAL WHILE SETTING ASIDE THE ORDER IN AY 20 07-08 HAS RELIED UPON THE ORDER PASSED DURING AY 2006-07. THEREFORE, IN ALL THESE THREE YEARS THE ISSUES ARE IDENTICAL AND IN VIEW OF THE ORDER OF THE TRIBUNAL IN EARLIER TWO YEARS, THESE ISSUES DESERVE TO BE SET ASIDE TO THE FILE OF AO FOR READJUDICATION. ITA NO.2182/AHD/2011 ASST. YEAR 2008-09 3 4. THE LD. DR ON THE OTHER HAND, DID NOT RAISE ANY OBJECTION TO THE PROPOSAL OF THE LD. COUNSEL FOR THE ASSESSEE BECAUS E IN ANY CASE THE APPEAL OF THE REVENUE WOULD BE ALLOWED AND THE ORDE R OF THE CIT(A) WOULD BE SET ASIDE. 5. THE ORDER OF THE TRIBUNAL DATED 10.4.2015 PASSED IN ITA NO.313/AHD/2011 IN AY 2007-08 HAS BEEN PLACED ON RE CORD BY THE LD. COUNSEL FOR THE ASSESSEE. WE DEEM IT APPROPRIATE TO TAKE NOTE OF THIS ORDER. IT READS AS UNDER :- THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-VIII, AHMEDA BAD (CIT(A) IN SHORT) DATED 01/11/2010 PERTAINING TO ASSESSMENT Y EAR (AY) 2007-08. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THE LD.CIT(A)-VIII, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.27,46,569/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF COMMISSION PAYMENT TO M/S.NAKODA ENTERPRISES, WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD BY THE AO. 1.2. IN DOING SO, THE LD.CIT(A) HAS ERRED IN LAW AN D ON FACTS IN NOT APPRECIATING THAT THE ORDER OF THE LD.CIT(A) FOR AS ST.YEAR 2006-07 HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND THE MATTER IS SUBJUDICE BEFORE THE HONBLE TRIBUNAL. 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELE TING THE ADDITION OF RS.18,00,00/- MADE BY THE AO ON ACCOUNT OF DISALLOW ANCE OF LEASE RENT OF DG SET, WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD BY THE AO. ITA NO.2182/AHD/2011 ASST. YEAR 2008-09 4 2.2. IN DOING SO, THE LD.CIT(A) HAS ERRED IN LAW AN D ON FACTS IN NOT APPRECIATING THAT THE ORDER OF THE LD.CIT(A) FOR AS ST.YEAR 2006-07 HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND THE MATTER IS SUB-JUDICE BEFORE THE HONBLE TRIBUNAL. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 2. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE AS SESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143(3) O F THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VIDE ORDER DATED 30/12/2009, THEREBY THE ASSESSING OFFICER (AO IN SHORT) MADE DI SALLOWANCE OF COMMISSION PAYMENT OF RS.27,46,569/- AND DISALLO WANCE OF RENT ON DG SET OF RS.18 LACS. AGAINST THIS, THE ASSESSEE FILE D AN APPEAL BEFORE THE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE ALLOWED THE EXPENDITURE IN RESPECT OF THE COMMISSION PAID T O SMT.ROOPAM MARDIA (NAKODA ENTERPRISES) AND EXPENDITURE RELATED TO LEA SE RENT ON DG SET. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), NOW THE RE VENUE IS IN APPEAL BEFORE US. 3. AT THE OUTSET, LD.SR.DR SUBMITTED THAT THE IDENT ICAL ISSUES HAVE BEEN DECIDED BY THE COORDINATE BENCH IN ASSESSEES OWN C ASE (ITAT C BENCH AHMEDABAD) IN ITA NO.261/AHD/2010-REVENUES APPEAL FOR AY 2006-07, VIDE ORDER DATED 12/10/2012. HE DREW OUR ATTENTION TOWARDS PARA-6 OF THE TRIBUNALS ORDER AND SUBMITTED THAT THE LD.CIT(A) W AS NOT JUSTIFIED IN DELETING THE ADDITION BY FOLLOWING EARLIER YEAR ORD ER. 4. ON THE CONTRARY, LD.COUNSEL FOR THE ASSESSEE DID NOT CONTROVERT THE FACT THAT IN EARLIER YEAR, THE IDENTICAL ISSUE CAME UP F OR HEARING BEFORE THIS TRIBUNAL. HOWEVER, LD.COUNSEL FOR THE ASSESSEE SUB MITTED THAT THIS TRIBUNAL HAD MADE OBSERVATION IN PARA-6 OF THE ORDER IN ITA NO.261/AHD/2010 ITA NO.2182/AHD/2011 ASST. YEAR 2008-09 5 PERTAINING TO AY 2006-07. LD.COUNSEL FOR THE ASSES SEE SUBMITTED THAT ALL DETAILS ARE AVAILABLE ON RECORD THAT GOES TO DEMONS TRATE THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING THE ADDITION. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. IN RESPECT OF GROUND NOS.1 & 1.2 ARE AGAINST THE DELETION OF DIS ALLOWANCE OF RS.27,46,569/- MADE ON ACCOUNT OF COMMISSION PAYMEN T TO M/S.NAKODA ENTERPRISES. WE FIND THAT THE LD.CIT(A) HAS DECIDE D THIS ISSUE FOLLOWING HIS PREDECESSORS ORDER PASSED IN AY 2006-07 BY HOLDING AS UNDER:- 2.3. I HAVE CAREFULLY CONSIDERED THE FINDINGS OF T HE A.O. AND SUBMISSIONS OF THE APPELLANT AND OTHER MATERIAL AVAILABLE ON RE CORD. GRACE CASTING PVT.LTD. IS A COMPANY INCORPORATED UNDER THE COMPAN IES ACT WITH THE MAIN OBJECT TO MANUFACTURE AND TRADE IN THE AREA OF META L PRODUCTS. DURING THE RELEVANT PREVIOUS YEAR THE APPELLANT WAS ENGAGED IN MANUFACTURING INGOTS AND BARS AND FILED ITS RETURN OF INCOME DECL ARING TOTAL INCOME OF RS.26,81,770/-. THE A.O FINALIZED THE ASSESSMENT U /S. 143(3) ON A TOTAL INCOME OF RS.72,28,340/- BY MAKING TOTAL ADDITIONS OF RS.4546,569/-. THE A.O. HAS MADE DISALLOWANCE OF RS.27,46,569/- ON ACC OUNT OF PAYMENT OF COMMISSION TO NAKODA ENTERPRISES, WHOSE PROPRIETOR IS SMT. ROOPAM MARDIA. IT IS OBSERVED THAT IN THE ASSESSMENT YEAR 2006-07 ALSO THE APPELLANT PAID COMMISSION TO THE TUNE OF RS. 24,30,078/- TO M/S. NAKODA ENTERPRISES AND THE SAME WAS DISALLOWED BY THE A.O. MY PREDEC ESSOR LD. CIT(A) VIDE ORDER NO. CIT(A)-VIII/ITO/4(1)/209/08-09 DTD. 29.9. 2009 DELETED THE ADDITION ON IDENTICAL FACTS GIVING THE FOLLOWING FI NDINGS:- 'I HAVE CONSIDERED THE FACTS AND THE SUBMISSIONS OF THE LD. A.R. CAREFULLY. THERE IS NO DISPUTE ABOUT THE FACT THAT THE APPELLANT HAS PAID COMMISSION TO THE TUNE OF RS.24,30,078/- TO M/ S. NAKODA ENTERPRISE A PROPRIETARY OF SMT. ROOPAM MARDIA. THE A. O. HAS DISALLOWED THE AMOUNT HOLDING THAT SMT. MARDIA HAS NOT RENDERED HER SERVICES DIRECTLY TO THE APPELLANT. HE HAS ALSO OBSERVED THAT THE CONTRIBUTION OF SHRI RAJIV MARDIA IN THE BUSINESS O F SMT. MARDIA SHALL NOT BE TAKEN ANY COGNIZANCE OF. HE HAS ALSO OBSERVED THAT THE OTHER EMPLOYEES OF NAKODA ENTERPRISE HAD PLAYED MIN IMUM ROLE IN ITS BUSINESS. HE HAS HELD THAT UNDER THESE CIRCUMST ANCES THE PAYMENT ITA NO.2182/AHD/2011 ASST. YEAR 2008-09 6 OF COMMISSION WAS NOT WHOLLY AND EXCLUSIVELY FOR TH E PURPOSE OF BUSINESS. 