ACIT Central Circle, Salem V. Thriveni Earthmovers Pvt. Ltd., Salem

ITA 2281/CHNY/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 5750 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2012-2013
• Appeal Filed On: 02-08-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M SRINIVASA RAO IRS
• Keywords: Reopening of assessment; Bogus purchase; Capital asset; Gift; Depreciation; Opportunity of cross examination; Earning of tax free income; Additional evidence; Question of law; Accommodation entries; Assessment record; Commercial expediency; Condonation of delay; Reason to believe; Revenue expenditure; Reassessment proceedings; Capital expenditure; Borrowed satisfaction; TDS; Rule 8D; Set aside
• Section: 143(3); 14A; 115JB; 133(6); 37(1); 205; 80HH; 207; 64; 148; 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, D BENCH : CHENNAI , . , [BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ] !' ./I.T.A. NOS. 2280, 2281, 2282 & 2283/CHNY/2018 #$% &$ / ASSESSMENT YEARS :2011-12, 2012-13, 2013-14 AND 2014-15 THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, SALEM VS. M/S. THRIVENI EARTHMOVERS PVT LTD, 22/110, GREENWAYS ROAD, FAIRLANDS, SALEM 636 016. [PAN AABCT 6759R] ( / APPELLANT) ( /RESPONDENT) !' '( ) * / APPELLANT BY : SHRI. M. SRINIVASA RAO, IRS, CIT. +,'( ) * /RESPONDENT BY : SHRI. T. BANUSEKAR, C.A. # - ) . /DATE OF HEARING : 27-06-2019 /0&% ) . /DATE OF PRONOUNCEMENT : 25-09-2019 / O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER THESE ARE APPEALS FILED BY THE REVENUE DIRECTED AGA INST DIFFERENT ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS)-18, CHENNAI (CIT(A) FOR SHORT) DATED 16.04.2018 FOR THE ASSESSMENT YEARS (AY) 2011-12, 2012-13, 2013-14 AND 2014-15. ITA NOS.2280-83 /2018 :- 2 -: 2. T HERE IS A DELAY OF TWO DAYS IN FILING THE PRESENT A PPEALS BY THE REVENUE. THE ASSESSING OFFICER FILED PETITION PRAYING FOR CONDONATION OF DELAY STATING THAT DELAY HAD OCCURR ED ON ACCOUNT OF DELAY IN TRANSMISSION OF ASSESSMENT RECORDS FROM H IGHER AUTHORITIES AND DELAY IS NEITHER WILLFUL NOR WANTON AND THEREFO RE PRAYED FOR CONDONING THE DELAY. LD. AUTHORISED REPRESENTATIVE DID NOT RAISE ANY SERIOUS OBJECTION FOR CONDONING THE DELAY. IN THE C IRCUMSTANCES, WE CONDONE THE DELAY OF TWO DAYS IN FILING THE APPEALS AND ADMIT THE APPEALS FOR ADJUDICATION. 3. SINCE, THE IDENTICAL FACTS AND ISSUES ARE INVOLVED IN THESE APPEALS, WE PROCEED TO DISPOSE THE SAME VIDE THIS C OMMON ORDER. 4. FOR THE SAKE OF CONVENIENCE AND CLARITY THE FACTS R ELEVANT TO THE APPEAL IN ITA NO.2280/CHNY/2018 FOR ASSESSMENT YEAR 2011-12 ARE STATED HEREIN. 5. THE BRIEF FACTS OF THE CASE ARE AS UNDER: THE RESPONDENT- ASSESSEE NAMELY M/S. THIRUVENI EN GINEERING PVT LTD IS A COMPANY INCORPORATED UNDER THE PROVI SIONS OF THE COMPANIES ACT, 1956. IT IS ENGAGED IN THE BUSINES S OF CONTRACTUAL IRON ORE MINING SERVICES, TRANSPORTATION & HANDLIN G OF IRON ORE AND LIME STONE AND QUARRYING OF BLUE METAL BOULDERS AND SALE OF ITA NOS.2280-83 /2018 :- 3 -: AGGREGATES. THE RETURN OF INCOME FOR THE AY 2011-12 WAS FILED ON 29.09.2011 DISCLOSING TOTAL INCOME OF RS.241,05,04, 840/-. AGAINST THE SAID RETURN OF INCOME, THE ASSESSMENT WAS COMPLETED BY THE ASSESSING OFFICER VIDE ORDER DATED 28.02.2014 AT TOTAL INCOM E OF A242,82,49,494/- AND STCG AT A2,25,843/-. 6. SUBSEQUENTLY, THE DEPUTY COMMISSIONER OF INCOME TA X, CENTRAL CIRCLE XXI, KOLKATA INFORMED THE ASSESSING OFFICER VIDE HIS LETTER DATED 18.03.2014 THAT RESPONDENT- ASSESSEE IS ONE OF THE BENEFICIARIES OF ACCOMMODATION ENTRIES PROVIDED BY ONE M/S. SAKSHI TRADE LINK PVT LTD DURING THE PREVIOUS YEAR RELEV ANT TO ASSESSMENT YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER AL SO INFORMED THE MODUS OPERANDI ADOPTED BY M/S. SAKSHI TRADE LINK PVT LTD. IT WAS STATED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CE NTRAL CIRCLE XXI, KOLKATA THAT SAID M/S. SAKSHI TRADE LINK PVT LTD I S INTO THE BUSINESS OF PROVIDING TURNOVER ACCOUNT ENTRIES TO FACILITATE BE NEFICIARIES TO BOOK BOGUS EXPENDITURE UNDER THE HEADS SUB CONTRACT JOB, COMMISSION & BROKERAGE AND FEES FOR PROFESSIONAL & TECHNICAL SER VICES. IN CONSIDERATION OF PROVIDING THIS BOGUS ACCOMMODATION ENTRIES, M/S. SAKSHI TRADE LINK PVT LTD HAD RECEIVED COMMISSION AT THE RATE OF 0.50% OF THE TURNOVER DURING THE PREVIOUS YEAR REL EVANT TO ASSESSMENT YEAR UNDER CONSIDERATION. IT WAS STATED THAT RESPONDENT- ITA NOS.2280-83 /2018 :- 4 -: ASSESSEE WAS PROVIDED ACCOMMODATION ENTRIES TO T HE EXTENT OF A22,06,000/-. BASED ON THE ABOVE INFORMATION, THE ASSESSING OFFICER HAD ISSUED NOTICE U/S.148 OF THE ACT ON 15.09.2014 BY ALLEGING THAT ASSESSEE HAD FAILED TO DISCLOSE FULLY AND TRULY AL L MATERIAL FACTS NECESSARY FOR THE ASSESSMENT. IN RESPONSE TO THE SAID NOTICE, RESPONDENT- ASSESSEE FILED LETTER DATED 09.10.2014 STATING THAT ORIGINAL RETURN OF INCOME FILED ON 29.09.2011 FOR T HE ASSESSMENT YEAR 2011-12 BE TREATED AS RETURN IN RESPONSE TO NOTICE ISSUED U/S.148 OF THE ACT. THE ASSESSING OFFICER ALSO FURNISHED REAS ONS TO ASSESSEE FOR REOPENING THE ASSESSMENT ON 14.11.2014. THE REAS ONS RECORDED READS AS UNDER:- THE ASSESSEE COMPANY FILED THE RETURN OF INCOME O N 29,092011 DECLARING AN INCOME OF RS.241,05,04,870/- & SHORT TERM CAPITAL GAIN OF RS.225,843/. ASSESSMENT WAS CO MPLETED U/S 143(3) OF INCOME LAX ACT, 1961 ON 28.02.2014 BY ASSESSING INCOME AT RS.242,82,49,494/- & STCG AT RS. 2,25,843 /-. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE X XI, KOLKATA HAS INFORMED VIDE HIS LETTER DATED 18.03.20 14 THAT DURING THE ASSESSMENT PROCEEDINGS IN THE CASE OF M/ S.SAKSHI TRADE LINK PVT LTD FOR AY. 2011-12 IT WAS DETECTED THAT M/S. SAKSHI TRADE LINK PVT LTD PROVIDED TURNRNOVER ACCOM MODATION ENTRIES TO FACILITATE BENEFICIARIES TO BOOK BOGUS E XPENDITURE UNDER THE HEAD SUB CONTRACT JOB, COMMISSION & BROKE RAGE AND FEES FOR PROFESSIONAL & TECHNICAL SERVICES. IT WAS FOUND OUT BY THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRC LE XXI, KOLKATA THAT M/S THRIVENI EARTH MOVERS PVT LTD WAS ALSO ONE OF THE BENEFICIARY OF THE A:COMMODATION ENTRIES & HAD CLAIMED BOGUS EXPENDITURE TO THE TUNE OF RS22,06,000J DURIN G 5HE PREVIOUS YEAR RELEVANT TO A.Y 2011-12. IT IS SEEN T HAT ASSESSMENT IN THE CASE OF M/S. SAKSHI TRADE LINK PV T LTD WAS COMPLETED BY DEPUTY COMMISSIONER OF INCOME TAX, CEN TRAL ITA NOS.2280-83 /2018 :- 5 -: CIRCLE XXI, KOLKATA ASSESSING INCOME @ 0.50% OF THE GROSS TURNOVER AS COMMISSION RECEIVED FOR PROVIDING ACCOM MODATION ENTRIES INCLUDING THE ACCOMMODATION ENTRIES FOR M/S THRIVENI EARTH MOVERS PVT LTD MENTIONED ABOVE. THUS IT IS C LEAR THAT M/S.THIRVENI EARTH MOVER PVT LTD. HAS NOT FURNISHED TRUE AND ACCURATE PARTICULARS OF ITS INCOME NECESSARY FOR AS SESSMENT AND DELIBERATELY CONCEALED INCOME OF R-S.22,06,000/- BY CLAIMING BOGUS EXPENDITURE. THEREFORE, I HAVE REASONS TO BELIEVE THAT INCOME OF RS.22,06,000/- CHARGEABLE TO TAX HAS ESCAPED ASSESS MENT FOR AX.2011-12 DUE TO THE FAILURE ON THE PART OF THE AS SESSEE TO DISCLOSE AND TRULY ALL MATERIAL FACTS NECESSARY FOR THIS ASSESSMENT. THE ASSESSEE ON RECEIPT OF THE REASONS FOR REOPENI NG THE ASSESSMENT FILED OBJECTIONS FOR REOPENING THE ASSESSMENT ON 26 .10.2015. THE OBJECTIONS CAME TO BE DISPOSED OF BY THE ASSESSING OFFICER ON 17.12.2015 AND SUBSEQUENTLY ASSESSMENT WAS COMPLETE D BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCL E (I/C) SALEM VIDE ORDER DATED 31.03.2016 PASSED U/S.143(3) R.W.S. 147 OF THE ACT AT TOTAL INCOME OF A281,80,97,656/-. WHILE DOING SO, T HE ASSESSING OFFICER MADE THE FOLLOWING ADDITIONS CONTRACT PAYMENTS MAD E TO M/S. SAKSHI TRADE LINK PVT LTD. 20,00,000 PROVISIONS MADE REDUCING AMOUNTS FROM CONTRACT RECEIPTS RECEIVED FROM M/S. THAKUR PRASAD SAO & SONS P LTD 21,28,32,313 PROVISIONS MADE REDUCING AMOUNTS FROM CONTRACT RECEIPTS RECEIVED FROM M/S. SERAJUDDIN & CO 8,27,62,884 ITA NOS.2280-83 /2018 :- 6 -: PROVISIONS MADE REDUCING AMOUNTS FROM CONTRACT RECEIPTS RECEIVED FROM INDRANI PATNAIK (MAHAPARAT SITE) 44,70,158 SUBCONTRACT PAYMENTS IN SIRAJUDDIN MINES OUT OF SCOPE OF WORK ORDER DISALLOWED. 9,19,55,168 7. BEING AGGRIEVED BY THE ABOVE ADDITIONS, THE ASSESS EE-COMPANY PREFERRED AN APPEAL BEFORE LD. CIT(A) CHALLENGING T HE VERY VALIDITY OF INITIATION OF REASSESSMENT PROCEEDINGS AS WELL AS M ERITS OF THE ADDITIONS MADE. REOPENING WAS CHALLENGED ON THE GR OUNDS THAT REASSESSMENT PROCEEDINGS WERE PROMPTED BY MERE CHAN GE OF OPINION ON THE SAME SET OF FACTS, PRIMARY FACTS NECESSARY FOR ASSESSMENT WAS DISCLOSED FULLY AND TRULY. IT CANNOT BE ALLEGED TH AT ASSESSEE HAD FAILED TO DISCLOSE MATERIAL FACTS NECESSARY FOR THE ASSESS MENT, EVEN ON THE MERITS, RESPONDENT- ASSESSEE CHALLENGED THE ADDITIONS. LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS AND MATERIALS PLA CED BEFORE HIM ALLOWED THE APPEAL VIDE IMPUGNED ORDER BOTH ON TH E VALIDITY OF THE REOPENING AS WELL AS MERITS OF THE ADDITIONS. 8. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), TH E REVENUE IS IN APPEAL BEFORE US IN THE PRESENT APPEAL. LD. CIT (DEPARTMENTAL REPRESENTATIVE) CONTENTED THAT THE ASSESSMENT WAS REOPENED BASED ON CREDITABLE INFORMATION RECEIVED FROM THE DEPUTY COMMISSIONER OF ITA NOS.2280-83 /2018 :- 7 -: INCOME TAX, CENTRAL CIRCLE XXI, KOLKATA THAT RESPON DENT- ASSESSEE WAS BENEFICIARY OF ACCOMMODATION ENTRIES PROVIDED BY ONE M/S. SAKSHI TRADE LINK PVT LTD AND THIS INFORMATION C ONSTITUTES NEW TANGIBLE INFORMATION ENABLING THE ASSESSING OFFICE R TO FORM REASON TO BELIEVE THAT INCOME ESCAPED ASSESSMENT. THE LD. CI T (DEPARTMENTAL REPRESENTATIVE) FURTHER SUBMITTED THAT THE ASSESSIN G OFFICER HAD DULY FOLLOWED THE PROCEDURE PRESCRIBED BY THE HON'BLE S UPREME COURT IN THE CASE OF CASE OF GKN DRIVESHAFTS (INDIA) LTD 259 ITR 19. HE FURTHER SUBMITTED THAT SUFFICIENCY OR CORRECTNESS OF THE MATERIAL IS NOT TO BE SEEN AT THE STAGE OF REOPENING THE ASSESSMENT . IN THIS CONNECTION, HE PLACED RELIANCE ON THE JUDGMENT OF H ONBLE SUPREME COURT IN THE CASE OF RAYMOND WOLLEN MILLS LTD, 236 ITR 34. HE ALSO PLACED RELIANCE ON THE JUDGMENTS OF HONBLE GUJARAT HIGH COURT IN THE CASES OF PURVIBEN SNEHALBHAI PANCHHIGAR , 409 ITR 124 AND ATUL RATILAL MAKADIA, 94 TAXMANN.COM 435 AND BOMBAY HIGH COURT IN THE CASE OF EXPORT CREDIT GUARANTEE CORPORATION OF INDI A LTD, 350 ITR 651. 9. EVEN ON MERITS OF THE ADDITIONS, LD. CIT (DEPARTMEN TAL REPRESENTATIVE) MADE DETAILED SUBMISSIONS. LD. CIT (DR) FURTHER CONTENDED THAT LD .COMMISSIONER OF INCOME TAX (APP EALS) OUGHT NOT HAVE GRANTED RELIEF ON TECHNICALITIES ON THE GROUN DS OF REOPENING AS WELL AS MERITS OF THE ADDITION. ITA NOS.2280-83 /2018 :- 8 -: 10. ON THE OTHER HAND, SHRI. T. BANUSEKAR, AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT VERY INITIATION OF REASSESSMENT PROCEEDINGS IS BAD IN LAW AND THE ASS ESSING OFFICER HAD INITIATED REASSESSMENT PROCEEDING BASED ON THE BORROWED SATISFACTION OF THE DCIT, CENTRAL CIRCLE-XXI, KOLKA TA WITHOUT INDEPENDENTLY APPLYING HIS MIND. THEREFORE HE SUBM ITTED THAT REASSESSMENT PROCEEDINGS MUST BE QUASHED AND PLACED RELIANCE ON THE FOLLOWING HONBLE HIGH COURT DECISIONS. HARIKISHAN SUNDERLAL VIRMANI VS DCIT, (2017) 394 I TR 146 (GUJ) CIT VS SHODIMAN INVESTMENTS PVT LTD (2018) 167 DTR 290 (BOM) CIT VS. SHREE RAJASTHAN SYNTEX LTD (2009) 313 ITR 2 31 (RAJ). 11. ON THE MERITS OF THE ADDITIONS PAYMENTS MADE TO M/S. SAKSHI TRADE LINK PVT LTD , HE SUBMITTED THAT PAYMENTS WERE MADE TOWARDS LIASONING SERVICES AND HE FURTHER SUBMITTED THAT EX PENDITURE CANNOT BE TREATED AS BOGUS EXPENDITURE FOR THE FOLLOWING REAS ONS:- (I)A LETTER FROM THE DIRECTOR OF SAKSHI TRADE LINKS PVT LTD, SHRI.SURAJ CONFIRMING THE TRANSACTION AND THAT THE PAYMENT WAS RECEIVED BY THEM THROUGH E TRANSFER, WAS FILED BEFO RE THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT P ROCEEDINGS. (II) THOUGH THE STATEMENT OF SHRI.SUMIT SHARMA WAS TAKEN AS THE BASIS FOR REOPENING THE ASSESSMENT, ANOTHER DIR ECTOR OF THE COMPANY HAD CONFIRMED THE TRANSACTION VIDE LETTER D ATED 28.01.2016 (REFER PAGE 7 OF PAPER BOOK) ITA NOS.2280-83 /2018 :- 9 -: (III) IT MAY BE NOTED THAT SHRI.SURAJ IS ONE OF THE DIRECTORS OF THE COMPANY AND THAT THE SAME CAN BE VERIFIED FROM THE MASTER DATA OF M/S.SAKSHI TRADELINKS PVT LTD (REFER PAGES 8 & 9 OF PAPER BOOK) (IV) PAYMENTS WERE MADE TO SAKSHI TRADE LINKS PVT L TD AFTER DEDUCTING TAX AT SOURCE AT LOWER RATES BASED ON LOW ER DEDUCTION CERTIFICATE SUBMITTED BY STLPL (REFER PAG E 13 OF PAPER BOOK) (V) WHERE THE TDS OFFICER OF STLPL HAS ISSUED A LOW ER DEDUCTION CERTIFICATE IT CANNOT BE SAID THAT THE PA YMENTS MADE TO STLPL WERE NOT GENUINE (VI) FOR LIASIONING SERVICES WHICH IS NOTHING BUT A RRANGING AND ORGANIZING FOR LIFTING OF IRON ORE, NO MAN POWER OR EQUIPMENT IS NECESSARY (VII) WHEN THE ASSESSEE HAS PAID RS.22,06,000/- WHI CH IS INCLUSIVE OF SERVICE TAX THE ASSESSING OFFICER HAS CHOSEN TO DISALLOW ONLY A SUM OF RS.20,00,000/-. WHERE THE AS SESSING OFFICER HAD DECIDED THAT THE EXPENDITURE IS BOGUS T HEN THE ENTIRE SUM OF RS.22,06,000!