6.5 THE A.O, HOWEVER, BY ARRIVING AT THIS CONCLUSIO N HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO SUPPORT SUCH FINDINGS. ON THE CONTRARY, IT IS FOUND THAT SMT. ROOPAM MARDIA IN HER STATEMENT R ECORDED AT THE TIME OF SURVEY AND SUBSEQUENTLY HAS ELABORATELY DIS CUSSED HER BUSINESS CONNECTIONS WITH THE APPELLANT AND THE SER VICES RENDERED BY HER PROPRIETARY CONCERN FOR EARNING THE COMMISSION FROM THE APPELLANT UNDER REFERENCE. THE A.O HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO PROVE THAT THE CLAIMS MADE BY MRS. MARD IA WAS FALSE AND UNSUBSTANTIATED. IT IS SEEN THAT THE APPELLANT HAS ALSO FILED COPIES OF SOME PURCHASING PARTIES WHO HAVE CONFIRME D THAT THEY MADE PURCHASES FROM THE APPELLANT THROUGH NAKODA EN TERPRISES. THESE EVIDENCES HAVE ALSO NOT BEEN CONTROVERTED BY THE A. O IN THE ASSESSMENT ORDER. 6.6 THE APPELLANT HAS MADE ITS ENTIRE SALES THROUGH NAKODA ENTERPRISE AND HAS PAID COMMISSION AT THE RATE OF 1 00 PER METRIC TONNE, THE A.O WITHOUT APPRECIATING THE FACTS CORRE CTLY HAS ALLEGED THAT THE APPELLANT HAS PAID RS. 50 PER M. T TO OTHE R COMMISSION AGENTS. IN FACT THE APPELLANT HAS PAID COMMISSION @ RS. 50 PER M. T TO THE PARTIES FROM WHOM IT HAS MADE PURCHASES DURI NG THE RELEVANT PERIOD. THEREFORE UNDER THESE CIRCUMSTANCES I DO NO T FIND ANY REASON TO DISALLOW THE COMMISSION PAID BY THE APPEL LANT TO MS NAKODA ENTERPRISE. IN THIS REGARD RELIANCE IS PLACE D ON THE DECISION OF HON 'BLE ITAT DELHI IN THE CASE OF ACIT V/S ASSO CIATED STRIPS (P) LTD. 1 SOT 338 (DEL) WHERE IN THE HON'BLE TRIBUNAL HAS HELD THAT ' ONCE IT HAD BEEN HELD THAT THE COMMISSION WAS PAID AGAINST SERVICES RENDERED BY THE RESPECTIVE COMMISSION AGENT THEN WI THOUT ASSIGNING ANY REASON, DISALLOWANCE OF COMMISSION WAS NOT JUST IFIED - RENDERING OF SERVICES BY COMMISSION AGENT NOT BEING IN DISPUTE PAYMENT OF COMMISSION THROUGH ACCOUNT PAYEE CHEQUES AGAINST BILLS RAISED COULD NOT BE DISALLOWED EVEN PARTLY '. MY PREDECESSOR LD. CIT(A) HAS DISCUSSED THE ISSUE I N DETAIL AND AFTER GIVING LOGICAL FINDINGS ON THE IMPUGNED ISSUE HAS DELETED THE ADDITION IN THE PREVIOUS ASSESSMENT YEAR. THE A.O. HAS NOT B ROUGHT ANY ADDITIONAL EVIDENCE ON RECORD TO SUBSTANTIATE THE ADDITIONS. I N VIEW OF THE FACTS MENTIONED ABOVE, THERE IS NO REASON TO INTERFERE IN THE FINDINGS GIVEN BY MY PREDECESSOR LD. CIT(A) AS REFERRED ABOVE. THEREFORE , IN THESE CIRCUMSTANCES, I DO NOT FIND ANY REASON TO DISALLOW THE COMMISSION PAID BY ITA NO.2182/AHD/2011 ASST. YEAR 2008-09 7 THE APPELLANT TO M/S. NAKODA ENTERPRISES AND THEREF ORE, ADDITION MADE BY THE A.O. IS DELETED. AS SUCH THE APPELLANT GETS REL IEF OF RS.21,46,569/-. 5.1. THE REVENUE HAD FILED AN APPEAL AGAINST THE OR DER OF LD.CIT(A) IN AY 2006-07 IN ITA NO.261/AHD/2010, WHEREIN IDENTICALGR OUND RAISED BY THE REVENUE WAS ALLOWED FOR STATISTICAL PURPOSES BY RES TORING THE ISSUE BACK TO THE FILE OF AO FOR DECISION AFRESH. THE FACTS ARE IDENTICAL IN THIS YEAR AS WELL AND THE LD.CIT(A) HAS FOLLOWED THE ORDER OF HIS PRE DECESSOR WHICH HAS BEEN SET ASIDE BY THE COORDINATE BENCH. THE COORDINATE BENCH IN ITA NO.261/AHD/2010 PERTAINING TO AY 2006-07 HAS OBSERV ED AS UNDER:- 6.. . IN THIS REGARD, CERTAIN POINTS ARE REQUIR ED TO BE ESTABLISHED BY THE ASSESSEE WHO IS CLAIMING THE GENUINENESS OF THE COM MISSION PAYMENT:- (I) THAT THE AMOUNT IN QUESTION HAS ACTUALLY BEEN EXPENDED. (II) THAT THE MODE OF PAYMENT AND THE DATES OF PAY MENT ARE TO BE PRECISELY INFORMED. (III) THAT THE BASIS OF PAYMENT WHETHER ON DAILY B ASIS, MONTHLY BASIS OR YEARLY BASIS AND THE CALCULATION OF COMMISSION ON E ACH CLAIMED TRANSACTION IS TO BE PLACED ON RECORD. (IV) THAT WHETHER THE PAYMENT WAS MADE ON THE BASI S OF CREDIT NOTES OR BILLS RAISED BY THE COMMISSION AGENT OR THAT WHAT WAS THE BASIS OF SATISFACTION BEFORE MAKING OF PAYMENT. (V) THAT THE ASSESSEE IS REQUIRED TO ESTABLISH THA T AH AGENT HAS BEEN APPOINTED TO LOOK AFTER THE SALES IF NOT PERSONALLY DOING THE MARKETING. (VI) THAT THE ASSESSEE IS TO ESTABLISH THE EXISTEN CE OF COMMISSION AGENCY BETWEEN THE TWO PARTIES, I.E. THE PRINCIPAL AND THE AGENT. (VII) THAT THE ASSESSEE IS TO ESTABLISH THE PRINCIP LE AND AGENT RELATIONSHIP AND FOR THAT ALL THE INGREDIENTS AS PRESCRIBED UNDE R THE LAW HAS TO BE ESTABLISHED. (VIII) THAT THE AGENT IS REQUIRED TO BE PRODUCED, S O THAT HE CAN ESTABLISH WHAT EFFORTS HE HAS MADE AND HOW THE EFFORTS WERE F RUITFUL AND WHAT CORRESPONDENCE IN THIS REGARD WAS MADE BETWEEN THE PRINCIPLE AND THE PARTIES. (IX) THAT THE LAW IS VERY CLEAR THAT ALTHOUGH THE PAYMENT OF COMMISSION MIGHT HAVE BEEN MADE THROUGH BANKING CHANNEL OR COU LD BE IN ACCORDANCE WITH AN AGREEMENT BUT STILL IT IS OPEN T O THE REVENUE ITA NO.2182/AHD/2011 ASST. YEAR 2008-09 8 DEPARTMENT TO DECIDE THE DEDUCTIBILITY AND THE GENU INENESS OF THE EXPENDITURE. (X) THAT THE GENUINENESS OF THE EXISTENCE OF THE SELLING AGENCY IS REQUIRED TO BE ESTABLISHED AND NOT TO BE BASED UPON A MAKE-BELIEF DOCUMENT. THE HON'BLE COURTS HAVE THEREFORE HELD TH AT MERE EXISTENCE OF AGREEMENT DO NOT BIND THE ITO TO ALLOW SUCH DEDUCTION OF PAYMENT OF COMMISSION. (XI) THAT THE ASSESSEE IS DEFINITELY UNDER OBLIGATI ON TO ESTABLISH THE NECESSITY FOR INCURRING OF- EXPENDITURE, BECAUSE AN EXPENDITURE SHOULD NOT BE A GRATUITOUS PAYMENT TO NEAR-ONES. (XII) THAT THE ALLOWABILITY OF EXPENDITURE DEPENDS UPON THE FACT THAT IT OUGHT TO BE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. (XIII) THAT THE RENDERING OF SERVICES BY THE AGENT AND THE EXACT WORK DONE FOR PROCURING THE BUSINESS IS THE PRIMARY EVIDENCE TO BE PLACED ON RECORD TO ESTABLISH THAT THE EXPENDITURE WAS EXCLU SIVELY FOR THE BUSINESS. 