- INCLUDING SERVICE TAX WHICH WAS PAID BY THE ASSESSEE TO STLPL SHOULD HAVE BEEN DISA LLOWED. THE ASSESSING OFFICER COULD NOT HAVE TREATED THE SE RVICE TAX PORTION ALONE AS GENUINE IF THE EXPENDITURE IS TREA TED AS BOGUS (VIII) FURTHER, THE TURNOVER OF THE ASSESSEE COMPAN Y FOR THE IMPUGNED ASSESSMENT YEAR IS RS.810 CRORES AND THE EXPENDITURE OF RS.20 LAKHS WHICH WAS TREATED AS BOG US AMOUNTS TO 0.02% OF THE TOTAL TURNOVER. IT MAY BE I LLOGICAL TO STATE THAT AN ASSESSEE WHO IS HAVING A TURNOVER OF RS.241 CRORES WOULD HAVE SHOWN A BOGUS EXPENDITURE TO THE EXTENT OF 0.08% OF ITS TOTAL TURNOVER. AS REGARDS TO THE ADDITIONS, HE SUBMITTED THAT ADDI TION MADE ON ACCOUNT OF REDUCING CONTRACT RECEIPTS, HE SUBMITT ED THAT REASONS FOR REOPENING THE ASSESSMENT IS ONLY WITH REGARDS TO TH E DISALLOWANCE OF AMOUNT PAID TO M/S. SAKSHI TRADE LINK PVT LTD. IN CASE THIS TRIBUNAL HOLDS THAT NO ADDITION IS WARRANTED IN RESPECT OF ALLEGED BOGUS ITA NOS.2280-83 /2018 :- 10 -: EXPENDITURE PAID TO M/S. SAKSHI TRADE LINK PVT LTD , NO OTHER ADDITION CAN BE MADE EVEN IN TERMS OF EXPLANATION 3 TO SECT ION 147 OF THE ACT RELIANCE IN THIS REGARD WAS PLACED ON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF MARTECH PE RIPHERALS PVT LTD VS. DICT & ANR (2017) 394 ITR 733. WITHOUT PREJUDICE T O THIS, LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT PROVISION TOWARDS REDUCING THE AMOUNTS FROM CONTRACT RECEIPTS WERE MADE BASED ON THE GOVERNMENT ORDER NO.5905/SM , DATED 07.09.2010 ISSU ED BY THE GOVERNMENT OF ODISHA, DEPARTMENT OF STEEL AND MINES AND THIS PROVISION REPRESENTS THE AMOUNT WHICH THE MINE OWNE RS PROPOSED TO DEDUCT FROM ASSESSEE AND THIS PROVISION IS MADE BAS ED ON THE G.O OF GOVERNMENT OF ODISHA AND THE WORKING OF THE PROVISI ON WAS ALSO FURNISHED. THIS IS NOTHING BUT DIFFERENCE IN ROYALT Y AND THIS PROVISION IS MADE FOR ASCERTAINED LIABILITY AND THE SAME IS DEDU CTABLE AS DEDUCTION AND PLACED RELIANCE ON THE FOLLOWING JUDGMENTS. S.A. BUILDERS LTD VS. CIT (A) & ANR (2007) 288 ITR 1 (SC) HERO CYCLES (P) LTD VS CIT, (2015) 379 ITR 347 (SC) SASSOON J. DAVID & CO P LTD VS. CIT (1979) 118 ITR 261 12. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL ON RECORD. WE SHALL TAKE UP THE PRIMARY GROUND WHICH GOES TO THE VERY ROOT OF THE MATTER I.E VALIDALITY OF THE REOPENING OF THE ASSESSMENT. ADMITTEDLY ORIGINAL ASSESSMENT ORDER WAS PASSED B Y THE ASSESSING ITA NOS.2280-83 /2018 :- 11 -: OFFICER UNDER SCRUTINY PROCEEDINGS. DURING THE COUR SE OF ORIGINAL ASSESSMENT PROCEEDINGS, NO DOUBT ASSESSEE HAD FILE D PRIMARY DETAILS IN RESPECT OF THIS ITEM OF EXPENDITURE I.E. PAYMENT S MADE TO M/S. SAKSHI TRADE LINK PVT LTD. HOWEVER CONSEQUENT UPO N INFORMATION RECEIVED FROM THE DCIT, CENTRAL CIRCLE XXI, KOLKATA THE ASSESSMENT WAS REOPENED. INFORMATION RECEIVED FROM DCIT, CENT RAL CIRCLE XXI, KOLKATA IS THAT RESPONDENT ASSESSEE IS A BENEFICI ARY OF THE ACCOUNTING ENTRY PROVIDED BY M/S. SAKSHI TRADE LIN K PVT LTD, THIS WOULD CONSTITUTE TANGIBLE NEW MATERIAL ENABLING THE ASSESSING OFFICER TO FORM AN OPINION THAT INCOME ESCAPED ASSESSMENT. THE HON'BLE SUPREME COURT IN THE CASE OF PHOOL CHAND BAJRANG L AL AND ANOTHER VS. ITO, (1993) 203 ITR 456 HELD THAT ANY FRESH INF ORMATION RELATING TO THE CONCLUDED ASSESSMENT WHICH GOES TO EXPOSE TH E FALSITY OF THE STATEMENT MADE BY THE ASSESSEE AT THE TIME OF ORIGI NAL ASSESSMENT CONSTITUTE FRESH INFORMATION ENABLING THE ASSESSIN G OFFICER TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAD ESCAPED THE ASSES SMENT ON ACCOUNT OF OMISSION OF THE ASSESSEE TO MAKE FULL AND TRUE DISCLOSURE OF THE PRIMARY FACTS WAS RELEVANT, RELIABLE AND SPECIFIC. RELEVANT PARA OF THE JUDGMENT AS FOLLOWS: 19..........ACQUIRING FRESH INFORMATION, SPECIFI C IN NATURE AND RELIABLE IN CHARACTER, RELATING TO THE CONCLUDED AS SESSMENT WHICH GOES TO EXPOSE THE FALSITY OF THE STATEMENT M ADE BY THE ASSESSEE AT THE TIME OF THE ORIGINAL ASSESSMENT IS DIFFERENT FROM DRAWING A FRESH INFERENCE FROM THE S AME FACTS ITA NOS.2280-83 /2018 :- 12 -: AND MATERIAL WHICH WERE AVAILABLE WITH THE INCOME-T AX OFFICER AT THE TIME OF THE ORIGINAL ASSESSMENT PROC EEDINGS. THE TWO SITUATIONS ARE DISTINCT AND DIFFERENT. THUS , WHERE THE TRANSACTION ITSELF, ON THE BASIS OF SUBSEQUENT INFO RMATION, IS FOUND TO BE A BOGUS TRANSACTION, THE MERE DISCLOSUR E OF THAT TRANSACTION AT THE TIME OF ORIGINAL ASSESSMENT PROC EEDINGS CANNOT BE SAID TO BE A DISCLOSURE OF THE 'TRUE' AND 'FULL' FACTS IN THE CASE AND THE INCOME-TAX OFFICER WOULD HAVE T HE JURISDICTION TO REOPEN THE CONCLUDED ASSESSMENT IN SUCH A CASE. IT IS CORRECT THAT THE ASSESSING AUTHORITY CO ULD HAVE DEFERRED THE COMPLETION OF THE ORIGINAL ASSESSMENT PROCEEDINGS FOR FURTHER ENQUIRY AND INVESTIGATION I NTO THE GENUINENESS OF THE LOAN TRANSACTION BUT, IN OUR OPI NION, HIS FAILURE TO DO SO AND COMPLETE THE ORIGINAL ASSESSME NT PROCEEDINGS WOULD NOT TAKE AWAY HIS JURISDICTION TO ACT UNDER SECTION 147 OF THE ACT, ON RECEIPT OF THE INFORMATI ON SUBSEQUENTLY. THE SUBSEQUENT INFORMATION ON THE BAS IS OF WHICH THE INCOME- TAX OFFICER ACQUIRED REASONS TO B ELIEVE THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMEN T ON ACCOUNT OF THE OMISSION OF THE ASSESSEE TO MAKE A F ULL AND TRUE DISCLOSURE OF THE PRIMARY FACTS WAS RELEVANT, RELIABLE AND SPECIFIC. IT WAS NOT AT ALL VAGUE OR NON-SPECIFIC . THE HON'BLE SUPREME COURT IN THE CASE OF R AYMOND WOLLEN MILLS LTD (SUPRA) HAD HELD THAT AT THE INITIATION STAGE, WH AT IS REQUIRED IS ONLY REASONS TO BELIEVE BUT NOT ESTABLISHING THE FACT O F ESCAPEMENT OF INCOME. AT THE STAGE OF ISSUE OF NOTICE, THE ONLY QUESTION IS WHETHER THERE IS RELEVANT MATERIAL ON WHICH REASONABLE PER SON COULD HAVE FORMED REQUISITE BELIEF, WHETHER THE MATERIAL WOULD CONCLUSIVELY PROVE THE ESCAPEMENT IS NOT THE CONCERN AT THAT STAGE. T HIS FACT OF LAW IS REITERATED BY THE HON'BLE SUPREME COURT IN THE CASE OF ACIT VS. RAJESH JHAVERI STOCK BROKERS PRIVATE LTD (2007) 291 ITR 500. ITA NOS.2280-83 /2018 :- 13 -: 13. THE QUESTION WHETHER INFORMATION RECEIVED FROM THE INVESTIGATION WING OF THE DEPARTMENT FOR REOPENING THE ASSESSMENT HAS BEEN JUSTIFIED OR NOT IS GONE INTO BY SEVERAL HIGH COURTS. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF JAYANT SE CURITY & FINANCE LTD VS. ACIT, (2018) 254 TAXMAN 81, HONBLE RAJAST HAN HIGH COURT IN THE CASE OF ANKIT AGROCHEM (P) LTD VS. JCIT, 253 TA XMAN 141, PCIT VS. PARAMOUNT COMMUNICATION P. LTD, (2017) 392 ITR 444 (DELHI) AND ARADHANA ESTATE PVT. LTD VS. DCIT (2018) 404 ITR 10 5 (GUJ) HAD UPHELD THE VALIDITY OF THE REASSESSMENT BASED ON TH E INFORMATION RECEIVED FROM INVESTIGATION WING OF THE DEPARTMENT, IF THE ASSESSING OFFICER HAD FORMED A BELIEF THAT INCOME ESCAPED AS SESSMENT BASED ON THE INFORMATION RECEIVED FROM THE INVESTIGATION WING, IF THERE IS NEXUS BETWEEN INFORMATION SO RECEIVED AND BELIEF FO RMED BY THE ASSESSING OFFICER. IN THE PRESENT CASE, THE ASSES SING OFFICER HAD RECEIVED INFORMATION FROM THE DCIT, CENTRAL CIRC LE XXI, KOLKATA AND RECORDED REASONS FOR REOPENING THE ASSESSMENT AS EX TRACTED ABOVE. FROM THE PERUSAL OF THE REASONS RECORDED, IT IS CLE AR THAT THE ASSESSING OFFICER HAD PERUSED THE MATERIAL PLACED AND PERUSED THE MATERIALS RECEIVED FROM DCIT, CENTRAL CIRCLE XXI AND THEREUPO N CONSIDERING ALL THE MATERIALS FORMED BELIEF THAT INCOME CHARGEABL E TO TAX HAD ESCAPED ASSESSMENT. THERE IS NO QUARREL AS TO LEGA L PROPOSITION ADVANCED BY THE AUTHORISED REPRESENTATIVE THAT AS SESSMENT CANNOT ITA NOS.2280-83 /2018 :- 14 -: BE REOPENED MERELY BASED ON THE BORROWED SATISFACT ION OF ANY OTHER AUTHORITY. BUT IN THE PRESENT CASE, IT CANNOT BE S AID THAT THE ASSESSING OFFICER HAD INITIATED REASSESSMENT PROCEEDINGS ON T HE BORROWED SATISFACTION OF DCIT, KOLKATA. FROM THE REASONS RE CORDED, IT IS CLEAR THAT THE ASSESSING OFFICER HAD PERUSED THE MATERIA L WHICH HAD COME TO HIS KNOWLEDGE AND FORMED AN OPINION THAT INCOME HAD ESCAPED ASSESSMENT FOR THE FAILURE OF THE ASSESSEE TO DISCL OSE ALL MATERIAL FACTS WHICH ARE NECESSARY FOR ASSESSMENT. INFORMATION REC EIVED FROM DCIT, KOLKATA THROWS LIGHT ON THE TRUTH FULLNESS OR OTHER WISE OF TRANSACTIONS WITH M/S. SAKSHI TRADE LINKS PVT. LTD. THIS INFORMA TION ENABLED THE ASSESSING OFFICER TO FORM BELIEF THAT INCOME ESCAP ED ASSESSMENT. AS STATED BY US (SUPRA) AT THE INITIAL STAGE OF ISSUE OF NOTICE U/S.148 OF THE ACT, IT IS NOT NECESSARY TO GO INTO THE SUFFICI NG OR OF OTHERWISE OF THE NEW MATERIAL TO MAKE THE ADDITION. THEREFORE T HE INFORMATION RECEIVED FROM DCIT, KOLKATA SUGGESTED THAT PAYMENT MADE TO M/S. SAKSHI TRADE LINK P. LTD IS BOGUS, THE ASSESSING OF FICER FORMED BELIEF THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMEN T AND ACCORDINGLY INITIATED REASSESSMENT PROCEEDINGS. T HEREFORE WE UPHOLD THE VALIDITY OF THE REOPENING OF THE ASSESSMENT AND ACCORDINGLY, ALLOW GROUND NO.2 RAISED BY THE REVENUE. ITA NOS.2280-83 /2018 :- 15 -: 14. NOW, WE TAKE UP THE GROUND CHALLENGING THE DECISI ON OF THE LD. CIT(A) DELETING THE ADDITION OF PAYMENTS MADE TO M/S. SAKSHI TRADE LINK PVT LTD OF A20,00,000/- 15. DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YE AR UNDER CONSIDERATION, ASSESSEE MADE PAYMENT OF A22,06,000/ - TO M/S. SAKSHI TRADE LINK PVT LTD INCLUSIVE OF SERVICE TAX TOWARD S CONSIDERATION STATED TO HAVE BEEN FOR SERVICES OF LIASONING WOR K. THE PAYMENT WAS MADE THROUGH BANKING CHANNEL AND RESPONDENT- AS SESSEE HAD ALSO DEDUCTED TDS AND THE LAISONING SERVICES ARE RE NDERED FOR ARRANGING AND ORGANIZING FOR LIFTING OF IRON ORE, N O MAN POWER OR EQUIPMENT IS NECESSARY. ASSESSEE ALSO FILED CONFI RMATION LETTER FROM ONE OF THE DIRECTORS OF M/S. SAKSHI TRADE LINK PVT LTD NAMELY SURAJ WHO CONFIRMED THE TRANSACTION VIDE HIS LETTER DATE D 28.01.2016 PLACED AT PAGE NO.7 OF THE PAPER BOOK. HOWEVER, BASED ON THE STATEMENT OF ANOTHER DIRECTOR OF M/S. SAKSHI TRADE LINK PVT LTD NAMELY SHRI. SUMIT SHARMA, DCIT, KOLKATA HAVE COME TO CONCLUSION THAT TRANSACTION IS BOGUS. FROM THE PERUSAL OF THE ASSESSMENT ORDER, NO THING IS DISCERNABLE TO SAY THAT COPY OF THE STATEMENT RECOR DED FROM SAID SHRI. SUMIT SHARMA STATED TO BE DIRECTOR OF M/S. SAKSHI T RADE LINK PVT LTD IS MADE AVAILABLE TO THE ASSESSEE AND ASSESSEE WAS GIV EN AN OPPORTUNITY OF CROSS EXAMINATION OF THE SAID DIRECTOR. ITA NOS.2280-83 /2018 :- 16 -: 16. IT IS A MATTER OF RECORD THAT THAT ASSESSEE FILED L ETTER DATED 28.01.2016 BEFORE THE ASSESSING OFFICER FROM ONE MR . SURAJ, DIRECTOR OF M/S. SAKSHI TRADE LINK PVT LTD CONFIRMING THE TR ANSACTION AND RENDITION OF THE SERVICES AND THE ASSESSING OFFICER HAD NOT GIVEN AN OPPORTUNITY TO THE ASSESSEE TO NEITHER CROSS EXAMIN E MR. SUMIT SHARMA NOR MADE ANY INDEPENDENT ENQUIRIES TO CORROB ORATE THE STATEMENT OF MR. SUMIT SHARMA. IT IS SETTLED PROPO SITION OF LAW THAT NO ADDITION CAN BE MADE BASED ON UNCONFRONTED ORAL ST ATEMENT OF THIRD PARTY. RELIANCE CAN BE PLACED ON THE DECISION OF H ONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. A.L. LALPURIA CON STRUCTION (P) LTD, (2013) 32 TAXMANN.COM 387, WHEREIN, IT WAS HELD THA T ADDITION ON ACCOUNT OF ACCOMMODATION ENTRIES CANNOT BE MADE ON THE BASIS OF UNCONFRONTED ORAL STATEMENT OF THIRD PARTY. SIMILA RLY, THE HON'BLE SUPREME COURT IN THE CASE OF ANDAMAN TIMBER INDUST RIES VS. CCE (2015) 62 TAXMANN. COM 3, HAD HELD THAT WHEN STATEM ENTS OF WITNESSES ARE MADE BASIS OF ADDITION, NOT ALLOWING ASSESSEE TO CROSS EXAMINE WITNESS IS A SERIOUS FLAW WHICH MAKES ORDER NULLITY AS IT AMOUNTS TO VIOLATION OF PRINCIPLES OF NATURAL JUSTI CE. FURTHER, RELIANCE CAN BE PLACED ON THE JUDGMENTS OF HONBLE BOMBAY H IGH COURT IN THE CASE OF R.W. PROMOTIONS (P) LTD VS. ACIT, (2015) 61 TAXMANN.COM 54, HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. INDRAJIT SINGH SURI (2013) 33 TAXMANN.COM 281, HONBLE DELHI HIGH COUR T IN THE CASE OF ITA NOS.2280-83 /2018 :- 17 -: CIT VS. SMC SHARE BROKERS LTD, (2007) 159 TAXMAN 30 6 (DELHI) AND HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT V S. GEETANJALI EDUCATION SOCIETY (2008) 174 TAXMAN 440 (RAJ). IN THE PRESENT CASE, ADMITTEDLY, THERE IS NO CORROB ORATIVE EVIDENCE BROUGHT BY THE ASSESSING OFFICER IN SUPPOR T OF THE INFORMATION RECEIVED FROM DCIT, KOLKATA. IN THE AB SENCE OF SUCH CORROBORATIVE MATERIALS ADDITION CANNOT BE SUSTAINE D, IN THE BACKDROP OF LEGAL POSITION DISCUSSED ABOVE. THEREFORE, GRO UNDS OF APPEAL CHALLENGING THE DELETION OF ADDITION OF PAYMENT MAD E TO M/S. SAKSHI TRADE LINK PVT LTD STANDS DISMISSED. 