6.1. THESE ARE THE FEW POINTS WHICH ARE REQUIRED TO BE EXAMINED BY THE REVENUE DEPARTMENT WHILE INVESTIGATING THE GENUINENESS OF THE TRANSACTION. WE WANT TO CLARIFY THAT THE POINTS RE FERRED HEREINABOVE ARE NOT EXHAUSTIVE BUT MERELY SUGGESTIVE DEPENDING UPON CASE TO CASE, THEREFORE THE DEPARTMENT IS AT LIBERTY TO INVESTIGA TE THOROUGHLY AS PER LAW TO EXAMINE THE CORRECTNESS OF THE CLAIM. WE HAVE ALSO NOTED THAT THE ASSESSING OFFICER IN THE PRESENT CASE HAS STARTED T HE PROCEEDINGS BY NOTING THE FACT THAT THE GENUINENESS OF THE COMMISSION WAS DOUBTED BECAUSE THE SAID LADY HAPPENED TO BE AN INTERESTED PARTY AS DEF INED U/S.40A(2)(B). THE PURPOSE OF MENTIONING OF THIS PROVISION WAS PLACED ON RECORD THAT THE SAID LADY IS NOT AN OUTSIDER BUT HAVING SUBSTANTIAL INTE REST IN THE ASSESSEE- COMPANY AS ALSO IN A COMMANDING POSITION BY HOLDING MAJORITY SHARES TO INFLUENCE THE BUSINESS DECISIONS OF THE ASSESSEE-CO MPANY. FINALLY WHEN THE GENUINENESS COULD NOT BE CONCLUSIVELY ESTABLISHED, THEN THE PROVISIONS OF SECTION 37 WAS INVOKED AND RIGHTLY SO . 5.2. THEREFORE, THIS GROUND OF REVENUES APPEAL IS ALSO RESTORED TO THE FILE OF AO TO DECIDE IT AFRESH IN THE LIGHT OF THE DIREC TION GIVEN BY THE COORDINATE BENCH IN ITA NO.261/AHD/2010(SUPRA). THUS, GROUND NOS.1 & 1.2 OF REVENUES APPEAL ARE ALLOWED FOR STATISTICAL PURPOS ES. ITA NO.2182/AHD/2011 ASST. YEAR 2008-09 9 6. GROUND NOS.2 & 2.2 ARE INTER-CONNECTED. THE LD.S R.DR SUBMITTED THAT THE IDENTICAL ISSUE WAS ALSO RAISED FOR ADJUDICATIO N IN THE AY 2006-07, WHEREIN ALSO THE HONBLE TRIBUNAL HAS RESTORED THE GROUND TO AO FOR DECISION AFRESH. THIS FACT IS NOT CONTROVERTED BY LD.COUNSEL FOR THE ASSESSEE. 6.1. WE FIND THAT THE LD.CIT(A) HAD FOLLOWED THE DECISION OF HIS PREDECESSOR PASSED IN AY 2006-07 AND DECIDED THIS I SSUE BY HOLDING AS UNDER:- 3.3 I HAVE CONSIDERED THE FINDINGS OF THE A.O., SU BMISSION OF THE APPELLANT AND OTHER MATERIALS AVAILABLE ON RECORD. HERE AGAIN , THE IDENTICAL ADDITION WAS MADE BY THE A.O. IN THE PRECEDING YEAR AND THE SAME WAS DELETED BY MY PREDECESSOR LD CIT(A) VIDE ORDER NO. CIT(A)-VIII /ITO 4(1) /209/ 08-09 DTD. 29.9.2009 GIVING THE FOLLOWING FINDINGS: '7.5 I HAVE CONSIDERED THE FACTS AND THE SUBMISS IONS OF THE LD. A.R CAREFULLY. THERE IS NO DISPUTE ABOUT THE FACT THAT THE APPELLANT HAS TAKEN A D.G SET ON LEASE FROM NAKODA ENTERPRISE. T HE APPELLANT IS USING THE D.G SET FOR THE PURPOSE OF ITS BUSINESS. IT HAS FURNISHED THE LEASE AGREEMENT AND DETAILS WITH REGARD TO CONS UMPTION OF FUEL AND ELECTRICITY TO JUSTIFY THE HIRING OF D.G SET. THE A.O HAS NOT CONTROVERTED THESE FACTS IN THE ASSESSMENT ORDER. IT IS A WELL SETTLED PROPOSITION OF LAW THAT ONCE THE EXPENSES ARE HELD TO BE INCURRED DURING THE COURSE OF BUSINESS PARTIAL DISALLOWANCE IS NOT PERMISSIBLE. IN THIS REGARD RELIANCE IS PLACED O N THE DECISION OF HON'BLE CALCUTTA HIGH COURT IN THE CASE OF RAVI MAR KETING PVT. LTD. V/S CIT 280 ITR 519 WHEREIN THE HON'BLE COURT HAS H ELD 'THE AUTHORITIES UNDER THE INCOME-TAX ACT CAN EXAM INE THE GENUINENESS OF THE EXPENDITURE AND THE PURPOSE FOR WHICH IT WAS EXPENDED. ONCE IT IS ESTABLISHED THAT THE AMOUNT WA S GENUINELY EXPENDED AND IT WAS EXPENDED FOR A PARTICULAR PURPO SE, THE ONLY DISCRETIONS THAT IS LEFT TO THE AUTHORITY UNDER THE ACT IS TO APPLY THE LAW ON THE BASIS OF SUCH ESTABLISHED FACT OR FI NDING. IF THE PURPOSE FOR WHICH IT IS EXPENDED IS ELIGIBLE FOR DE DUCTION UNDER A PARTICULAR HEAD, NO DISCRETION IS LEFT TO THE AUTHO RITY EITHER TO SURMISE THE QUANTUM THAT OUGHT TO HAVE BEEN SPENT O R TO SURMISE OR PRESUME THE PURPOSE DIFFERENTLY AND CONVERT THE SAME TO SOME OTHER HEAD.' ITA NO.2182/AHD/2011 ASST. YEAR 2008-09 10 7.6 THEREFORE, IN VIEW OF THE ABOVE, THE DISAL LOWANCE MADE BY THE ABOVE CANNOT BE SUSTAINED. HENCE, THE DISALLOWANCE OF RS.18,00,000/- IS HEREBY DELETED'. THE LD. A.R. PUT UP ALL THE FACTS ON RECORD TO JUST IFY THE PAYMENT OF LEASE RENT ON D.G. SET. HE ALSO BROUGHT ON RECORD T HAT IN WHAT MANNER THE USE OF D.G. SET HAS BEEN HELPFUL IN INCREASING THE TURNOVER AND PROFITABILITY OF THE APPELLATE COMPANY. HE EMPHASIZED WITH VARIOU S FACTS AND EVIDENCES THAT D.G. SET WAS TAKEN ON LEASE FOR THE PURPOSE OF BUSINESS AND THE PAYMENT OF LEASE RENT IS SUPPORTED BY THE LEASE AGR EEMENT ETC. HE ALSO JUSTIFIED THAT THE LEASE RENT HAS BEEN FIXED ON ARM 'S LENGTH. THE A.O. HAS NOT BROUGHT ANY EXTRA EVIDENCE ON RECORD TO SUBSTANTIAT E THE ADDITION. IN VIEW OF THE ABOVE FACTS, THERE IS NO REASON TO DEVIATE F ROM THE FINDINGS GIVEN BY MY PREDECESSOR LD. CIT(A) IN THE PREVIOUS YEAR ON T HE IMPUGNED ISSUE. THEREFORE, THE DISALLOWANCE MADE BY THE A.O. IS DEL ETED. AS SUCH THE APPELLANT GETS RELIEF OF RS. 18 LAKHS. 6.2. THE ISSUE TRAVELLED UPTO THE STAGE OF THE ITAT C BENCH AHMEDABAD AND THE TRIBUNAL IN ITA NO.261/AHD/2010 FOR AY 2006 -07 VIDE ORDER DATED 12/10/2012 WAS PLEASED TO RESTORE THIS ISSUE AS WEL L TO THE FILE OF THE AO BY OBSERVING AS UNDER:- 8. GROUND NO.2 READS AS UNDER:- THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETIN G THE DISALLOWANCE OF RENT ON DG SET AMOUNTING TO RS.18,00,000/-. 8.1. THE AO HAS NOTED AND SHOW CAUSE WAS ISSUED IN RESPECT OF LEASE-RENT PAID TO SMT.ROOPAM AT THE RATE OF RS.3 LACS PER MONTH IN RESPECT OF THE HIRING OF DIESEL GENERATOR. FACTS HAVE REVEALED THAT A GENERATOR WH ICH COSTED RS.96 LACS WAS RENTED OUT BY SMT.ROOPAM TO THE ASSESSEE-COMPANY IN TERMS OF AN AGREEMENT DATED 25.02.2004. THE ALLEGATION OF THE AO WAS THA T THE GENERATOR WAS TAKEN ON LEASE FROM THE LADY WITH AN INTENTION TO PASS ON AN UNDUE BENEFIT. THE