17. NOW, WE TAKE UP OTHER GROUNDS OF APPEAL CHALLENGING THE DECISION OF THE LD. CIT(A) IN DELETING OTHER ITEMS OF ADDITIONS. 18. A PRELIMINARY ISSUE WAS RAISED WHEN NOTICE FOR REOP ENING WAS ISSUED ON ONE OF ITEMS OF ADDITIONS, AND NO ADD ITION HAD BEEN MADE IN RESPECT OF ITEM FOR WHICH NOTICE OF REOPENI NG WAS ISSUED, WHETHER THE ASSESSING OFFICER IS ENTITLED TO MAKE A NY FURTHER ADDITIONS IN RESPECT OF ITEMS WHICH HAS COME TO THE NOTICE AT THE TIME OF REASSESSMENT PROCEEDINGS, THIS ISSUE HAD BEEN CONSI DERED BY JURISDICTIONAL HIGH COURT IN THE CASE OF MARTECH PERIPHERALS P. LTD VS. DCIT, (2017) 394 ITR 733 WHEREIN THE HONBLE HIGH C OURT AFTER REFERRING TO THE DECISIONS OF HONBLE BOMBAY HIGH COURT IN THE CASE OF ITA NOS.2280-83 /2018 :- 18 -: CIT VS. JET AIRWAYS (I) LTD, (2011) 331 ITR 236 (BO M), GUJARAT HIGH COURT IN THE CASE OF CIT VS. MOHMED JUNED DADANI, ( 2013) 355 ITR 172 (GUJ) AND DELHI HIGH COURT IN THE CASE OF ORIEN TAL BANK OF COMMERCE VS. ADDL. CIT, 49 TAXMANN.CO, 485 HELD TH AT IN CASE WHERE NOTICE FOR REOPENING OF ASSESSMENT WAS ISSUED IN RESPECT OF ONE ITEM OF ADDITION, AND DURING THE REASSESSMENT PROCE EDING, IF THE ASSESSING OFFICER HAD COME TO NOTICE OTHER ITEMS OF ADDITION, OTHER ITEMS OF ADDITION CAN BE SUSTAINED ONLY, IF ADDITIO N HAD BEEN MADE BY THE ASSESSING OFFICER IN RESPECT OF AN ITEM OF ADDI TION BASED ON WHICH REASSESSMENT NOTICE WAS ISSUED. 19. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF JET AIRWAYS (I) LTD (SUPRA ) AFTER REFERRING TO THE DECISIONS OF HON'BLE SUPRE ME COURT IN THE CASES OF CIT VS. SUN ENGINEERING WORKS P. LTD (1992) 198 ITR 297 AND V. JAGANMOHAN RAO VS. COMMISSION OF INC OME TAX AND EXCESS PROFITS TAX, (1970) 75 ITR 373 HAD EXAMINED THE EFFECT OF EXPLANATION 3 TO SECTION 147 AND HELD AS FOLLOWS: 'THE EFFECT OF THE AMENDED PROVISIONS CAME TO BE CONSIDERED, IN TWO DISTINCT LINES OF PRECEDENT ON T HE SUBJECT. THE FIRST LINE OF AUTHORITY, TO WHICH A REFERENCE HAS ALREADY BEEN MADE EARLIER, ADOPTED THE PRINCIPLE THAT WHERE THE ASSESSING OFFI CER HAS FORMED A REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMEN T AND HAS ISSUED A NOTICE UNDER SECTION 148 ON CERTAIN SPECIFIC ISSU ES, IT WAS NOT OPEN TO HIM DURING THE COURSE OF THE PROCEEDINGS FOR ASS ESSMENT OR REASSESSMENT TO ASSESS OR REASSESS ANY OTHER INCOME , WHICH MAY HAVE ESCAPED ASSESSMENT BUT WHICH DID NOT FORM THE SUBJE CT MATTER OF THE NOTICE UNDER SECTION 148. THIS VIEW WAS ADOPTED IN THE JUDGMENT OF ITA NOS.2280-83 /2018 :- 19 -: THE PUNJAB AND HARYANA HIGH COURT IN VIPAN KHANNA V . CIT [2002] 255 ITR 220 (P&H) AND IN THE JUDGMENT OF THE KERALA HIGH COURT IN TRANVANCORE CEMENTS LTD. V. ASST. CIT [2008] 305 IT R 170 (KER). THIS LINE OF AUTHORITY WOULD NOW CEASE TO REFLECT THE CO RRECT POSITION IN LAW BY VIRTUE OF THE AMENDMENT WHICH HAS BEEN BROUGHT I N BY THE INSERTION OF EXPLANATION 3 TO SECTION 147 BY THE FI NANCE (NO. 2) ACT OF 2009. THE EFFECT OF THE EXPLANATION IS THAT ONCE AN ASSESSING OFFICER HAS FORMED A REASON TO BELIEVE THAT INCOME CHARGEAB LE TO TAX HAS ESCAPED ASSESSMENT AND HAS PROCEEDED TO ISSUE A NOT ICE UNDER SECTION 148, IT IS OPEN TO HIM TO ASSESS OR REASSESS INCOME IN RESPECT OF ANY OTHER ISSUE THOUGH THE REASONS FOR SUCH ISSUE HAD N OT BEEN INCLUDED IN THE REASONS RECORDED UNDER SECTION 148(2) . . . EXPLANATION 3 LIFTS THE EMBARGO, WHICH WAS INSERTED BY JUDICIAL INTERPRETATION, ON THE MAKING OF AN ASSESSMENT OR R EASSESSMENT ON GROUNDS OTHER THAN THOSE ON THE BASIS OF WHICH A NO TICE WAS ISSUED UNDER SECTION 148. SETTING OUT THE REASONS, FOR THE BELIEF THAT INCOME HAD ESCAPED ASSESSMENT. THOSE JUDICIAL DECISIONS HA D HELD THAT WHEN THE ASSESSMENT WAS SOUGHT TO BE REOPENED ON THE GRO UND THAT INCOME HAD ESCAPED ASSESSMENT ON A CERTAIN ISSUE, THE ASSE SSING OFFICER COULD NOT MAKE AN ASSESSMENT OR REASSESSMENT ON ANOTHER I SSUE WHICH CAME TO HIS NOTICE DURING THE PROCEEDINGS. THIS IN TERPRETATION WILL NO LONGER HOLD THE FIELD AFTER THE INSERTION OF EXPLAN ATION 3 BY THE FINANCE (NO. 2) ACT OF 2009. HOWEVER, EXPLANATION 3 DOES NO T AND CANNOT OVERRIDE THE NECESSITY OF FULFILLING THE CONDITIONS SET OUT IN THE SUBSTANTIVE PART OF SECTION 147. AN EXPLANATION TO A STATUTORY PROVISION IS INTENDED TO EXPLAIN ITS CONTENTS AND CANNOT BE C ONSTRUED TO OVERRIDE IT OR RENDER THE SUBSTANCE AND CORE NUGATORY. SECTI ON 147 HAS THIS EFFECT THAT THE ASSESSING OFFICER HAS TO ASSESS OR REASSESS THE INCOME ('SUCH INCOME') WHICH ESCAPED ASSESSMENT AND WHICH WAS THE BASIS OF THE FORMATION OF BELIEF AND IF HE DOES SO, HE CAN A LSO ASSESS OR REASSESS ANY OTHER INCOME WHICH HAS ESCAPED ASSESSM ENT AND WHICH COMES TO HIS NOTICE DURING THE COURSE OF THE PROCEE DINGS. HOWEVER, IF AFTER ISSUING A NOTICE UNDER SECTION 148, HE ACCEPT ED THE CONTENTION OF THE ASSESSEE AND HOLDS THAT THE INCOME WHICH HE HAS INITIALLY FORMED A REASON TO BELIEVE HAD ESCAPED ASSESSMENT, HAS AS A MATTER OF FACT NOT ESCAPED ASSESSMENT, IT IS NOT OPEN TO HIM INDEPENDE NTLY TO ASSESS SOME OTHER INCOME. IF HE INTENDS TO DO SO, A FRESH NOTICE UNDER SECTION 148 WOULD BE NECESSARY, THE LEGALITY OF WHICH WOULD BE TESTED IN THE EVENT OF A CHALLENGE BY THE ASSESSEE . . . WE AGREE WITH THE SUBMISSION WHICH HAS BEEN URGED O N BEHALF OF THE ASSESSEE THAT SECTION 147 AS IT STANDS POSTU LATES THAT UPON THE FOR MATION OF A REASON TO BELIEVE THAT INCOME CHARG EABLE TO TAX HAS ITA NOS.2280-83 /2018 :- 20 -: ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR, THE ASS ESSING OFFICER MAY ASSESS OR REASSESS SUCH INCOME 'AND ALSO' ANY O THER INCOME CHARGEABLE TO TAX WHICH COMES TO HIS NOTICE SUBSEQU ENTLY DURING THE PROCEEDINGS AS HAVING ESCAPED ASSESSMENT. THE WORDS 'AND ALSO' ARE USED IN A CUMULATIVE AND CONJUNCTIVE SENSE. TO READ THESE WORDS AS BEING IN THE ALTERNATIVE WOULD BE TO REWRITE THE LA NGUAGE USED BY PARLIAMENT. OUR VIEW HAS BEEN SUPPORTED BY THE BACK GROUND WHICH LED TO THE INSERTION TO EXPLANATION 3 TO SECTION 147. P ARLIAMENT MUST BE REGARDED AS BEING AWARE OF THE INTERPRETATION THAT WAS PLACED ON THE WORDS 'AND ALSO' BY THE RAJASTHAN HIGH COURT IN CIT V. SHRI RAM SINGH [2008] 306 ITR 343 (RAJ). PARLIAMENT HAS NOT TAKEN AWAY THE BASIS OF THAT DECISION. WHILE IT IS OPEN TO PARLIAMENT, HAVI NG REGARD TO THE PLENITUDE OF ITS LEGISLATIVE POWERS TO DO SO, THE P ROVISIONS OF SECTION 147 AS THEY STOOD AFTER THE AMENDMENT OF APRIL 1, 1 989, CONTINUE TO HOLD THE FIELD.' THIS DECISION OF HONBLE BOMBAY HIGH COURT WAS REF ERRED TO BY THE HONBLE DELHI HIGH COURT IN THE CASE OF RANBAXY LABORATORIES LTD VS. CIT, (2011) 336 ITR 136 (DELHI) WHEREIN IT WAS HELD AS FOLLOWS:- 18. WE ARE IN COMPLETE AGREEMENT WITH THE REASONI NG OF THE DIVISION BENCH OF THE BOMBAY HIGH COURT IN THE CASE OF CIT V. JET AIRWAYS (I) LIMITED [2011] 331 ITR 236 (BOM). WE MAY ALSO NOTE THAT THE HEADING OF SECTION 147 IS 'I NCOME ESCAPING ASSESSMENT' AND THAT OF SECTION 148 'ISSUE OF NOTICE WHERE INCOME ESCAPED ASSESSMENT'. SECTIONS 1 48 IS SUPPLEMENTARY AND COMPLIMENTARY TO SECTION 147. SUB - SECTION (2) OF SECTION 148 MANDATES REASONS FOR ISS UANCE OF NOTICE BY THE ASSESSING OFFICER AND SUB-SECTION (1) THEREOF MANDATES SERVICE OF NOTICE TO THE ASSESSEE BEFORE T HE ASSESSING OFFICER PROCEEDS TO ASSESS, REASSESS OR R ECOMPUTE THE ESCAPED INCOME. SECTION 147 MANDATES RECORDING OF REASONS TO BELIEVE BY THE ASSESSING OFFICER THAT TH E INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. ALL THESE CONDITIONS ARE REQUIRED TO BE FULFILLED TO ASSESS O R REASSESS THE ESCAPED INCOME CHARGEABLE TO TAX. AS PER EXPLAN ATION 3 IF DURING THE COURSE OF THESE PROCEEDINGS THE ASSES SING OFFICER COMES TO CONCLUSION THAT SOME ITEMS HAVE ES CAPED ASSESSMENT, THEN NOTWITHSTANDING THAT THOSE ITEMS W ERE NOT INCLUDED IN THE REASONS TO BELIEVE AS RECORDED FOR INITIATION OF THE PROCEEDINGS AND THE NOTICE, HE WO ULD BE COMPETENT TO MAKE ASSESSMENT OF THOSE ITEMS. HOWEVE R, THE LEGISLATURE COULD NOT BE PRESUMED TO HAVE INTEN DED TO ITA NOS.2280-83 /2018 :- 21 -: GIVE BLANKET POWERS TO THE ASSESSING OFFICER THAT O N ASSUMING JURISDICTION UNDER SECTION 147 REGARDING ASSESSMENT OR REASSESSMENT OF THE ESCAPED INCOME, H E WOULD KEEP ON MAKING ROVING INQUIRY AND THEREBY INC LUDING DIFFERENT ITEMS OF INCOME NOT CONNECTED OR RELATED WITH THE REASONS TO BELIEVE, ON THE BASIS OF WHICH HE ASSUME D JURISDICTION. FOR EVERY NEW ISSUE COMING BEFORE THE ASSESSING OFFICER DURING THE COURSE OF PROCEEDINGS OF ASSESSMENT OR REASSESSMENT OF ESCAPED INCOME, AND W HICH HE INTENDS TO TAKE INTO ACCOUNT, HE WOULD BE REQUIR ED TO ISSUE A FRESH NOTICE UNDER SECTION 148. 19. IN THE PRESENT CASE, AS IS NOTED ABOVE, THE ASS ESSING OFFICER WAS SATISFIED WITH THE JUSTIFICATIONS GIVEN BY THE ASSESSEE REGARDING THE ITEMS, VIZ., CLUB FEES, GIFT S AND PRESENTS AND PROVISION FOR LEAVE ENCASHMENT, BUT, H OWEVER, DURING THE ASSESSMENT PROCEEDINGS, HE FOUND THE DED UCTION UNDER SECTIONS 80HH AND 80-I AS CLAIMED BY THE ASSE SSEE TO BE NOT ADMISSIBLE. HE CONSEQUENTLY WHILE NOT MAKING ADDITIONS ON THOSE ITEMS OF CLUB FEES, GIFTS AND PR ESENTS, ETC., PROCEEDED TO MAKE DEDUCTIONS UNDER SECTIONS 8 0HH AND 80-I AND ACCORDINGLY REDUCED THE CLAIM ON THESE ACCOUNTS. 20. THE VERY BASIS OF INITIATION OF PROCEEDINGS FOR WHICH REASONS TO BELIEVE WERE RECORDED WERE INCOME ESCAPI NG ASSESSMENT IN RESPECT OF ITEMS OF CLUB FEES, GIFTS AND PRESENTS, ETC., BUT THE SAME HAVING NOT BEEN DONE, THE ASSESSING OFFICER PROCEEDED TO REDUCE THE CLAIM OF DEDUCTION UNDER SECTIONS 80HH AND 80-I WHICH AS PER OUR DISCUSSION WAS NOT PERMISSIBLE. HAD THE ASSESSING O FFICER PROCEEDED TO MAKE DISALLOWANCE IN RESPECT OF THE IT EMS OF CLUB FEES, GIFTS AND PRESENTS, ETC., THEN IN VIEW O F OUR DISCUSSION AS ABOVE, HE WOULD HAVE BEEN JUSTIFIED A S PER EXPLANATION 3 TO REDUCE THE CLAIM OF DEDUCTION UNDE R SECTIONS 80HH AND 80-I AS WELL. 21. IN VIEW OF OUR ABOVE DISCUSSIONS, THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE ASSESSING OFFICER HAD THE JURIS DICTION TO REASSESS ISSUES OTHER THAN THE ISSUES IN RESPECT OF WHICH PROCEEDINGS ARE INITIATED BUT HE WAS NOT SO JUSTIFI ED WHEN THE REASONS FOR THE INITIATION OF THOSE PROCEEDINGS CEASED TO SURVIVE. CONSEQUENTLY, WE ANSWER THE FIRST PART OF QUESTION IN THE AFFIRMATIVE IN FAVOUR OF THE REVENUE AND THE SECOND PART OF THE QUESTION AGAINST THE REVENUE. ITA NOS.2280-83 /2018 :- 22 -: EVEN THE JURISDICTIONAL HIGH COURT IN THE CASE OF MARTECH PERIPHERALS PVT LTD (SUPRA), WHEREIN IT WAS HELD AS FOLLOWS:- 21. TO MY MIND, A CAREFUL READING OF SECTION 147 OF THE ACT WOULD SHOW THAT IT EMPOWERS AN ASSESSING OFFICER TO REOPEN THE ASSESSMENT, IF, HE HAS REASON TO BELIEVE, THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR THE RE LEVANT YEAR, 'AND ALSO BRING TO TAX', ANY OTHER INCOME, WH ICH MAY ATTRACT ASSESSMENT, THOUGH, IT IS BROUGHT TO HIS NO TICE, SUBSEQUENTLY, ALBEIT, IN THE COURSE OF THE REASSESS MENT PROCEEDINGS. 21.1. TO PUT IT PLAINLY, THE PURPORTED INCOME DISCOVERED SUBSEQUENTLY DURING THE COURSE OF REASSESSMENT PROCEEDINGS, CAN BE BROUGHT TO TAX, ON LY, IF THE ESCAPED INCOME, WHICH CAUSED, IN THE FIRST INSTANCE, THE ISSUANCE OF NOTICE UNDER SECTION 148 OF THE ACT, IS ASSESSED TO TAX. 22. EXPLANATION 3, TO MY MIND, SUPPORTS THIS APPROA CH, WHICH EMERGES UPON A PLAIN READING OF THE SAID PROV ISION, ALONG WITH THE MAIN PART OF SECTION 147 OF THE ACT. THE EMPHASIS IN THIS BEHALF IS ON THE EXPRESSION 'AND A LSO BRING TO TAX' APPEARING IN THE MAIN PART OF SECTION 147 I N RELATION TO THE RIGHT OF THE REVENUE TO ASSESS TAXABLE INCOM E DISCOVERED DURING REASSESSMENT PROCEEDINGS. IN MY V IEW, EXPLANATION 3, CLEARLY, EXPOUNDS THAT THE ASSESSING OFFICER MAY ASSESS OR REASSESS THE INCOME IN RESPECT OF ANY ISSUE, WHICH HAS ESCAPED ASSESSMENT AND SUCH OTHER ISSUE, THAT COMES TO HIS NOTICE SUBSEQUENTLY, ALBEIT, IN THE CO URSE OF PROCEEDINGS HELD UNDER SECTION 147 OF THE ACT. IN O THER WORDS, IF, NOTICE FOR REOPENING OF THE ASSESSMENT W AS ISSUED ON ONE ASPECT, AND IN THE COURSE OF REASSESSMENT PROCEEDINGS ANOTHER ASPECT WAS DISCOVERED, THE REASSESSMENT ORDER WOULD BE VALID, ONLY IF, THE ASP ECT, WHICH LED TO THE REOPENING OF ASSESSMENT, CONTINUES TO FO RM PART OF THE REASSESSED INCOME. 23. THIS VIEW, AS HAS BEEN CORRECTLY SUBMITTED BY T HE LEARNED COUNSEL FOR THE PETITIONER-ASSESSEE, HAS FOUND RESO NANCE WITH AT LEAST THREE (3) HIGH COURTS, I.E., THE BOMB AY HIGH COURT, THE GUJARAT HIGH COURT AND THE DELHI HIGH CO URT IN THE FOLLOWING CASES : (I) CIT V. JET AIRWAYS (I) LTD. [2011] 331 ITR 236 (BOM) ; ITA NOS.2280-83 /2018 :- 23 -: (II) CIT V. MOHMED JUNED DADANI [2013] 355 ITR 172 (GUJ) ; MANU/ GJ/0061/2013 ; AND (III) ORIENTAL BANK OF COMMERCE V. ADDL. CIT MANU/DE/1935/2014. 23.1. THE ONLY HIGH COURT, WHICH HAS TAKEN A CONTRA RY VIEW, AS IT WERE, IS THE PUNJAB AND HARYANA HIGH COURT IN THE MATTER OF : MAJINDER SINGH KANG V. CIT [2012] 344 ITR 358 (P&H) ; [2012] 25 TAXMANN.COM 124 (P&H). 23.2. IN MY OPINION, WITH RESPECT, THE COURT, IN RE NDERING THE JUDGMENT IN MAJINDER SINGH KANG'S CASE, IGNORED THE FACT THAT THE PROVISIONS OF EXPLANATION 3 HAD TO BE READ IN CONJUNCTION WITH THE MAIN PROVISION, AND THAT, THE SAID EXPLANATION CANNOT OVERRIDE THE MAIN PROVISION. 23.3. THIS ASPECT OF THE MATTER HAS ALSO BEEN BROUG HT TO FORE BY THE BOMBAY HIGH COURT IN : CIT V. JET AIRWAYS (I ) LTD. [2011] 331 ITR 236 (BOM). 23.4. THE RELEVANT OBSERVATIONS MADE IN THIS BEHALF ARE EXTRACTED HEREAFTER (PAGE 247) : 'HOWEVER, EXPLANATION 3 DOES NOT AND CANNOT OVERRID E THE NECES SITY OF FULFILLING THE CONDITIONS SET OUT IN THE SUBSTANTIVE PART OF SEC TION 147. AN EXPLANATION TO A STATUTORY PROVISION IS INTENDED TO EXPLAIN ITS CONT ENTS AND CANNOT BE CONSTRUED TO OVERRIDE IT OR RENDER THE SUBSTANCE AND CORE NUGATORY. SECTION 147 HAS THIS E FFECT THAT THE ASSESSING OFFICER HAS TO ASSESS OR REASSES S THE INCOME ('SUCH INCOME') WHICH ESCAPED ASSESSMENT AND WHICH WAS THE BASIS OF THE FORMATION OF BELIEF AND IF HE DOES SO, HE CAN ALSO ASSESS OR REASSESS ANY OTHER I NCOME WHICH HAS ESCAPED ASSESSMENT AND WHICH, COMES TO HI S NOTICE DURING THE COURSE OF THE PROCEEDINGS. HOWEVE R, IF AFTER ISSUING A NOTICE UNDER SECTION 148, HE ACCEPT ED THE CONTENTION OF THE ASSESSEE AND HOLDS THAT THE INCOM E WHICH HE HAS INITIALLY FORMED A REASON TO BELIEVE H AD ESCAPED ASSESSMENT, HAS AS A MATTER OF FACT NOT ESC APED ASSESSMENT, IT IS NOT OPEN TO HIM INDEPENDENTLY TO ASSESS SOME OTHER INCOME. IF HE INTENDS TO DO SO, A FRESH NOTICE UNDER SECTION 148 WOULD BE NECESSARY, THE LE GALITY OF WHICH WOULD BE TESTED IN THE EVENT OF A CHALLENG E BY THE ASSESSEE.' (EMPHASIS IS MINE) 24. THIS TAKES ME TO THE LAST SUBMISSION MADE ON BE HALF OF THE RESPONDENTS- REVENUE, WHICH IS THAT, THERE IS A N ITA NOS.2280-83 /2018 :- 24 -: ALTERNATIVE REMEDY AVAILABLE TO THE PETITIONER AND, THEREFORE, THE INSTANT WRIT PETITION SHOULD NOT BE ENTERTAINED . AND AGAIN THE JURISDICTIONAL HIGH COURT IN THE CAS E OF TRACTORS AND FARM EQUIPMENT LTD VS. ACIT, (2018) 409 ITR 369, WH EREIN IT WAS HELD AS FOLLOWS:- 16. THE DECISION IN THE CASE OF JET AIRWAYS (CITE D SUPRA) WAS REFERRED TO BY THE HIGH COURT OF DELHI IN THE CASE OF RANBAX Y LABORATORIES LIMITED V. CIT [2011] 336 ITR 136 (DELHI), WHEREIN IT WAS HELD THAT THE LEGISLATURE COULD NOT BE PRESUMED TO HAVE INTEN DED TO GIVE BLANKET POWERS TO THE ASSESSING OFFICER THAT ON ASS UMING JURISDICTION UNDER SECTION 147 REGARDING ASSESSMENT OR REASSESSM ENT OF ESCAPED INCOME, HE WOULD KEEP ON MAKING ROVING INQUIRY AND THEREBY INCLUDING DIFFERENT ITEMS OF INCOME NOT CONNECTED O R RELATED WITH THE REASONS TO BELIEVE, ON THE BASIS OF WHICH HE ASSUME D JURISDICTION. FURTHER, IT WAS HELD THAT FOR EVERY NEW ISSUE COMIN G BEFORE THE ASSESSING OFFICER DURING THE COURSE OF PROCEEDINGS OF ASSESSMENT OR REASSESSMENT OF ESCAPED INCOME, AND WHICH HE INTEND S TO TAKE INTO ACCOUNT, HE WOULD BE REQUIRED TO ISSUE A FRESH NOTI CE UNDER SECTION 148 OF THE ACT. THUS, IT WAS HELD THAT THE ASSESSIN G OFFICER HAD JURISDICTION TO REASSESS THE INCOME OTHER THAN THE INCOME IN RESPECT OF WHICH THE PROCEEDINGS UNDER SECTION 147 WERE INITIA TED, BUT, HE WAS NOT JUSTIFIED IN DOING SO WHEN THE REASONS FOR THE INITIATION OF THOSE PROCEEDINGS CEASED TO SURVIVE. THEREFORE, THE ARGUM ENT ADVANCED BY THE REVENUE PLACING RELIANCE ON EXPLANATION 3 TO SE CTION 147 IS OF LITTLE AVAIL. THE PRINCIPLE THAT CAN BE CULLED OUT FROM THE RATI OS OF THE ABOVE DECISIONS IS THAT THE ASSESSING OFFICER HAD J URISDICTION TO REASSESS THE INCOME OTHER THAN THE INCOME IN RESPEC T OF WHICH PROCEEDINGS OF SECTION 147 OF THE ACT WAS INITIATED BUT HE WAS NOT JUSTIFIED IN DOING SO, WHEN NO ADDITION WAS MADE IN RESPECT OF ITEM FOR WHICH NOTICE OF REOPENING WAS ISSUED. IN THE PRESE NT CASE, ADMITTEDLY, ITA NOS.2280-83 /2018 :- 25 -: NOTICE FOR RE-ASSESSMENT IS ISSUED FOR THE PURPOSE OF DISALLOWING THE EXPENDITURE CLAIMED BEING THE PAYMENT MADE TO M/S. SAKSHI TRADE LINK P. LTD. IN THE PRECEDING PARAGRAPHS FOR THE R EASONS STATED THEREIN, WE HELD THAT NO DISALLOWANCE CAN BE MADE F OR THE PAYMENT MADE TO M/S. SAKSHI TRADE LINK P. LTD. THUS, WHE N ADDITION MADE ON ACCOUNT OF ITEM FOR WHICH NOTICE FOR REOPENING IS I SSUED IS SQUASHED BY US, THE ASSESSING OFFICER HAD NO JURISDICTION TO MA KE FURTHER ADDITIONS IN RESPECT OF ANY OTHER ITEMS, WHICH HAD COME TO HI S NOTICE AT THE TIME OF REASSESSMENT PROCEEDINGS. IN THE LIGHT OF THE LE GAL POSITIONS DISCUSSED ABOVE, OTHER ITEMS OF ADDITION MADE BY AS SESSING OFFICER CANNOT BE SUSTAINED. THEREFORE, IT IS NOT NECESSAR Y FOR US TO GO INTO THE MERITS OF ADDITIONS MADE IN RESPECT OF OTHER IT EMS OF ADDITIONS. THUS ALL OTHER GROUNDS OF APPEAL FILED BY THE REVEN UE STAND DISMISSED. 20. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IN I TA NO.2280/CHNY/2018 FOR ASSESSMENT YEAR 2011-12 IS PA RTLY ALLOWED. ITA NO.2281/CHNY/2018 FOR ASSESSMENT YEAR 2012-13: 21. NOW, WE TAKE UP APPEAL OF THE REVENUE IN ITA NO.2281/CHNY/2018, FOR ASSESSMENT YEAR 2012-2013. ITA NOS.2280-83 /2018 :- 26 -: THE REVENUE COMPANY RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LD.CIT(A) IS CONTRARY TO THE PROVISIONS OF THE INCOME TAX ACT, RULES AND FACTS OF THE CASE. 2. THE LD.CIT(A)S DECISION ON THE DISALLOWANCES MA DE U/S 14A IS NOT ACCEPTED, SINCE THE ASSESSING OFFICER HAD ONLY MADE THE DISALLOWANCES AS PER PROVISIONS OF RULE 8D OF INCOM E TAX RULES AS PER THE CBDT CIRCULAR NO.5/20 14, DATED 11.02.2014. 3. THE VIEW OF THE LD.CIT(A) IS NOT CORRECT IN AS M UCH AS THE CSR EXPENSES HAVE NOT BEEN PROVED TO HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. 4. THE ORDER OF THE LD.CIT(A) IS NOT CONSIDERED ACC EPTABLE ON THE DELETION OF ADDITION MADE TO INCOME BASED ON DIFFER ENCE BETWEEN THE FIGURES AS PER INCOME CREDITED TO P&L ACCOUNT AND A S PER FORM 26AS, FURTHER APPEAL TO THE ITAT IS RECOMMENDED SINCE THE ASSESSEE HAS NOT PROPERLY GIVEN IN ANY ACCEPTABLE EXPLANATIONS A S TO WHY THE SAID AMOUNT HAS NOT BEEN CREDITED INTO P&L A/C AS INCOME . ALSO, IN RESPECT OF THE MAJOR AMOUNT OF RS.2,80,75,405/- INVOLVED IN THE ABOVE DISALLOWANCES THE SAME REPRESENTS THE PROVISION MAD E DURING THE YEAR IN ACCOUNTS WHICH HAS BEEN REVERSED IN THE NEXT FIN ANCIAL YEAR WITHOUT ADEQUATE REASONS. 5. THE LD.CIT(A) S DELETION OF THE ADDITIONS MADE TOWARDS PAYMENT MADE TO SUB CONTRACTORS, IS NOT ACCEPTED, SINCE THE VERY FACT THAT THERE HAS BEEN NO RESPONSE TO THE STATUTORY NOTICES ISSUED U/S 133(6) TO THE CONCERNED SUB CONTRACTOR WHO IS STATED TO HA VE UNDERTAKEN CERTAIN WORKS AND ALSO CONSIDERING THE FACT THAT TH E ASSESSEE DID NOT BOTHER TO PRODUCE ANY PROPER CONFIRMATION OF ACCOUN TS FROM THE SAID PARTY EVEN AFTER BEING TOLD ABOUT THE NON COMPLIANC E TO THE SAID STATUTORY NOTICE BY THE SUB CONTRACTOR. 6. THE LD.CIT(A) IS ERRONEOUS IN DELETING THE ADDIT IONS MADE TOWARDS UNPROVED PURCHASES FROM VARIOUS PARTIES AT KOLKATA FOR THE MINES AT ORISSA, SINCE THE DEPT. FOUND OUT DURING THE ENQUIR IES CONDUCTED THAT THESE FIRMS WERE NOT EXISTENT. IN THE SAID ADDRESSE S AND THUS, THE GENUINENESS OF THE TRANSACTIONS ARE NOT PROVED ONLY BECAUSE PAYMENTS HAVE BEEN MADE THROUGH BANKING CHANNELS ET C. 7. IN VIEW OF THE FACTS AND CIRCUMSTANCES, SINCE MO NETARY LIMIT I.E. RS.3,97,17,826/- EXCEEDS THE PRESCRIBED LIMIT AS PE R THE BOARDS CIRCULAR NO.3/20 18 IN F NO.279/MISC. 142/ 2007-ITJ (PT.), SECOND APPEAL IS SUGGESTED ON THIS ISSUE. ITA NOS.2280-83 /2018 :- 27 -: 22. THE BRIEF FACTS OF THE CASE ARE AS UNDER: THE RETURN OF INCOME FOR THE AY 2012-13 WAS FILED E LECTRONICALLY ON 30.09.2013 DISCLOSING TOTAL INCOME OF RS.153,37 ,92,630/- UNDER NORMAL PROVISIONS AND BOOK PROFIT OF 142,14,99,272/- UNDER THE PROVISIONS OF SECTION 115JB OF THE ACT. AGAINST T HE SAID RETURN OF INCOME, THE ASSESSMENT WAS COMPLETED BY THE DY. CIT , CIRCLE -1, SALEM ( HEREINAFTER CALLED AS ASSESSING OFFICER ) VIDE ORDER DATED 31.03.2015 PASSED U/S. 143(3) OF THE INCOME TAX A CT, 1961 (FOR SHORT THE ACT) AT TOTAL INCOME OF RS. 163,69,13,455/-, WHILE DOING SO, THE ASSESSING OFFICER MADE THE FOLLOWING ADDITIONS/ DIS ALLOWANCES. (I) DISALLOWANCE U/S.14 R.W. RULE 8D 52,94,404 (II) DISALLOWANCE OUT OF CSR EXPENSES 76,76,946 (III) DISALLOWANCE OF INTEREST ON TDS 13,57,431 (IV) ADDITION TO INCOME BASED ON 26AS RECONCILIATION 3,79,15,937 (V) DISALLOWANCE OUT OF SUB CONTRACT PAYMENT 4,38,09,329 (VI) DISALLOWANCE OUR OF PURCHASES 70,66,678 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSING OFFICER NOTED THAT RESPONDENT - ASSESSEE HAD EARNED DIVIDEN D INCOME OF A4,03,78,555/- FOR WHICH NO DISALLOWANCE WAS MADE B Y THE ASSESSEE. THE RESPONDENT - ASSESSEE WAS REQUIRED TO EXPLAIN A S TO WHY THE ITA NOS.2280-83 /2018 :- 28 -: EXPENDITURE SHOULD NOT BE DISALLOWED, INVOKING THE PROVISIONS OF S. 14A OF THE ACT. THE RESPONDENT - ASSESSEE SUBMITTED THA T NO BORROWED FUNDS WERE UTILIZED FOR MAKING INVESTMENTS WHICH YI ELDED EXEMPT INCOME. IN SUPPORT OF THIS, RESPONDENT - ASSESSEE SUBMITTED THAT INTEREST FREE FUNDS WERE AVAILABLE WITH THE ASSESSE E AS ON 31.12.2012 IS A55,71,00,000/- AND INVESTMENTS MADE ARE ONLY A 10,11,90,000/-. AS REGARDS TO THE OTHER DISALLOWANCE OF ADMINISTRAT IVE EXPENSES, IT IS SUBMITTED THAT MAXIMUM EXPENDITURE THAT CAN BE DISA LLOWED IS ONLY A6,00,000/- PER ANNUM, HOWEVER THE ASSESSING OFFICE R COMPUTED THE AMOUNT OF DISALLOWANCE UNDER THE PROVISIONS OF RULE 8D ARRIVED AT THE DISALLOWANCE OF A52,94,404/-. THE ASSESSING OFFIC ER ALSO DISALLOWED A SUM OF A76,76,946/- OUT OF THE CORPORATE SOCIAL RE SPONSIBILITY (IN SHORT CSR) EXPENDITURE BY HOLDING THAT EXPENDIT URE WAS IN THE FORM OF DONATION AND RENOVATION OF COLLEGE BUILDING ETC ., AND THE EXPENDITURE WAS NOT INCURRED OUT OF ANY BUSINESS E XPEDIENCY. THE ASSESSING OFFICER DISALLOWED INTEREST ON BELATED RE MITTANCE OF TDS A13,57,531/-. THE ASSESSING OFFICER MADE ADDITION O N ACCOUNT OF DISCREPANCY IN THE AMOUNT REFLECTED IN FORM-26AS AN D AMOUNT CREDITED TO P & L ACCOUNT. DURING THE COURSE OF ASS ESSMENT PROCEEDINGS, ASSESSEE WAS ASKED TO EXPLAIN AS TO H OW THERE IS DISCREPANCIES BETWEEN THE RECEIPTS REFLECTED IN TH E 26AS STATEMENT ITA NOS.2280-83 /2018 :- 29 -: AND REFLECTED IN THE PROFIT AND LOSS ACCOUNT OF TH E YEAR. ASSESSEE SUBMITTED THE FOLLOWING EXPLANATION. 1. RS.2,80,75,405/- PROVISION MADE BY THE ASSESSEE CO FOR REDUCTION MINING CONTRACT RECEIPTS CLAIMED IN FY 2011-12. IN FY 2012-13 THE PROVISION IS SAID TO BE REVERSED. 2. RS.43,42,206/- K J S AHIUWALIA- TRANSPORTATION I NCOME EARLIER PERIOD 2010-11. DEBIT NOTE DT 21.10.2011 3. RS. 18,98,293/- OREWIN CONTRACT RECEIPTS- DISCOU NT RS. 18.62 LAKHS FOR FEB &MAR2OLL AND JUNE 2011 RS.39967/- ACCTD 4. 3,79,768/- CONTRACT RECEIPTS BS MINING DEDUCTI ON 5. 90,376/- CONTRACT RECEIPTS GEO MM CONSULTANTS 6. 5,909/- MSP SPONGE IRON LTD 7. 43,683/- THE RAMESHWAR JUTE MILLS LTD 8. 2,04,080/- ARDENT STEEL LTD 9. 32,636/- BANSPANI IRON LTD 10. 4444/- ABS MERCHANTS P LTD 11. 12,677/- T R CHEMICALS 12. 4,86,460/-STEEL AUTHORITY OF INDIA LTD ITA NOS.2280-83 /2018 :- 30 -: 13. 23,40,000/- BAGADIYA BROTHERS PRIVATE LIMITED . BASED ON THE EXPLANATION OFFERED BY THE ASSESSEE, THE ASSESSING OFFICER NOTED THAT RESPONDENT - ASSESSEE HAD NOT O FFERED EXPLANATION IN RESPECT SUM OF A3,79,15,937/- THE ASSESSING OF FICER ALSO DISALLOWED PAYMENTS MADE TO SUB CONTRACTORS. DURIN G THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT ASSE SSEE MADE PAYMENTS TO VARIOUS SUBCONTRACTORS FOR DOING DRILLI NG, EXCAVATION, SCREENING ETC., ASSESSEE MADE PAYMENT OF A4,38,09, 329/- TO SUBCONTRACTORS SHRI. ZAFAR HAYAT. DURING THE COURS E OF ASSESSMENT PROCEEDINGS, ASSESSING OFFICER ISSUED NOTICE U/S.1 33(6) OF THE ACT TO SAID SHRI. ZAFAR HAYAT SEEKING DETAILS OF WORK DONE BY HIM. SHRI. ZAFAR HAYAT HAD NOT RESPONDED TO THE NOTICE ISSUED U/S.13 3(6) OF THE ACT, THEN ASSESSEE WAS ASKED TO PROVE THE GENUINENESS OF THE EXPENDITURE. ASSESSEE HAD FILED EXPLANATION STATING THAT SUBCONTRACTOR SHRI. ZAFAR HAYAT WAS ENGAGED TO PROVIDE SUBCONTRAC T SERVICES AT BALDA MINES. THE SUB CONTRACT CHARGES WERE PAID FO R DRILLING, RUN OF MINES (ROM), EXCAVATION & LOADING WORK, HIRING OF D UMPERS AND SUPPLY OF HEAVY EARTH MOVING EQUIPMENT FOR WORKING AT THE CRUSHER PLANT. IT IS FURTHER STATED THAT ALL THE PAYMENTS WERE MADE OUT OF ACCOUNT PAYEE CHEQUES OR THROUGH BANKING CHANNELS A ND EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. ON CONSIDERATION OF THE EXPLANATION OF THE RESPONDENT ASSESSEE, THE ITA NOS.2280-83 /2018 :- 31 -: ASSESSING OFFICER CONCLUDED THAT PAYMENT BY CHEQUE OR BANKING CHANNELS AND DEDUCTION OF TAX AT SOURCE DOES NOT ES TABLISH THE GENUINENESS OF THE TRANSACTION AS THE SUB-CONTRACTO R HAD NOT RESPONDED TO NOTICE ISSUED U/S.133(6) OF THE ACT, THE ASSESSING OFFICER CONCLUDED THAT PAYMENTS WERE NOT MADE FOR B USINESS PURPOSE AND ACCORDINGLY DISALLOWED THE SUM OF A4,38,09,329/ -. THE ASSESSING OFFICER FURTHER DISALLOWED A SUM OF ` 70,66,678/-OUT OF PURCHASES. THE ASSESSING OFFICER DISALLOWED PURCHASES OF A70,6 6,678/- MADE FROM THE FOLLOWING THREE PERSONS. SL.NO NAME OF THE CONCERN ADDRESS OF THE CONCERN AMOUNT PAID 1 MARUTI ENTERPRISES 58/H/5, KAILASH BOSE STREET, KOLKATTA 27,51,570 2 N.K. STEEL TRADERS 58/H/5, KAILASH BOSE STREET, KOLKATTA 26,77,543 3 BENGAL UDYOU 17/H/B, BALAI SINHA LANE, KOL-09 16,37,565 BASED ON THE INFORMATION RECEIVED FROM DCIT, KOLKAT A THAT THE ABOVE CONCERNS WERE NOT EXISTENCE AT THE GIVEN ADDRESS. W HEN THE ASSESSEE WAS REQUIRED TO EXPLAIN, IT WAS SUBMITTED THAT PAY MENTS ARE MADE TO THE ABOVE PARTIES TOWARDS PURCHASE OF STORES AND SP ARES ITEMS NAMELY CHANNEL, MS PLATES AND OTHER ITEMS. PAYMENTS HAVE BEEN MADE BY WAY OF ACCOUNT PAYEE CHEQUES. HOWEVER, THE ASSESSIN G OFFICER ITA NOS.2280-83 /2018 :- 32 -: CONCLUDED THAT MERE PAYMENT BY BANKING CHANNEL DOES NOT ESTABLISH THAT EXPENDITURE WAS INCURRED FOR THE PURPOSE OF B USINESS. IN THE ABSENCE OF EVIDENCE OF TRANSPORTATION OF GOODS AND NECESSITY OF MAKING PURCHASES AT KOLKATA WHEN THE MINING OPERATI ONS WERE CARRIED OUT AT ORISHA, HE DISALLOWED THE ABOVE PAYMENT BY HOLDING THAT THE PURCHASES ARE BOGUS. 23. BEING AGGRIEVED BY THE ABOVE ADDITIONS, THE ASSESS EE- COMPANY PREFERRED AN APPEAL BEFORE LD. CIT(A), WH O VIDE IMPUGNED ORDER DELETED THE ADDITION MADE U/S.14A OF THE ACT ACCEPTING THE CONTENTION OF THE ASSESSEE THAT NO BORROWED FUNDS W ERE UTILIZED FOR THE PURPOSE OF MAKING INVESTMENTS, WHEN NO EXPENDITURE WAS INCURRED IN EARNING DIVIDEND INCOME, NO EXPENDITURE CAN BE DISA LLOWED. AS REGARDS TO THE DISALLOWANCE OF CSR EXPENDITURE, LD . CIT(A) PLACING RELIANCE ON THE DECISIONS OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASES OF CIT VS. MADRAS REFINERIES LTD, 266 ITR 17 0, CIT VS. VELUMANICKAM LODGE, 317 ITR 338, CHOLAN ROADWAYS CO RPORATION LTD VS. CIT, 235 ITR 473 AND AMARJOTHI PICTURES VS CIT, 69 ITR 755 AND ON THE ANALYSIS OF THE EXPENDITURE INCURRED ON CSR , THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO DISALLOW ONLY 10% OF THE EXPENDITURE INCURRED IN CASE AMOUNTING TO 1,12,827/-. AS REGARDS TO THE ADDITION MADE ON ACCOUNT OF DIFFERENCE BETWEEN RECEIPTS AS P ER 26AS AND THE AMOUNT CREDITED TO P & L ACCOUNT, THE LD. CIT(A) CO NSIDERING THE ITA NOS.2280-83 /2018 :- 33 -: EXPLANATION OFFERED DELETED THE ADDITION PARTLY. AS REGARDS TO PAYMENT MADE TO SUBCONTRACTORS AMOUNTING TO 4,38,09,329/-. LD. CIT(A) AFTER CONSIDERING THE FACT THAT PAYMENTS WERE MADE THROU GH BANKING CHANNELS AND TDS WAS MADE HOLDING THAT THE MERE FA CT THAT SUB CONTRACTORS NOT RESPONDED IN RESPONSE TO NOTICE ISS UED U/S.133(6) OF THE ACT CANNOT BE REASON TO DISALLOW THE EXPENDITUR E, HE DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION. AS REGAR DS TO THE DISALLOWANCE OF PURCHASES AMOUNTING TO 70,66,678/- ALLEGED TO BE BOGUS, THE LD. CIT(A) DIRECTED THE ASSESSING OFFICE R TO DELETE THE ADDITION CONSIDERING THE FACT THAT PAYMENTS WERE MA DE THROUGH BANKING CHANNELS AND BY OBSERVING THAT THE ASSESSIN G OFFICER CANNOT STEP INTO THE SHOES OF THE ASSESSEE AS TO HOW ASSES SEE SHOULD CONDUCT THE BUSINESS. 24. BEING AGGRIEVED BY THE ABOVE DECISION OF THE CIT( A), THE REVENUE IS IN APPEAL BEFORE US CHALLENGING THE CORRECTNES S OF THE ORDER OF THE CIT(A). LD. DEPARTMENTAL REPRESENTATIV E SUBMITTED THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) OUGHT NOT HAVE ALLOWED CSR EXPENSES OF RS.76,76,946/- BEING AMOUNT SPENT O N THE DEVELOPMENT OF LOCAL AREA OF MINES. HE FURTHER SUB MITTED THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) OUGHT NOT HAVE RESTRICTED DISALLOWANCE OF 10% OF CASH EXPENDITURE ALONE. AS REGARDS TO THE ISSUE OF ADDITION TO INCOME BASED ON 26AS RECONCILI ATION, LD. ITA NOS.2280-83 /2018 :- 34 -: DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT LD. COMM ISSIONER OF INCOME TAX (APPEALS) HAS MISDIRECTED HIMSELF IN DIR ECTING TO DELETE THE ADDITION OF RS.2,80,75,405/- ON ACCOUNT OF PRO VISION MADE FOR REDUCTION IN MINING RECEIPTS ACCEPTING THE EXPLANA TION OF THE ASSESSEE THAT SAME WAS OFFERED TO TAX IN THE SUCCEEDING ASSE SSMENT YEAR IGNORING THE PRINCIPLE THAT EACH ASSESSMENT YEAR I S SEPARATE UNIT OF ASSESSMENT. SIMILAR ARGUMENT IS ALSO ADVANCED IN SL. NO.12 & 13 IN RESPECT OF ITEM NO.2, LD. DEPARTMENTAL REPRESENTATI VE SUBMITTED THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) GRANTED RE LIEF TO THE ASSESSEE CONSIDERING ADDITIONAL EVIDENCE FILED IN VIOLATION OF PROVISION OF RULE 46A. REGARDING DISALLOWANCE OF PAYMENT MADE TO SUB CONTRACTORS, HE SUBMITTED THAT MERE FACT THAT PAYME NTS WERE MADE THROUGH BANKING CHANNELS AND TDS WAS DEDUCTED DOE S NOT ESTABLISH THAT PAYMENTS WERE MADE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND NONE OF THE CASE LAWS RELIED UPON DURI NG THE PROCEEDINGS BEFORE LD. COMMISSIONER OF INCOME TAX (APPEALS) FIT INTO THE FACTS OF THE PRESENT CASE. REGARDING DISALLOWANCE OF PURCH ASE OF RS.70,66,678/-, DISALLOWANCE WAS MADE BY THE ASSESS ING OFFICER BASED ON THE INFORMATION RECEIVED FROM THE DICT, CIRCLE-5 , KOLKATA, AND THEREFORE LD. COMMISSIONER OF INCOME TAX (APPEALS) OUGHT NOT HAVE GRANTED RELIEF. ITA NOS.2280-83 /2018 :- 35 -: 25. ON THE OTHER HAND, LD. AUTHORISED REPRESENTATIVE SU BMITTED THAT THE ASSESSING OFFICER OUGHT NOT HAVE INVOKED THE PROVISIONS OF SECTION 14A READ WITH RULE 8D(2) (II) AND (III) AS MUCH AS ASSESSEE HAD SUBSTANTIATED THE CONTENTION THAT NO BORROWED FUNDS WERE UTILIZED FOR MAKING INVESTMENTS WHICH YIELDED EXEMPT INCOME BY REFERRING TO THE FINANCIAL STATEMENTS PLACED AT PAGES 2 TO 18 OF THE PAPER BOOK. AS REGARDS TO THE DISALLOWANCE U/S.8D(2) (III), HE SUB MITTED THAT IF AT ALL, DISALLOWANCE IS TO BE MADE, ONLY INVESTMENTS WHICH YIELDED EXEMPT INCOME HAS TO BE CONSIDERED. AS REGARDS TO THE CS R EXPENDITURE, THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT EXPEND ITURE WAS INCURRED FOR THE FOLLOWING PURPOSES. (I) SETTING UP AND RUNNING AND MAINTENANCE OF SCH OOLS (II) SETTING UP AND RUNNING AND MAINTENANCE OF HOSP ITALS, MEDICAL AND HEALTH CHECK UP CAMPS (III) PROVIDING DRINKING WATER (IV) LIGHTING FACILITIES (V) TRAINING THE VILLAGER PARTICULARLY THE UNEMPLOY ED YOUTH BY WAY OF SKILL DEVELOPMENT PROGRAMS AND CREATION OF E MPLOYMENT OPPORTUNITIES (VI) TRAINING THE TRIBALS BY SETTING UP SECURITY TR AINING SCHOOLS AND PROVIDING EMPLOYMENT TO THEM (VII) COMMUNITY ASSISTED PROGRAMMES AND EVENTS, SPO RTS ACTIVITIES (VIII) COMMUNITY WELFARE EXPENSES AND RUNNING OLD A GED HOMES (IX) PROVIDING PLANTATION JOBS FOR THE TRIBAL AND U NSKILLED PEOPLE LIVING IN THE VICINITY OF THE MINES AREA. IT IS SUBMITTED THAT ASSESSEE COMPANY IS ENGAGED IN MINING SERVICES AT VARIOUS MINES LOCATED IN KEONJIHAR DIST. ODISHA STATE. THE MINES ITA NOS.2280-83 /2018 :- 36 -: ARE LOCATED IN REMOTE AND TRIBAL AREAS OF KENOJHAR DIST. THE VILLAGES LACK ADEQUATE DRINKING WATER, MEDICAL FACILITIES, S CHOOL FOR CHILDREN AND PROPER ROAD FACILITIES. MOST OF THE VILLAGERS IN T HIS REGION ARE INDENTIFIED AS LIVING BELOW THE POVERTY LINE AND TH IS EXPENDITURE WAS INCURRED IN ORDER TO BUY GOODWILL AND ENSURE SMOO TH BUSINESS OPERATIONS IN THE LOCALITY AND THEREFORE EXPENDITUR E WAS INCURRED ONLY OUT OF THE BUSINESS EXPEDIENCY. THUS, HE SUBMITTED THAT NO INTERFERENCE IN THE ORDER OF THE LD. COMMISSIONER O F INCOME TAX (APPEALS) IS REQUIRED. AS REGARDS TO THE ADDITION S TO INCOME BASED ON 26AS RECONCILIATION, THE LD. AUTHORISED REPRESENTAT IVE SUBMITTED THAT ASSESSEE HAD FILED EXPLANATION RECONCILING THE DISC REPANCY BETWEEN THE AMOUNT SHOWN IN THE PROFIT AND LOSS ACCOUNT AND REF LECTED IN THE FORM 26AS. THE ASSESSING OFFICER HAD MADE ADDITIONS WI THOUT APPRECIATING THE NATURE OF THE ITEMS AND NO FRESH EVIDENCE IN VI OLATION OF RULE 46A (3) WAS FILED BEFORE THE LD. COMMISSIONER OF INCOM E TAX (APPEALS) AND THEREFORE IT IS SUBMITTED THAT NO INTERFERENCE IS CALLED FOR. AS REGARDS TO THE DISALLOWANCE OF PAYMENTS MADE TO SUB CONTRACTORS, IT IS SUBMITTED THAT EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THE PAYMENTS WERE MADE BY B ANKING CHANNELS AND PROVISIONS OF TDS WERE DULY COMPLIED W ITH. MERE FACT THAT SUB CONTRACTOR HAD NOT RESPONDED TO NOTICE IS SUED U/S.133(6) OF THE ACT CANNOT BE A REASON TO MAKE ADDITION. HE FU RTHER SUBMITTED ITA NOS.2280-83 /2018 :- 37 -: THAT HE HAD DISCHARGED PRIMARY ONUS OF FILING DETA ILS SUCH AS NAME, ADDRESS AND PAYMENT DETAILS AND THEREFORE FINDINGS OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IS BASED ON PR OPER APPRECIATION OF FACTS AND NO INTERFERENCE IS CALLE D FOR. WITH REGARDS TO THE DISALLOWANCE OF PURCHASES FROM KOLKATA PARTIES TO THE TUNE OF RS.70,66,678/-, LD. AUTHORISED REPRESENTATIVE SUBMI TTED THAT ASSESSEE COMPANY DISCHARGED PRIMARY ONUS LYING UPON IT BY FI LING DETAILS I.E. NAME, ADDRESS, TIN, CST NUMBERS, DETAILS OF PAYMENT S MADE ETC. HE FURTHER SUBMITTED THAT THE SELLERS HAD DIRECTLY DE LIVERED THE GOODS TO ASSESSEES MINES AND THEREFORE THERE IS NO EVIDENCE OF TRANSPORTATION OF GOODS AND HE FURTHER SUBMITTED THAT IT IS PUREL Y BUSINESS DECISION AS TO WHERE FROM PURCHASES HAS TO BE MADE, THE ASS ESSING OFFICER CANNOT STEP INTO THE SHOES OF THE ASSESSEE COMPAN Y. 26. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL ON RECORD. THE GROUNDS OF APPEAL NO.1 & 7 ARE GENERAL IN NATURE THEREFORE DOES NOT REQUIRE ANY ADJUDICATION. 27. THE GROUND NO.2, CHALLENGES THE DECISION OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING TH E ADDITION OF RS.52,94,404/- MADE U/S.14A OF THE ACT. ADMITTEDLY, ASSESSEE HAD DIVIDEND INCOME OF RS.4,03,78,555/-. THE ADDITION M ADE INCLUDES UNDER CLAUSE (II) OF RULE 8D OF RS.28,65,261/- AND CLAUSE (III) OF RULE ITA NOS.2280-83 /2018 :- 38 -: 8D RS.24,29,143/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS WELL AS BEFORE THE LD. COMMISSIONER OF INCOME TAX ( APPEALS) ASSESSEE COMPANY HAD SUBSTANTIATED ITS CLAIM THAT NO BORROWE D FUNDS WERE UTILIZED FOR MAKING INVESTMENTS WHICH YIELDED THE E XEMPT INCOME BY FILING FINANCIAL STATEMENTS. FROM THE FINANCIAL ST ATEMENTS, IT IS CLEAR THAT ASSESSEE HAS OWN FUNDS OF RS.55,71,00,000/- AG AINST INVESTMENTS OF A10,11,90,000/-. IT IS CLEAR THAT OWN FUNDS ARE MORE THAN INVESTMENTS. THEREFORE PRESUMPTION SHOULD BE DRAWN THAT OWN FUNDS WERE UTILIZED FOR THE PURPOSE OF MAKING INVESTMENTS AND NO DISALLOWANCE OF INTEREST SHOULD BE MADE. THIS PROP OSITION OF LAW HAS BEEN UPHELD BY THE HONBLE SUPREME COURT IN THE CAS E OF CIT V. RELIANCE INDUSTRIES LTD. [2019] 410 ITR 466 (SC) AF FIRM THE DECISION OF THE HONBLE HIGH COURT IN THE CASE OF CIT V. RELIAN CE INDUSTRIES LTD. [2017] 86 TAXMANN.COM 24 (BOM.), WHEREIN IT WAS HEL D AS FOLLOWS: 33. WE DO NOT SEE HOW WHEN THE ASSESSING OFFICER'S VIE WS ARE THAT IN CASES OF THE INTEREST FREE LOANS AND INTEREST GI VEN BY THE ASSESSEE TO ITS SUBSIDIARY COMPANIES ARE IN THE ABO VE SUMS, STILL, THE PRINCIPLE LAID DOWN BY THIS COURT THAT IF THERE ARE FUNDS AVAILABLE TO THEM INTEREST FREE AND OVERDRAFT OR LO ANS TAKEN, WOULD NOT APPLY. THIS VIEW OF THE ASSESSING OFFICER IS EX FACIE CONTRARY TO THE SETTLED PRINCIPLE THAT A PRESUMPTION WOULD ARIS E THAT THE INVESTMENT WOULD BE OUT OF THE INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY. THEN, THE BORROWED CAPI TAL IN HAND IN THAT CASE AND INTEREST EXPENDITURE WAS DEDUCTIBLE U NDER SECTION 36(1)(III) OF THE I.T. ACT, 1961. THE TRIBUNAL HELD THAT THE INTEREST FREE FUND AVAILABLE TO THE ASSESSEE IS SUFFICIENT T O MEET ITS INVESTMENT. IT CAN BE PRESUMED THAT INVESTMENTS WER E MADE FROM INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. TH IS POSITION CLEARLY EMERGES FROM THE RECORD AND FOR THE CURRENT ASSESSM ENT YEAR AS WELL. WE DO NOT SEE HOW A DIFFERENT VIEW IN THE FAC TS AND ITA NOS.2280-83 /2018 :- 39 -: CIRCUMSTANCES CAN BE TAKEN. IF THE TRIBUNAL HAD FOL LOWED THE EARLIER VIEW AND ON FACTS, THEN, THERE IS NO PERVERSITY WHE N NOTHING CONTRARY TO THE FACTUAL MATERIAL WAS BROUGHT ON REC ORD BY THE REVENUE. IN SUCH CIRCUMSTANCES, THE CONCURRENT VIEW ON DISALLOWANCE OF INTEREST WAS REVERSED AND THE APPEA L OF THE ASSESSEE TO THAT EXTENT WAS PARTLY ALLOWED. WE DO N OT SEE ANY SUBSTANTIAL QUESTION OF LAW ARISING FROM SUCH A VIE W OF THE TRIBUNAL. THE HONBLE HIGH COURTS OF GUJARAT & BOMBAY REITER ATED THE SAME PRINCIPLE OF LAW IN THE CASE OF CIT V. RE LIANCE UTILITIES & POWER LTD. [2009] 313 ITR 340 (BOM) AND GUJARAT STA TE FERTILIZERS & CHEMICALS LTD. [2013] 358 ITR 323 (GUJ) & CIT VS. AMOD STAMPING (P.)LTD. [2014] 45 TAXMAN.COM 427 (GUJ.). 28. IN THE PRESENT CASE, INDISPUTEDLY OWN AND INTEREST FREE FUNDS ARE MORE THAN THE INVESTMENT MADE AND THEREFORE THAT THE PRESUMPTION SHOULD BE DRAWN THAT INVESTMENTS ARE MA DE OUT OF OWN FUNDS IN VIEW OF THE PRINCIPLE ENUNCIATED IN ABOVE MENTIONED DECISIONS. THEREFORE, NO DISALLOWANCE OF INTEREST UNDER CLAUSE (II) OF RULE 8D CAN BE MADE. AS REGARDS TO THE DISALLOWA NCE OF ADMINISTRATIVE EXPENSES UNDER CLAUSE (III), THE LA W IS SETTLED TO THE EXTENT THAT FOR THE PURPOSE OF COMPUTING THE AMOUNT OF DISALLOWANCE ON CLAUSE (III) OF RULE 8D, ONLY INVESTMENTS WHICH YIELDED EXEMPT INCOME ALONE SHOULD BE CONSIDERED. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO COMPUTE THE AMOUNT OF DISALLOW ANCE UNDER RULE 8D(III) BY CONSIDERING THE VALUE OF INVESTMENTS WH ICH YIELDED EXEMPT ITA NOS.2280-83 /2018 :- 40 -: INCOME ALONE. IN THE RESULT, GROUND NO.2 FILED BY T HE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 29. GROUND NO.3 CHALLENGES THE DECISION OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) TO RESTRICT TH E CSR DISALLOWANCE TO 10% THE EXPENDITURE INCURRED IN CAS H. FROM THE PERUSAL OF THE ASSESSMENT ORDER, IT IS CLEAR THAT T HE ASSESSING OFFICER HAD ACCEPTED IN PRINCIPLE THE ALLOWABILITY OF THE C SR EXPENDITURE. THE ASSESSING OFFICER DISALLOWED THE AMOUNT ONLY TO THE EXTENT OF RS.76,76,946/- AS EXPENDITURE WAS INCURRED IN THE N ATURE OF DONATION AND RENOVATION OF COLLEGE BUILDING ETC., ADMITTEDL Y, THE EXPENDITURE WAS INCURRED IN THE AREAS WHERE BUSINESS OPERATIONS OF THE ASSESSEE COMPANY WERE CARRIED OUT IN ORDER TO PROMOTE SOCI AL ECONOMIC CONDITION OF THE LOCAL COMMUNITY LIVING AND IN ORD ER TO WIN THE GOODWILL OF THE LOCAL PEOPLE. THE HONBLE JURISDIC TIONAL HIGH COURT IN THE CASES OF MADRAS REFINERIES LTD (SUPRA) , VELUMANICKAM LODGE (SUPRA) AS WELL AS CHOLAN ROADWAYS CORPORATION LTD (SUPRA) HAD HELD THAT THE EXPENDITURE INCURRED ON PROMOTING S OCIAL WELFARE OF THE LOCAL COMMUNITY AND PROVIDING DRINKING WATER FACILI TIES, EDUCATIONAL FACILITIES CANNOT BE REGARDED AS EXPENDITURE WHOLLY INCURRED OUTSIDE THE AMBIT OF BUSINESS OF THE ASSESSEE AND ALLOWED BUSIN ESS DEDUCTION. HAVING REGARD TO THE RATIO OF THE DECISIONS, WE ARE OF THE CONSIDERED OPINION THAT THE DECISION OF THE LD. COMMISSIONER O F INCOME TAX ITA NOS.2280-83 /2018 :- 41 -: (APPEALS) IS BASED ON PROPER APPRECIATION OF FACTS AND WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. C OMMISSIONER OF INCOME TAX (APPEALS). GROUND NO.3 FILED BY THE REVE NUE IS DISMISSED. 30. GROUND NO.4 CHALLENGES THE DECISION OF THE LD. CIT( A) IN PARTLY GRANTING RELIEF IN RESPECT OF ADDITION ON AC COUNT OF DISCREPANCY BETWEEN THE AMOUNT OF RECEIPT REFLECTED IN FORM 26A S AND CREDITED TO P & L ACCOUNT. APPARENTLY THERE IS DISCREPANCY BETWE EN THE AMOUNT REFLECTED IN FORM 26AS AND THE AMOUNT SHOWN IN THE PROFIT AND LOSS ACCOUNT. ASSESSEE COMPANY OFFERED AN EXPLANATION A S TO HOW THE DISCREPANCIES AROSE BETWEEN THE TWO. THE LD. CIT( A) CONSIDERING THE EXPLANATION PARTLY GRANTED RELIEF TO THE ASSESSEE. HOWEVER, LD. CIT(A) HAD NOT DISCUSSED THE FACT SITUATION AS TO HOW THE INCOME SHOWN IN FORM-26AS HAD NOT ACCRUED. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT THE MATTER SHOULD BE REMAND BACK TO TH E FILE OF THE ASSESSING OFFICER FOR DENOVO ASSESSMENT AFTER GIVIN G DUE OPPORTUNITY OF HEARING TO THE ASSESSEE. WE ORDER ACCORDINGLY. THUS, THE GROUND NO.4 FILED BY THE REVENUE IS PARTLY ALLOWED FOR STA TISTICAL PURPOSE. 31. THE GROUND OF APPEAL NO.5 CHALLENGES THE DECISION O F THE LD. CIT(A) DELETING THE ADDITION MADE ON ACCOUNT OF PAY MENT MADE TO SUBCONTRACTOR. ADMITTEDLY, THE ASSESSING OFFICER M ADE DISALLOWANCE TO THE TUNE OF 4,38,09,329/- ON THE GROUND THAT SUBCONTRACTOR HAD NOT RESPONDED TO THE NOTICE ISSUED BY THE ASSESSING OF FICER U/S.133(6) OF ITA NOS.2280-83 /2018 :- 42 -: THE ACT. THE ASSESSEE COMPANY HAD DISCHARGED ITS I NITIAL ONUS BY FILING PRIMARY DETAILS I.E., NAME, ADDRESS, PAYMENT DETAILS, COPIES OF INVOICES ETC., THE ASSESSING OFFICER HAD NOT EVEN CALLED UPON THE ASSESSEE COMPANY TO PRODUCE SUBCONTRACTOR BEFORE H IM. THE ASSESSING OFFICER CANNOT RESORT TO THE DISALLOWANCE MERELY BECAUSE SUBCONTRACTOR HAS NOT RESPONDED TO THE NOTICE ISSUE D U/S.133(6) OF THE ACT. RELIANCE IN THIS REGARD CAN BE PLACED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF PCIT V. CHAWLA INT ERBILD CONSTRUCITON CO. (P.) LTD. [2019] 104 TAXMAN.COM 40 2 HELD AS FOLLOWS: 7. WE FIND THAT THE ASSESSING OFFICER WHILE PASSING TH E ASSESSMENT ORDER HAS DIS-ALLOWED 40% OF THE TOTAL P AYMENTS MADE ON THE BASIS OF THE PAYMENTS MADE TO 13 PARTIE S, WHO WERE NOT PRODUCED BEFORE HIM DURING THE ASSESSMENT PROCEEDINGS. THIS ON THE GROUND THAT PAYMENTS ARE N OT GENUINE. WE ARE UNABLE TO UNDERSTAND ON WHAT BASIS THE DIS-A LLOWANCE IS MADE ON THE TOTAL PAYMENTS, IF AT ALL IT SHOULD HAV E BEEN RESTRICTED ONLY TO THE AMOUNTS PAID TO THE 13 PERSO NS WHO ARE NOT PRODUCED BEFORE THE ASSESSING OFFICER. BE THAT AS IT MAY, WE FIND THAT THE RESPONDENT - ASSESSEE HAD DONE EVERYT HING TO PRODUCE NECESSARY EVIDENCE, WHICH WOULD INDICATE TH AT THE PAYMENTS HAVE BEEN MADE TO THE PARTIES CONCERNED. T HE DETAILS FURNISHED BY THE RESPONDENT ASSESSEE WERE SUFFICIEN T FOR THE ASSESSING OFFICER TO TAKE FURTHER STEPS IF HE STILL DOUBTED THE GENUINENESS OF THE PAYMENTS TO EXAMINE WHETHER OR N OT THE PAYMENT WAS GENUINE. THE ASSESSING OFFICER ON RECEI PT OF FURTHER INFORMATION DID NOT CARRY OUT THE NECESSARY ENQUIRIES ON THE BASIS OF THE PAN NUMBERS, WHICH WERE AVAILABLE WITH HIM TO FIND OUT THE GENUINENESS OF THE PARTIES. THE CIT(A) AS WELL AS THE TRIBUNAL HAVE CORRECTLY HELD THAT IT IS NOT POS SIBLE FOR THE ASSESSEE TO COMPEL THE APPEARANCE OF THE PARTIES BE FORE THE ASSESSING OFFICER. FURTHERMORE, THERE IS NO EVIDENCE TO SHOW THAT THE AMOUNT PAID TO SUBCONTRACTOR IS RECYCLED BACK TO THE ASSES SEE AND THERE IS NOT EVEN AN ALLEGATION BY THE ASSESSING OFFICER TO THIS EFFECT. ITA NOS.2280-83 /2018 :- 43 -: NEVERTHELESS, THE RECEIPTS FROM THIS CONTRACT WAS O FFERED TO TAX AND IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT ASSESSEE HAD INCURRED EXPENDITURE IN EXECUTING THE CONTRACT APART FROM TH E SUBCONTRACT EXPENSES. IN THE CIRCUMSTANCES, WE ARE UNABLE TO UP HOLD THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND ACCO RDINGLY DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A). GROUND NO.5 FILED BY THE REVENUE STANDS DISMISSED. THE GROUND OF APPEAL NO.6 CHALLENGES THE DECISION OF THE LD. CIT(A) IN DELETING THE ADDITION MADE TOWARDS BOGUS PURCHASES FROM KOLKATA PARTIES. FROM THE PERUSAL OF THE ASSESSMEN T ORDER, IT REVEALS THAT ASSESSING OFFICER BASED ON THE INFORMATION REC EIVED FROM DICT, KOLKATA THAT THREE PARTIES WERE NOT IN EXISTENCES A T GIVEN ADDRESS AND THE ASSESSING OFFICER HAD ALSO QUESTIONED THE NECE SSITY OF PURCHASING MATERIALS FROM KOLKATA WHEN THE ASSESSEE COMPANY WA S EXECUTING THE WORK IN ODISHA. ADMITTEDLY, PURCHASES MADE BY THE ASSESSEE COMPANY WAS DULY SUPPORTED BY BILLS AND THE PAYMENT S WERE MADE THROUGH BANKING CHANNELS AND ASSESSEE HAD DISCHARGE D THE INITIAL ONUS OF FILING THE NAME, ADDRESS, COPIES OF INVOICE , TIN AND CST ETC. THE ASSESSING OFFICER HAD NOT BROUGHT ANY EVIDENCE ON RECORD TO SHOW THAT THE AMOUNTS PAID TO THE SELLERS WAS RECYCLED B ACK TO THE ASSESSEE AND MOREOVER, THE ASSESSING OFFICER HAD NOT DOUBTED THE CONSUMPTION OF THE MATERIALS BROUGHT. IN THE ABSENCE OF THIS MA TERIAL EVIDENCE, NO ADDITION CAN BE MADE TOWARDS ALLEGED BOGUS EXPENDIT URE. WE REFER TO ITA NOS.2280-83 /2018 :- 44 -: THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE C ASE OF PCIT VS. TEJUA ROHITKUMAR KAPADIA (2018) 94 TAXMANN.COM 324 WHICH WAS CONFIRMED BY HON'BLE SUPREME COURT BY DISMISSAL THE SLP IN PCIT VS. TEJUA ROHITKUMAR KAPADIA [2018] 94 TAXMANN.COM 325 (SC). ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A). GROUND NO. 6 FILED BY THE REVENUE STAND S DISMISSED. 32. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IN I TA NO.2281/CHNY/2018 FOR ASSESSMENT YEAR 2012-2013 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 33. NOW, WE TAKE UP APPEAL IN ITA NO.2282/CHNY/2018 FOR ASSESSMENT YEAR 2013-14. 34. THE REVENUE RAISED THE FOLLOWING GROUNDS OF APPEAL. 1. THE ORDER OF THE LD.CIT(A) IS CONTRARY TO THE P ROVISIONS OF THE INCOME TAX ACT, RULES AND FACTS OF THE CASE. 2. THE LD.CIT(A)S DECISION ON THE DISALLOWANCES MA DE U/S 14A IS NOT ACCEPTED, SINCE THE ASSESSING OFFICER HAD ONLY MADE THE DISALLOWANCES AS PER PROVISIONS OF RULE 8D OF INCOM E TAX RULES AS PER THE CBDT CIRCULAR NO.5/20 14, DATED 11.02.2014. 3. THE VIEW OF THE LD.CIT(A) IS NOT CORRECT IN AS M UCH AS THE CSR EXPENSES HAVE NOT BEEN PROVED TO HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. 4. THE ORDER OF THE LD.CIT(A) IS NOT CONSIDERED ACC EPTABLE ON THE DELETION OF ADDITION MADE IN RESPECT OF RECEIPTS FR OM ELECTRICAL ENGINEER, RURAL WORKS II, KEONJHAR, SINCE THE ASSES SEE MAINTAINS ACCOUNTS IN MERCANTILE SYSTEM BASIS AND HENCE THE I NCOME SHOULD BE ITA NOS.2280-83 /2018 :- 45 -: RECOGNIZED IN THE YEAR IN WHICH THE WORK WAS DONE A ND NECESSARY BILL RAISED. HENCE, SECOND APPEAL. 5. THE LD.CIT(A) S DELETION OF THE ADDITIONS MADE TOWARDS PAYMENT MADE TO SUB CONTRACTORS, IS NOT ACCEPTED, SINCE THE VERY FACT THAT THERE HAS BEEN NO DETAILS OF WORK ORDER FILED IN RE LATION TO THE WORK STATED TO HAVE BEEN EXECUTED BY THE ABOVE PARTY AND ALSO CONSIDERING THAT, THE SAID PARTY HAS NOT FILED ANY RETURN OF INCOME FOR THE SAID YEAR AT ALL AND ALSO SINCE NO CONFIRMA TION OF DETAILS HAVE BEEN FURNISHED TO PROVE THE GENUINENESS OF SAID CLA IM OF EXPENSES INCURRED. HENCE, SECOND APPEAL. 6. IN VIEW OF THE FACTS AND CIRCUMSTANCES, SINCE MO NETARY LIMIT I.E. RS.1,15,61,200/- EXCEEDS THE PRESCRIBED LIMIT AS PE R THE BOARDS CIRCULAR NO.3/20 18 IN F NO.279/MISC. 142/ 2007-ITJ (PT.), SECOND APPEAL IS SUGGESTED ON THE ABOVE ISSUES. 35. THE BRIEF FACTS OF THE CASE ARE AS UNDER: THE RETURN OF INCOME FOR THE AY 2013-14 WAS FILED E LECTRONICALLY ON 29.09.2013 DISCLOSING TOTAL INCOME OF RS.215,23 ,95,950/- UNDER NORMAL PROVISIONS AND BOOK PROFIT OF 207,03,15,246/- UNDER THE PROVISIONS OF SECTION 115JB OF THE ACT. AGAINST T HE SAID RETURN OF INCOME, THE ASSESSMENT WAS COMPLETED BY THE ASSISTA NT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE (I/C) S ALEM ( HEREINAFTER CALLED AS ASSESSING OFFICER ) VIDE ORDER DATED 31.03.2016 PASSED U/S. 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT) AT TOTAL INCOME OF RS. 194,61,35,917/-, WHILE DOING SO, THE ASSESSING OFFICER MADE THE FOLLOWING ADDITIONS/ DISALLOWANCES. (I) DISALLOWANCE U/S.14A R.W.RULE 8D 17,15,991 (II) DISALLOWANCE OF CSR EXPENSES 3,32,90,591 ITA NOS.2280-83 /2018 :- 46 -: (III) PAYMENT FROM CHETTINAD CEMENT CORPORATION 11,542 (IV) RECEIPTS FROM ELECTRICAL ENGINEER, RURAL WORKS II, KEONJHAR 45,27,491 (V) EXPENDITURE OVER BOOKED BY THE ASSESSEE 19,14,735 (VI) SUB-CONTRACT PAYMENTS M/S. PREEYA EARTH MOVER, SALEM 81,76,288 36. BEING AGGRIEVED BY THE ABOVE ADDITIONS, THE ASSESSEE- COMPANY PREFERRED AN APPEAL BEFORE LD. CIT(A) CHA LLENGING THE ADDITIONS MADE. THE LD. CIT(A) DELETED THE ADDITION IN RESPECT OF ADDITION MADE U/S.14A, IN RESPECT OF CSR EXPENDITUR E, DIRECTED THE ASSESSING OFFICER TO RESTRICT TO 10% OF EXPENDITURE INCURRED IN CASH. LD. CIT(A) ALSO DELETED ADDITION ON ACCOUNT OF REC EIPT RECEIVED FROM STATE HIGHWAYS DEPT. RURAL WORKS II, KEONJHAR OF 45,27,491/- CONSIDERING THE FACT THAT THE INCOME WAS OFFERED TO TAX IN THE ASSESSMENT YEAR 2014-15. AS REGARDS TO THE DISALLO WANCE OF SUBCONTRACTOR PAYMENT OF 81,76,288/-, LD. CIT(A) CONSIDERING THE PARTNERSHIP DEED, DETAILS OF PAYMENTS, DETAILS OF T DS MADE AND THE FACT THAT MR. M. NEDUNCHEZIYAN, MANAGING PARTNER OF PREEYA EARTHMOVERS HAD EXPIRED ON 27.12.2014 HAD DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION. ITA NOS.2280-83 /2018 :- 47 -: 37. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), TH E REVENUE IS IN APPEAL BEFORE US IN THE PRESENT APPEAL. 38. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL ON RECORD. THE GROUNDS OF APPEAL NO.1 & 6 ARE GENERAL IN NATURE THEREFORE DOES NOT REQUIRE ANY ADJUDICATION. 39. THE GROUND OF APPEAL NO.2, CHALLENGES THE DECISION OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING TH E ADDITION U/S.14A OF THE ACT. IDENTICAL ISSUE HAS ARISEN IN THE PRECEDING YEAR IN ITA NO.2281/CHNY/2018 FOR ASSESSMENT YEAR 2012-13, WHEREIN WE HAD UPHELD THE DELETION OF ADDITION UNDER CLAUSE (I I) OF RULE 8D. HOWEVER, IN RESPECT OF ADDITION MADE UNDER CLAUSE ( III) OF RULE 8D, WE RESTORED THE MATTER BACK TO THE FILE OF THE ASSESSI NG OFFICER TO COMPUTE THE AMOUNT OF DISALLOWANCE BY CONSIDERING O NLY VALUE OF INVESTMENTS WHICH YIELDED EXEMPT INCOME. ACCORDINGL Y, GROUND NO.2 FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTI CAL PURPOSE. 40. THE GROUND OF APPEAL NO.3 CHALLENGES THE DECISION OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) TO RESTRICT TH E CSR DISALLOWANCE TO 10%. THIS GROUND IS SIMILAR TO THE GROUND NO. 3 RAISED BY THE REVENUE FOR ASSESSMENT YEAR 2012-13 IN ITA NO.2281/CHNY/2018. WE HAVE ALREADY DELETED THE DISA LLOWANCE IN PARA 29 ABOVE IN THE GROUND OF APPEAL INVOLVING IDE NTICAL FACTS AND ITA NOS.2280-83 /2018 :- 48 -: ISSUE. FOR THE PARITY OF REASONS MENTIONED THEREIN , WE DISMISS THIS GROUND OF APPEAL ALSO FILED BY THE REVENUE. 41. THE GROUND OF APPEAL NO.4 CHALLENGES THE DECISION O F THE LD. CIT(A) IN DELETING THE ADDITION MADE ON ACCOUNT OF ACCRUED INTEREST IN RESPECT OF WORK DONE FOR ELECTRICAL ENGINEER, RURAL WORKS II, KEONJHAR. ON PERUSAL OF THE ASSESSMENT ORDER, IT IS CLEAR TH AT THE ASSESSING OFFICER BROUGHT TO TAX SUM OF A45,27,491/- RECEIVE D FROM ELECTRICAL ENGINEER, RURAL WORKS II, KEONJHAR AND SAME WAS OFF ERED TO TAX BY THE ASSESSEE IN SUCCEEDING ASSESSMENT YEAR I.E. 2014-15 . IT IS CONTENDED BEFORE THE ASSESSING OFFICER THAT INCOME HAD NOT AC CRUED AS NO BILL WAS RAISED AND THE DETAILS OF THE RECEIPTS WERE AWA ITED FROM PAYER AND THEREFORE NO INCOME WAS RECOGNIZED. ON APPEAL BEFOR E THE LD. CIT(A), LD. CIT(A) DELETED THE ADDITION CONSIDERING THE FA CT THAT INCOME WAS OFFERED TO TAX IN THE IMMEDIATE SUCCEEDING ASSESSME NT YEAR. NO DOUBT EACH ASSESSMENT YEAR IS A SEPARATE AND DISTIN CT UNIT OF ASSESSMENT BUT THE ASSESSING OFFICER HAD NOT BROUG HT ANY MATERIAL ON RECORD TO SHOW THAT INCOME HAD ACCRUED TO THE ASSE SSEE IN TERMS OF AGREEMENT OF CONTRACT. MERE RECEIPT OF MONEY DOES NOT CONSTITUTE INCOME AND THEREFORE WE CANNOT UPHOLD THE ADDITION TO INCOME. ACCORDINGLY, GROUND NO.4 FILED BY THE REVENUE STAND S DISMISSED. ITA NOS.2280-83 /2018 :- 49 -: 42. VIDE ITS GROUND NO.5, THE REVENUE CHALLENGES THE D ECISION OF THE LD. CIT(A) IN DELETING THE ADDITION MADE O N ACCOUNT OF SUBCONTRACTOR PAYMENT MADE TO M/S. PREEYA EARTHMOVE RS. ON PERUSAL OF THE ASSESSMENT ORDER, IT WOULD REVEAL THAT ASSES SING OFFICER MADE DISALLOWANCE OF SUBCONTRACTOR PAYMENT MADE TO M/S.P REEYA EARTHMOVERS OF A81,76,288/- PRIMARY ON THE GROUND T HAT SUBCONTRACTOR HAD NOT FILED RETURN OF INCOME. IT IS ALSO STATED THAT ASSESSEE HAD DISCHARGED ITS INITIAL ONUS BY FILING DETAILS SUCH AS NAME, ADDRESS, PAYMENTS DETAILS, COPIES OF INVOICES, BILLS RAISED ETC., ON APPEAL BEFORE THE LD. CIT(A) THE ADDITION DELETED THE ADD ITION BY HOLDING THAT MERE NON FILING OF RETURN BY THE SUB CONTRACTOR WOU LD NOT ITSELF CAN BE REASON TO DISALLOW THE PAYMENT. THE ASSESSING OFFI CER HAD NOT DISPUTED THE ACTUAL WORK DONE BY M/S. PREEYA EARTH MOVERS. THIS GROUND IS SIMILAR TO THE GROUND NO. 5 RAISED BY THE REVENUE FOR ASSESSMENT YEAR 2012-13 IN ITA NO.2281/CHNY/2018. W E HAVE ALREADY DELETED THE DISALLOWANCE IN PARA 26 ABOVE. ACCORDINGLY, WE DELETE THE GROUND NO.5 RAISED BY THE REVENUE. 43. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IN ITA NO.2282/CHNY/2018 FOR ASSESSMENT YEAR 2013-14 IS PA RTLY ALLOWED FOR STATISTICAL PURPOSE. ITA NOS.2280-83 /2018 :- 50 -: 44. NOW, WE TAKE UP APPEAL NO.2283/CHNY/2018 FOR ASSESS MENT YEAR 2014-2015 FOR ADJUDICATION. 45. THE REVENUE RAISED THE FOLLOWING GROUNDS OF APPEAL. 1. THE ORDER OF THE LD.CIT(A) IS CONTRARY TO THE PROVISIONS OF THE INCOME TAX ACT, RULES AND FACTS OF THE CASE. 2. THE ORDER OF THE LD.CIT(A) IS NOT CONSIDERED ACC EPTABLE AS THE ASSESSING OFFICER HAD GIVEN A CLEAR FINDING THA T THE PAYMENT MADE TO THE CONCERNED PARTIES ARE NOT JUSTI FIED IN VIEW OF THE FOLLOWING REASONS (A) BEARING ANY LOSS DUE TO QUALITY ASSURANCE IS NO T A CLAUSE IN THE CONTRACT AGREEMENT. (B) WHEN THE BENEFIT ON SALES ARE MORE FOR THE MINE OWNER, WHY THE CLAIMS ON QUALITY NEED TO BE BORNE BY THE CONTRACTOR ALONE. (C) LOSS ON QUALITY ALLOWANCE NOT PASSED TO SUB-CON TRACTORS. (D) FOREGOING ALMOST THE SAME RATE RECEIVED AS A CO NTRACTOR AS AN EXPENDITURE ON QUALITY ALLOWANCE IS NOT A BEL IEVABLE EXPLANATION. (E) IT IS SEEN THAT MOST OF THE PAYMENTS MADE WERE AS ADVANCE TO A PARTY WHO HAS NO DIRECT BUSINESS DEALI NGS WITH THE ASSESSEE AND HUGE AMOUNTS ARE KEPT OUTSTAN DING IN THOSE CASES. THE LD.CIT(A) HAS ALSO TAKEN A VIEW THAT SIMILAR EX PENDITURE CLAIMED IN EARLIER YEARS WERE ACCEPTED BY THE DEPAR TMENT WHICH IS NOT TRUE, SINCE THE PRINCIPAL CIT HAS. ALR EADY SET ASIDE THE ASSESSMENT ORDER PASSED IN RESPECT OF THE AY 20 13-14 U/S 263 OF THE IT ACT TO THE AO IN ORDER TO CONSIDER TH E GENUINENESS OF SUCH PAYMENTS MADE. IN VIEW OF THE A BOVE, FURTHER APPEAL. 3. THE VIEW OF THE LD.CIT(A) IS NOT CORRECT IN AS M UCH AS THE CSR EXPENSES HAVE NOT BEEN PROVED TO HAVE BEEN INC URRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSIN ESS OF THE ASSESSEE. ITA NOS.2280-83 /2018 :- 51 -: 4. THE ORDER OF THE LD.CIT(A) IS NOT CONSIDERED ACC EPTABLE SINCE THE ASSESSING OFFICER HAD CLEARLY GIVEN A FINDING T HAT THE LEGAL EXPENSES WERE MET OUT FOR APPEARING IN SUPREME COUR T IN AN UNCONNECTED CASE OF T.N. GODAVARMAN THIRUMALPAD VS UNION OF INDIA, A PIL FILED AGAINST ILLEGAL MINING IN ODI SSA, THE OUTCOME OF WHICH WILL HAVE A DIRECT EFFECT ON THE MINE OWNERS ONLY AND THIS ASSESSEE BEING A RAISE IN CONTRACTOR IS ALSO HAVING BUSINESS OPERATIONS IN OTHER STATES LIKE ANDHRA PRA DESH, TAMILNADU ETC. ALSO, THE ADVERB WHOLLY IN THE PHR ASE LAID OUT OR EXPENDED FOR BUSINESS REFER TO THE QUANTUM OF E XPENDITURE. THE ADVERB EXCLUSIVELY HAS REFERENCE TO THE OBJEC T OR MOTIVE OF THE ACT BEHIND THE EXPENDITURE. UNLESS SUCH MOTI VE IS SOLELY FOR PROMOTING THE BUSINESS, THE EXPENDITURE WILL NO T QUALIFYING FOR DEDUCTION CIT VS T.S.HAJI MOOSA CO.(MADRAS) 153 ITR 422. MYSORE KIRLOSKER LTD VS CIT(KARNATAKA) 166 ITR VS 8 36. SIDDO MAL & SONS VS ITO(DELHI) 122 ITR 83. 5. THE LD.CIT(A)S DECISION ON THE DISALLOWANCES MA DE U/S 14A IS NOT ACCEPTED, SINCE THE ASSESSING OFFICER HAD ON LY MADE THE DISALLOWANCES AS PER PROVISIONS OF RULE 8D OF INCOM E TAX RULES AS PER THE CBDT CIRCULAR NO.5/20 14, DATED 11.02.20 14 6. IN VIEW OF THE FACTS AND CIRCUMSTANCES, SINCE MO NETARY LIMIT I.E. RS.26,48,97,183/- EXCEEDS THE PRESCRIBED LIMIT AS PER THE BOARDS CIRCULAR NO.3/20 18 IN F NO.279/MISC. 142/ 2007-ITJ (PT.), SECOND APPEAL IS SUGGESTED ON THIS ISSUE. 46. T HE RETURN OF INCOME FOR THE AY 2014-15 WAS FILED ELECTRONICALLY ON 29.09.2014 DISCLOSING TOTAL INCO ME OF RS.191,05,21,190/- UNDER NORMAL PROVISIONS AND BO OK PROFIT OF 193,27,18,841/- UNDER THE PROVISIONS OF SECTION 11 5JB OF THE ACT. AGAINST THE SAID RETURN OF INCOME, THE ASSESSMENT W AS COMPLETED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE SALEM ( HEREINAFTER CALLED AS ASSESSING OFFICER ) VIDE ORDER DATED 29.12.2016 PASSED U/S. 143(3) OF THE INCOME TAX A CT, 1961 (FOR SHORT ITA NOS.2280-83 /2018 :- 52 -: THE ACT) AT TOTAL INCOME OF RS. 248,97,78,690/-, WHILE DOING SO, THE ASSESSING OFFICER MADE THE FOLLOWING ADDITIONS/ DIS ALLOWANCES. (I) DISALLOWANCE ON QUALITY ALLOWANCE 44,54,80,402 (II) DISALLOWANCE OUT OF CSR EXPENSES 3,90,49,461 (III) DISALLOWANCE U/S.37(1) 10,77,65,497 (IV) DISALLOWANCE OF LEGAL EXPENSES 1,06,60,000 (V) DISALLOWANCE U/S.14A R.W.RULE 8D 7,51,000 47. THE FACTUAL BACKGROUND OF THE ADDITIONS MADE ARE AS UNDER:- THE RESPONDENT - ASSESSEE MADE CLAIM FOR DEDUCTIO N OF QUALITY ALLOWANCE AND CLAIMS OF A44,91,60,000/-. T HIS EXPENDITURE REPRESENTS REBATE/DISCOUNT CLAIMED BY THE PARTIES WHO PURCHASED IRON ORE, IF THE QUALITY OF ORE IS NOT UP TO THE GRADE. ASSESSEE ALSO FURNISHED COPIES OF DEBIT NOTES RAISED BY THE PARTI ES I.E. M/S. SHYAM SEL & POWER LTD AND M/S.SHYAM METTALLICS & ENERGY L TD. ON VERIFICATION OF THE DEBIT NOTES, THE ASSESSING OFFI CER FOUND THAT THE CLAIMS WERE MADE AGAINST ASSESSEE COMPANY AGAINST P URCHASE OF ORES FROM M/S.SIRAJUDDHIN & CO AND INDRANI PATNAIK. THE ASSESSING OFFICER TAKING NOTE OF THE FACT THAT RESPONDENT - ASSESSEE IS ONLY RAISING CONTRACTOR AND DOING MINING FOR THE MINE OWNERS W HO HAD TAKEN THE MINES ON LEASE AND THE WORKS WAS AWARDED BY MINE WO RKERS IN TERMS OF WRITTEN AGREEMENT ENTERED BETWEEN BOTH PARTIES. CONSIDERING THE SCOPE OF WORK GIVEN IN THE AGREEMENT, THE ASSESSING OFFICER CONCLUDED ITA NOS.2280-83 /2018 :- 53 -: THAT IN THE ABSENCE OF ANY SPECIFIC CLAUSE IN THE A GREEMENT BETWEEN ASSESSEE COMPANY AND LICENSEE, THERE IS NO LIABILIT Y ON THE PART OF THE ASSESSEE COMPANY TO PAY ANY PENALTY ON ACCOUNT OF L OW GRADE ORES. REPRESENTATIVES OF THE MINE OWNERS ARE ALONE RESPON SIBLE TO ENSURE QUALITY OF THE GRADE OF THE FINISHED PRODUCTS AND SUBCONTRACTOR IS NOT ENTITLED FOR PAYMENT IF LOW GRADE ORE IS RAISED FO R WHICH BUYERS ARE NOT AVAILABLE FOR RAISING CONTRACTOR. CONSIDERING THE ABOVE FACTS, THE ASSESSING OFFICER CONCLUDED AS UNDER:- FROM THE ABOVE SAID CLAUSES THE ASSESSEE COMPANY, RATHER THE RAISING CONTRACTOR IS NOT AT ANY KIND OF RISK W ITH RESPECT TO THE QUALITY OF ORE MINED. IF THE ORES MINED BY T HE SUB- CONTRACTOR IS OF LOW GRADE, ASSESSEE COMPANY NEED N OT PAY THE SUB CONTRACTORS. IF THE ORE MINED BY THE ASSESS EE COMPANY IS OF LOW GRADE, IT HAS ONLY TO BE REPROCES SED FOR IMPROVING THE QUALITY OF THE FINISHED PRODUCT. THER EFORE, ONCE THE ORES ARE DISPATCHED FROM THE MINE, IT IS C ONSIDERED TO BE OF PROPER QUALITY. AFTER THE SALES BY THE MIN E OWNER THERE IS NO POSSIBILITY FOR THE PURCHASER TO RAISE A DEBIT NOTE ON THE ASSESSEE COMPANY. FIRST OF ALL THERE IS NO D IRECT LINK BETWEEN THE PURCHASER OF ORE AND THE ASSESSEE COMPA NY. IF THE GRADE OF ORE PURCHASED IS NOT UPTO THE MARK, TH E PURCHASER CAN RAISE A DEBIT NOTE ON THE MINE OWNER WHO HAD SOLD THE ORE AND NOT AGAINST THE RAISING CONTRACTOR . BASED ON THE FACTS, THE ASSESSING OFFICER HAD REQUI RED THE ASSESSEE TO EXPLAIN WHY THE SAME SHOULD NOT BE ALLOWED AS DEDUC TION, FOR WHICH DETAILED REPLY WAS FILED BY THE ASSESSEE WHICH IS R EPRODUCED BY THE ASSESSING OFFICER VIDE PAGES 5, 6 & 8 OF THE ASSESS MENT ORDER. THE EXPLANATION OFFERED BY THE ASSESSEE COMPANY IS THAT AGREEMENT BETWEEN MINE OWNERS AND ASSESSEE COMPANY IS SILENT AS REGARDS TO ITA NOS.2280-83 /2018 :- 54 -: THE LIABILITY ARISING OUT OF THE CLAIM FROM BUYER ON QUALITY ISSUE. AFTER MUTUAL DISCUSSION, IT WAS DECIDED THAT LIABILITY O F CLAIMS FROM BUYER SHOULD BE BORNE AND SETTLED BY THE RAISING CONTRACT OR I.E. ASSESSEE. CONSIDERING THE SUBMISSIONS, THE ASSESSING OFFICE R HELD THAT PAYMENTS MADE TO M/S. SHYAM SEL & POWER LTD AND M/ S.SHYAM METTALLICS & ENERGY LTD ARE NOT JUSTIFIED BY GIVING FOLLOWING REASONS. 1) BEARING ANY LOSS DUE TO QUALITY ASSURANCE IS NO T A CLAUSE IN THE CONTRACT AGREEMENT OR WORK ORDER WITH THE MINE OWNER. 2) WHEN THE BENEFIT ON SALES ARE MORE FOR THE MINE OWNER, WHY THE CLAIMS ON QUALITY SHOULD BE BORNE BY THE CO NTRACTOR ALONE. 3) LOSS ON QUALITY ALLOWANCE IS NOT PASSED ON TO TH E SUB CONTRACTORS ALSO. 4) THE ASSESSEE COMPANY BEING A MERE CONTRACTOR WAS GETTING FIXED RATES OF ABOUT RS. 1300/- TO 1500/- FOR LUMPS AND RS.200/- TO RS.350/- FOR FINES. FORGOING ALMOST THE SAME RATE AS QUALITY ALLOWANCE BY THE CONTRACTOR ISSOMETHING UNBELIEVABLE. 5) NATURE OF TRANSACTIONS AS DISCUSSED IN THE ABOVE CASES AND AS NOTICED IN THEIR LEDGER COPIES DOESNT SEEMS TO BE LIKE QUALITY ALLOWANCE AS CLAIMED BY THE ASSESSEE AS M OST OF THE PAYMENTS WERE MADE IN ADVANCE TO A PARTY WHO HAS NO DIRECT BUSINESS TRANSACTION WITH THE ASSESSEE AND HUGE AMO UNTS WERE KEPT OUTSTANDING ALSO IN THOSE CASES. AND ACCORDINGLY DISALLOWED THE SUM OF A44,54,80,402 /-. 48. ADDITION ON ACCOUNT OF 100% DEPRECIABLE ASSET. DUR ING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER CO NSIDERATION, ASSESSEE COMPANY MADE CLAIM FOR REDUCTION OF 100 % DEPRECIATION ITA NOS.2280-83 /2018 :- 55 -: ON THE MINES INTERNAL ROAD FOR A10,77,65,497/-. W ORK FOR LAYING ROAD WAS GIVEN TO ONE CONTRACTOR M/S. SIMPLEX PROJECT LT D, KOLKATA, WHO STATED IN RESPONSE TO NOTICE ISSUED U/S.133(6) OF T HE ACT THAT ROAD WORKS WAS DONE IN EARLIER YEARS AND CAPITALIZED. T HE ASSESSING OFFICER BASED ON THIS INFORMATION CONCLUDED THAT IT IS NOT TEMPORARY STRUCTURE AND HAS GOT AN ENDURING LIFE. SINCE CONTRACT ENTE RED BY THE ASSESSEE COMPANY WITH MINE OWNERS IS FOR LONG PERIOD, ACCORD INGLY, ASSESSEE WAS REQUIRED TO SHOW CAUSE HOW THE CLAIM CAN BE ALL OWED. IN RESPONSE TO THE SAME, ASSESSEE SUBMITTED AS UNDER:- WE HAVE INCURRED EXPENDITURE ON INTERNAL ROAD LAYI NG WORK AT THE BALDA BLOCK MINES OF SERAJUDHIN & CO AND AT UNCHABALLI MINES OF INDRANI PATNAIK. THESE INTERNAL ROADS ARE LAID WITH CARTING OF EXCAVATED EARTH AND LAYING IN 6 OR 8 INCHES THICK LAYER OF EXCAVATED EARTH, CONSOLIDATIO N USING ROAD ROLLER, EVENLY SPREADING, WATERING AND COMPACT ING FOR VEHICLE USE FROM MINES TO OFFICE, MINES TO WEIGHBRI DGE AND MINES TO STAFF QUARTERS! CANTEEN. THE TEMPORARY ROADS HAVE BEEN LAID WITHIN THE MINES OWNED BY THE MINE OWNED BY THE MINE OWNERS M/S.SERAJUDHIN & CO. AND INDRANI PATNAIK. THESE TEMPORARY MINE HAUL ROADS ARE LAID WITH EXCAVATED EARTH AND ARE NOT CONCRETE OR TAR ROADS. SUCH ROADS ARE LAID DOWN MAINLY FOR HAULING PURPOSES BY DUMPERS, LOADERS, MINING EQUIPMENTS AND JEEPS. B Y MAINTAINING GOOD ROADS, BOTH TRUCK AND EQUIPMENT MAINTENANCE WILL BE KEPT TO MINIMUM RESULTING IN RE DUCED MINING COST. BESIDES THE TEMPORARY NATURE OF ROAD, THESE ARE LAID ON LAND OWNED BY THE MINE OWNERS FOR USE BY OU R COMPANY. BY INCURRING THE EXPENDITURE FOR LAYING OF TEMPORARY ROADS, OUR COMPANY GOT THE BUSINESS ADVAN TAGE OF USING IT.... ASSESSEE HAS RELIED ON THE SUPREME COURT JUDGEMENT IN THE CASE OF L.H.SUGAR FACTORY & OIL MILLS (P) LTD. VS. CIT 125 ITR 293. IN THIS PARTICULAR CASE, THE ASSESSEE WAS CARR YING ON THE ITA NOS.2280-83 /2018 :- 56 -: BUSINESS OF MANUFACTURE AND SALE OF SUGAR. IT HAD I TS FACTORY IN UP. THE ASSESSEE PAID A CONTRIBUTION TOWARDS MEETIN G THE COST OF CONSTRUCTION OF ROADS IN THE AREA AROUND ITS FACTO RY UNDER A SUGARCANE DEVELOPMENT SCHEME. THE COURT HELD THAT, ALTHOUGH THE ADVANTAGE SECURED WAS OF LONGER DURATION, IT WA S NOT AN ADVANTAGE IN THE CAPITAL FIELD BECAUSE NO TANGIBLE OR INTANGIBLE ASSET WAS ACQUIRED BY THE ASSESSEE, NOR WAS THERE A NY ADDITION TO OR EXPANSION OF THE PROFIT MAKING APPARATUS OF THE ASSESSEE. THE AMOUNT WAS CONTRIBUTED FOR THE PURPOSE OF FACILITAT ING THE BUSINESS OF THE ASSESSEE AND MAKING IT MORE EFFICIE NT AND PROFITABLE. IT WAS THEREFORE, REVENUE EXPENDITURE . CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE AS SESSING OFFICER CONCLUDED THAT THE CLAIM OF THE ASSESSEE COMPANY FO R 100% DEPRECIATION ON TEMPORARY STRUCTURE CANNOT BE ACCE PTED AS THE ROAD IS CLASSIFIED AS BUILDING FOR DEPRECIATION PURPOSE THE ASSESSING OFFICER ALSO HELD THAT THE SAME CANNOT BE ALLOWED AS REVENU E EXPENDITURE FOR A REASON THAT THE BENEFIT OF THE EXPENDITURE IS FOR MINING OWNERS AND NOT ASSESSEE COMPANY. ACCORDINGLY DISALLOWED THE C LAIM OF THE ASSESSEE. AS REGARDS CSR EXPENDITURE, THE ASSESSIN G OFFICER DISALLOWED SUM OF A3,90,49,461/- OUT OF THE TOTAL CSR EXPENDITURE OF A7,59,10,000/-. THE PURPOSE OF INCURRING EXPENDITU RE WAS EXPLAINED BY THE ASSESSEE COMPANY BEFORE THE ASSESSING OFFICE R WHICH IS SET OUT BY THE ASSESSING OFFICER VIDE PAGE 13 OF THE ASSESS MENT ORDER. OUT OF THE ABOVE EXPENDITURE A SUM OF A3,90,49,461/- WAS DISALLOWED BY THE ASSESSING OFFICER ON ANALYSIS OF THE EXPENDITURE, I T IS FOUND THAT SPECIFICALLY IN THE FORM OF DONATIONS TO VARIOUS ORGANIZATION WHICH IS ELIGIBLE FOR DEDUCTION U/S.80G OF THE ACT. ITA NOS.2280-83 /2018 :- 57 -: 49. THE ASSESSING OFFICER ALSO DISALLOWED LEGAL EXPENSE S OF A.1,06,60,000/-. DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, THE ASSESSING OFFICER FOUND THAT SUM OF A1,06,60,000/- WAS INCURRED TOWARDS LEGAL FEES FOR ENGAGING LEGAL ADVOCATES TO APPEAR BEFORE HON'BLE SUPREME COURT ON BEHALF OF ASSESSEE IN PIL FILED AGAINST ILLEGAL MINING IN ODISHA. THE ASSESSING OFFICER WAS OF THE OPINION THAT OUTCOME OF THE PLI OF THE CASE HAS NO BEARING ON THE BUSINESS OF THE ASSESSEE COMPANY AND THEREFORE, HE FELT THAT THER E IS NO NECESSITY OF INCURRING LEGAL EXPENDITURE OF A1,06,60,000/-. 50. DISALLOWANCE U/S.14A OF THE ACT, THE ASSESSING OFFI CER MADE DISALLOWANCE UNDER CLAUSE (III) OF RULE 8D OF A7,51 ,000/- NOTICING THAT ASSESSEE HAD EARNED DIVIDEND INCOME OF A4.1 CRORES. 51. BEING AGGRIEVED BY THE ABOVE ADDITIONS, THE ASSESSE E FILED AN APPEAL BEFORE THE LD. CIT(A), WHO VIDE IMPUGNED ORDER DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION ON ACCOUNT OF QUALITY ALLOWANCE OF A44,54,80,402/-, CONSIDERING THE FACT THAT IN THE EARLIER YEARS SIMILAR EXPENDITURE WAS ALLOWED AND THE PAYM ENTS HAS BEEN MADE BY WAY OF BANKING CHANNELS. AS REGARDS TO THE CSR EXPENDITURE, THE LD. CIT(A) HAD RESTRICTED THE DISALLOWANCE TO 1 0% OF THE EXPENDITURE INCURRED IN CASH A3,90,49,461/-. AS R EGARDS TO THE DISALLOWANCE OF ROAD LYING EXPENDITURE, LD. CIT(A) DIRECTED THE ITA NOS.2280-83 /2018 :- 58 -: ASSESSING OFFICER TO ALLOW THE CLAIM AS REVENUE E XPENDITURE FOLLOWING THE DECISIONS OF HON'BLE SUPREME COURT IN THE CASES OF LASKHMIJI SUGAR MILLS CO. P. LTD VS. CIT, 82 ITR 376, CIT VS. KIRK END COAL CO, 77 ITR 530, JURISDICTIONAL HIGH COURT IN THE CASES OF CI T VS. COATS VIYELLA INDIA LTD 253 ITR 667 AND CIT VS. T.V. SUNDARAM IY ENGAR & SONS (P) LTD, 95 ITR 428, THE CIT(APPEALS) DELETED THE ADDIT IONS ON LEGAL EXPENSES AND DISALLOWANCE U/S.14A OF THE ACT. 52. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), TH E REVENUE IS IN APPEAL BEFORE US IN THE PRESENT APPEAL. LD. D EPARTMENTAL REPRESENTATIVE SUBMITTED THAT WITH REGARD TO QUALI TY ALLOWANCES AND CLAIMS IN THE ABSENCE OF CLAUSE IN THE AGREEMENT B ETWEEN THE ASSESSEE AND THE MINE OWNERS THERE IS NO LIABILITY ON THE PART OF THE ASSESSEE COMPANY TO PAY CLAIMS ARISING ON ACCOUNT O F THE QUALITY OF IRON ORES. HE FURTHER SUBMITTED THAT ONCE THE IRON ORE IS DISPATCHED FROM THE MINE, ORE IS CONSIDERED TO BE IN PROPER AN D GOOD QUALITY AND THERE IS NO POSSIBILITY OF RAISING ANY ISSUE AS TO THE QUALITY OF THE ORE AND THERE IS NO NECESSITY OF PAYING ANY DAMAGES ON ACCOUNT OF QUALITY ISSUES OF THE BUYERS OF THE MINES. HE FINA LLY SUBMITTED THAT IT WAS NOT EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND LD. CIT(A) OUGHT NOT HAVE ALLOWED THE CLAIM AS DEDUCTION. AS REGARDS TO THE CSR EXPENDITURE, HE SU BMITTED THAT CIT(APPEALS) OUGHT NOT HAVE DIRECTED THE ASSESSING OFFICER TO RESTRICT ITA NOS.2280-83 /2018 :- 59 -: 10% OF EXPENDITURE, INCURRED ON CASH. AS REGARDS TO THE DISALLOWANCE OF LEGAL FEES, HE SUBMITTED THAT THERE IS NO NECESS ITY OF INCURRING OF EXPENDITURE SINCE THE CASES WERE FILED AGAINST MIN E OWNERS. 53. PER CONTRA, LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT LIABILITY ON ACCOUNT OF QUALITY ALLOWANCES AND CLAI M FROM THE BUYERS ARE BORNE BY THE ASSESSEE COMPANY IN THE BUSINESS INTER EST OF THE ASSESSEE COMPANY IN ORDER TO CONTINUE BUSINESS RE LATIONSHIP WITH MINE OWNERS AND TO CONTINUITY OF MINE CONTRACTS. H E FURTHER SUBMITTED THAT ASSESSEE COMPANY INCURRED HEAVY RAISING COST AND LOT OF WORKING CAPITAL IS LOCKED UP IN THE BUSINESS. UNLESS AND OT HERWISE ORE RAISED IS SOLD IMMEDIATELY, ASSESSEE COMPANY COULD NOT BE IN A POSITION TO CLAIM THE BILLS FROM THE MINE OWNERS. HE FURTHER SUBMITT ED THAT THE ASSESSING OFFICER HAD NOT QUESTIONED THE GENUINENES S OF THE TRANSACTION AND THE PAYMENTS WERE MADE WHOLLY AND E XCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THE SAME SHOULD BE ALLO WED AS DEDUCTION ON THE GROUND OF COMMERCIAL EXPEDIENCY. HE PLACED RELIANCE ON THE DECISIONS OF HON'BLE SUPREME COURT IN THE CASES OF S.A. BUILDERS LTD (SUPRA), HERO CYCLES (P) LTD VS CIT, (SUPRA) AND S ASSOON J. DAVID & CO P LTD (SURPRA). AS REGARDS TO LEGAL EXPENSES , IT IS SUBMITTED THAT THE ASSESSEE COMPANY RECEIVED NOTICE FROM M.B. SHAH COMMISSION WHICH WAS SET UP FOR INQUIRING INTO ILLEGAL MINING CASE IN VARIOUS STATES. IT IS FURTHER SUBMITTED THAT ASSESSEE COMP ANY IS A MEMBER OF ITA NOS.2280-83 /2018 :- 60 -: FIMI, AN ASSOCIATION OF MINING INDUSTRIES ALSO PART ICIPATED IN THE HEARINGS IN THE BUSINESS INTERESTS OF ITS MEMBERS WHICH IN TURN DISTRIBUTED THE EXPENSES AMONG ITS MEMBERS. EXPEND ITURE IS INCURRED ONLY TO PROTECT THE BUSINESS INTEREST OF THE ASSESS EE AND THE SAME SHOULD BE ALLOWED AS DEDUCTION. HE PLACED RELIANCE ON THE DECISIONS OF HON'BLE SUPREME COURT IN THE CASES OF S.A. BUILDERS LTD (SUPRA), HERO CYCLES (P) LTD VS CIT, (SUPRA) AND SASSOON J. DAVI D & CO P LTD (SURPRA). AS REGARDS TO CSR EXPENDITURE AND SECTIO N 14A OF THE ACT DISALLOWANCE, HE REITERATED THE SAME SUBMISSIONS MA DE IN ASSESSMENT YEAR 2012-13. 54. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL ON RECORD. THE GROUNDS OF APPEAL NO.1 & 6 ARE GENERAL IN NATURE THEREFORE DOES NOT REQUIRE ANY ADJUDICATION. 55. GROUND NO.2 CHALLENGES THE DECISION OF THE LD. CIT (A) ALLOWING THE CLAIMS ON QUALITY FROM THE BUYERS OF T HE ORE OF A44,54,80,402/-. THE ASSESSING OFFICER DISALLOWED QUALITY ALLOWANCES AND CLAIMS PRIMARILY FOR THE FOLLOWING REASONS. (I) THERE IS NO AGREEMENT BETWEEN ASSESSEE COMPANY AND THE MINE OWNERS TO BEAR THE QUALITY ITA NOS.2280-83 /2018 :- 61 -: ALLOWANCES AND CLAIMS IN CASE OF MINING LOW GRADE ORES. (II) MINE OWNERS ONLY DO SAMPLING OF ORE AT CRUSHING AND SCREENING PLANT AS WELL AS AT THE POINT OF DISPATCH. ASSESSEE COMPANY BEING CONTRACTOR MAY HAVE TO FUR THER PROCESS ANY PRODUCE IF DESIRED BY THE MINE OWNERS FOR THE PURPO SE OF IMPROVING THE QUALITY OF THE MINES ORES. ADMITTEDLY, THERE IS NO CLAUSE IN THE AGREEMENT BETWEEN ASSESSEE COMPANY AND MINE OWNERS REGARDING WHO HAS TO BEAR THE LIABILITY OF THE CLAIMS FROM TH E BUYERS OF THE ORE ON ACCOUNT OF LOW GRADE ORE ETC., THERE IS NO PROX IMATE CONNECTION BETWEEN ASSESSEE COMPANY AND THE BUYERS OF THE ORE . THE REASONS AS TO WHY LIABILITY OF THE CLAIM IS BORNE BY THE AS SESSEE COMPANY IS EXPLAINED BEFORE THE ASSESSING OFFICER AS UNDER:- THE FOLLOWING ARE THE FOUR MAJOR PAYMENTS WHICH REL ATE TO THE IRON ORE MINING OPERATION. THE OTHER PAYMENTS MAINLY REL ATE TO COAL TRADING AND AGGREGATE DIVISION. SL.NO NAME OF THE PARTY TO WHOM PAID AMOUNT 1 SHYAMMETALICSAND ENERGYLTD 16,54,50,411 2 SHYAMSEL&POWERLTD L7,61,51,327 3 BAITLOGITECH PVT. LTD 3,16,10,248 ITA NOS.2280-83 /2018 :- 62 -: 4 BHUSHAN POWER &STEEL LTD 7,22,68,416 TOTAL 44,54,80,402 OUR COMPANY IS A CONTRACTOR ENGAGED MAINLY IN PROVI DING IRON ORE MINES DEVELOPMENT AND OPERATION SERVICES TO THE PRI VATE MINE OWNERS. IN THIS REGARD, WE HAD SUBMITTED THE WORK O RDERS ISSUED BY THE VARIOUS MINE OWNERS. THOUGH THE WORK ORDERS ISS UED BY THE MINE OWNERS DID NOT HAVE ANY SPECIFIC CLAUSE ON QUA LITY ALLOWANCE, SUBSEQUENTLY AFTER MUTUAL DISCUSSION THE MINE OWNER S HAVE ORALLY STATED THAT ANY CLAIMS FROM THE BUYERS ARISING OUT OF QUALITY ISSUES SHALL BE BORNE/SETTLED BY RAISING CONTRACTOR. THE CONTRACT REVENUE FOR OUR COMPANY AS MUTUALLY AG REED WITH THE MINE OWNERS IS EITHER AFFIXED PERCENTAGE OF THE SAL E PRICE OF THE ORE OR FIXED RATE PER METRIC TON AS SPECIFIED IN THE WO RK ORDER. SUCH REVENUE RATES AWARDED TO OUR COMPANY ARE COMPARATIV ELY HIGHER AND RESULT IN MUCH BETTER REALIZATION PER MT AS COM PARED TO RATES AWARDED BY OTHER ENTITIES NAMELY ODISHA MINING CORP ORATION, A STATE GOVT. UNDERTAKING. THE RATES ARE AGREED UPON TO COM PENSATE THE CONSIDERABLE RISK INVOLVED, THE TOTALITY OF THE SER VICES OF AN END TO END NATURE OF WORK, SCIENTIFIC MINING WITH STATE OF THE ART MINING EQUIPMENT AND MAXIMIZING THE RETURNS BY OPTIMIZING PRODUCTIVITY. AFTER MUTUAL DISCUSSION IT WAS AGREED BETWEEN THE M INE OWNER AND THE CONTRACTOR THAT ANY COMPENSATION ARISING OUT OF QUALITY ISSUES SHALL BE BORNE BY THE CONTRACTOR AND HAS TO BE MUTU ALLY SETTLED BY THE BUYER AND THE CONTRACTOR. CONTRACTOR HAS AGREED UPON TO BEAR THE COST OF COMPENSATION IN VIEW OF THE HIGHER PRIC E AWARDED AND TO CONTINUE THE FUTURE BUSINESS RELATIONSHIP WITH THE MINE OWNER. THIS IS PURELY A COMMERCIAL DECISION TAKEN BY THE CONTRA CTOR COMPLETELY WEIGHING THE PROS AND CONS OF THE PROPOSAL AND FOR THE BETTERMENT OF RELATION WITH MINE OWNER AND CONTINUITY OF BUSIN ESS. THE COST OF COMPENSATION BORNE BY THE CONTRACTOR HAS ULTIMATELY BEEN PASSED ON TO THE BUYER. THIS HAS GOT CLOSE NEXUS WITH THE BUS INESS CARRIED ON BY THE ASSESSEE AND BEING REVENUE IN NATURE, RIGHTL Y ALLOWABLE UNDER SECTION 3 7(1) OF THE INCOME TAX ACT. LINK BETWEEN THE PURCHASER AND THE RAISING CONTRA CTOR: WITH REGARD TO THE AOS OBSERVATION THAT THERE IS N O DIRECT LINK BETWEEN THE PURCHASER OF ORE AND ASSESSEE COMPANY, WE SUBMIT THAT OWING TO THE NATURE OF OPERATION CARRIED OUT B Y THE CONTRACTOR AND AS PER THE COMMERCIAL ARRANGEMENT WITH THE MINE OWNER, THE ITA NOS.2280-83 /2018 :- 63 -