ASSESSEE'S REPLY WAS THAT THE DECISION OF HIRING OF GENERATOR SET WAS A COMMERCIAL DECISION OF THE ASSESSEE-COMPANY. THE LADY HAS INVESTED A HU GE AMOUNT TOWARDS PURCHASE, THEREFORE LEASED OUT THE D.G.SET. THE ASSESSEE-COMP ANY HAS CONSUMED SUBSTANTIAL FUEL TO RUN THE D.G.SET, HENCE THE LEASE RENT WAS C LAIMED AS AN ALLOWABLE EXPENDITURE. THE AO HAS HELD THAT 50% OF THE EXPEND ITURE COULD BE MEANT FOR BUSINESS PURPOSES. REST OF THE AMOUNT WAS DISALLOWE D BY INVOKING SECTION 37 OF IT ACT. IN THIS CONNECTION, WE HAVE HEARD BOTH THE SID ES AND PERUSED THE MATERIAL PLACED ON RECORD. OUR ATTENTION WAS DRAWN ON PAGE 1 42 OF THE COMPILATION CONTAINING THE AGREEMENT EXECUTED IN RESPECT OF THE LEASE OF THE D.G.SET. THE ITA NO.2182/AHD/2011 ASST. YEAR 2008-09 11 ASSESSEE'S CONTENTION IS THAT THE AO SHOULD NOT HAV E PARTLY DISALLOWED THE CLAIM BY INVOKING THE PROVISIONS OF SECTION 37(1) OF IT A CT. IT IS TRUE THAT THE AO HAS INVOKED THE PROVISIONS OF SECTION 37(1) OF IT ACT W HILE DISALLOWING 50% OF THE CLAIM. WE HAVE NOTED THAT THE LEASE RENT AT RS.3 LA CS P.M. WAS PAID. THE INVESTMENT TOWARDS PURCHASE OF DG SET WAS RS.96 LAC S. DUE TO THIS REASON, THE ASSESSING OFFICER HAD WORKED OUT THAT THE RETURN ON THE SAID INVESTMENT WAS MORE THAN 3%. ACCORDING TO. ASSESSING OFFICER, EVEN THE RETURN ON THE SAID INVESTMENT WAS HIGHER BECAUSE THE ASSESSEE-LADY SHOULD HAVE CL AIMED THE DEPRECIATION ON DG SET. IN SUCH A SITUATION, WHEN A HIGH LEASE-RENT IS BEING PAID BY THE ASSESSEE- COMPANY TO AN INTERESTED PARTY, THEN THE FAIRNESS O F THE TRANSACTION SHOULD BE PROPERLY PLACED ON RECORD BY THE ASSESSEE. THE ASSE SSEE-COMPANY WAS THUS REQUIRED TO PLACE ON RECORD THE BUSINESS NEED OF TH E DG SET. THE ONUS IS ON THE ASSESSEE TO ESTABLISH THAT THE SERVICES OF DG SET W ERE IMMINENTLY REQUIRED TO RUN THE BUSINESS. MEANING THEREBY THE ASSESSEE HAS TO D EMONSTRATE THE BUSINESS NECESSITY FOR HIRING OF THE DG SET. THEREFORE, I T WAS EXPECTED THAT THE ASSESSEE SHOULD PLACE ON RECORD CERTAIN EVIDENCES, SUCH AS, THE FREQUENCY OF ELECTRICITY FAILURE CAUSING BUSINESS HARDSHIP, THUS COMPELLING THE ASSESSEE-COMPANY TO HIRE THE GENERATOR SET. THE REQUIREMENT OF THE GENERATOR SET CAN BE PROVED BY PLACING SUCH TYPE OF OTHER EVIDENCES BY THE ASSESSEE. IN A SITUATION, WHEN THE REVENUE DEPARTMENT IS ALLEGING A COLOURABLE DEVICE OF DIVER SION OF FUNDS, THEN A DUTY IS CASTED UPON THE ASSESSEE TO CLEAR THE SMOKE-SCREEN AND TO DEMONSTRATE THE TRANSPARENCY OF THE TRANSACTION. BASICALLY, IN THIS CASE THE DOUBT WAS BASED UPON THE FACT THAT A HIGH RENT; AS PER ASSESSING OFFICER WAS PAID BY THE COMPANY TO AN INTERESTED PERSON. ON ONE HAND, THE ASSESSEE HAS I NFORMED THE ASSESSING OFFICER THAT THE PROFITS WERE GOING HIGH AND THE TURNOVER H AD ALSO GONE UPTO RS.66 CRORES BUT ON THE OTHER HAND, THE ASSESSEE-COMPANY HAS NOT DEMONSTRATED THAT WHY THE GENERATOR SET WAS NOT PURCHASED BY THE ASSESSEE-COM PANY OF ITS OWN HAVING DUAL BENEFIT, I.E. SAVING OF LEASE-RENT AND ALSO THE BEN EFIT OF DEDUCTION OF DEPRECIATION. AS FAR AS THE 50% DISALLOWANCE IS CONCERNED, THE AC TION OF THE ASSESSING OFFICER CAN BE SAID TO BE DULY COVERED BY THE SECTION 37 OF THE I.T.ACT. HE WAS NOT REQUIRED TO INVOKE THE PROVISIONS OF SECTION 40A(2) AS OBJECTED BY ID.AR. SECTION 37 EXPLICITLY SAYS THAT AN EXPENDITURE HAS TO BE WH OLLY FOR THE PURPOSE OF THE BUSINESS. IF AN EXPENDITURE IS NOT WHOLLY FOR THE PURPOSE OF THE BUSINESS, BUT PARTLY FOR THE PURPOSE OF THE BUSINESS, THEN ONLY T HAT PART IS ALLOWABLE. THE WORDS 'WHOLLY AND EXCLUSIVELY', THUS REFER TO THE MOTIVE AND THE OBJECT BEHIND THE EXPENDITURE. THE OBJECT HAS TO BE EXCLUSIVELY AS ALSO SOLELY FOR RUNNING OF THE BUSINESS. THE EXPENDITURE HAS TO BE INCURRED IN REALITY AND THERE SHALL BE OSTENSIBLE REASON FOR INCURRING OF THE EXPENDITURE. THE ASSESSING OFFICER HAS THOUGHT IT PROPER TO DECIDE THE PERCENTAGE OF DISAL LOWANCE ON THE BASIS OF THE EXPECTED ANNUAL RETURN ON SUCH INVESTMENT. WE, HOWE VER, CLARIFY THAT IN NO CIRCUMSTANCE THE DISALLOWANCE AS MADE BY THE ASSESS ING OFFICER SHOULD BE ENHANCED WHILE WE ARE RESTORING THIS GROUND BACK TO THE STAGE OF THE ASSESSING OFFICER WITH THE DIRECTION THAT THE ASSESSEE SHALL PLACE ON RECORD THE BASIC REQUIREMENT OF BUSINESS NECESSITY FOR TAKING ON HIR E THE IMPUGNED DG SET. WITH THESE REMARKS THIS GROUND IS RESTORED BACK TO THE F ILE OF ASSESSING OFFICER FOR DE NOVO DECISION. ITA NO.2182/AHD/2011 ASST. YEAR 2008-09 12 6.3. THEREFORE, FOR THIS YEAR ALSO, THIS ISSUE IS A LSO RESTORED TO THE FILE OF AO FOR DECISION AFRESH. THE AO IS HEREBY DIRECTED TO DECIDE THIS ISSUE IN THE LIGHT OF THE DIRECTION BY THE COORDINATE BENCH IN I TA NO.261/AHD/2010(SUPRA). THUS, GROUND NOS.2 & 2.2 O F REVENUES APPEAL ARE ALLOWED FOR STATISTICAL PURPOSES. 7. GROUND NOS.3 & 4 ARE GENERAL IN NATURE WHICH REQ UIRE NO INDEPENDENT ADJUDICATION. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLO WED FOR STATISTICAL PURPOSES. 6. WE DO NOT FIND ANY DISPARITY ON FACTS BETWEEN AY 2007-08 AND AY 2008-09. THE LD. FIRST APPELLATE AUTHORITY HAS B ASED HIS DECISION ON AY 2006-07 WHICH WAS ALSO RELIED IN AY 2007-08. THEREFORE, CONSIDERING THE ORDER OF THE TRIBUNAL IN AY 2007-08 WE ALLOW THIS APPEAL OF REVENUE FOR STATISTICAL PURPOSES AND SET ASIDE THE ORDERS OF REVENUE AUTHORITIES BELOW AND REMIT THESE ISSUES TO THE FILE OF AO FOR READJUDICATION. ORDER PRONOUNCED IN THE OPEN COURT ON 26/5/2015 SD/- SD/- (ANIL CHATURVEDI) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER ITA NO.2182/AHD/2011 ASST. YEAR 2008-09 13 MAHATA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION: 20/5/2015 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 21/5/2015 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: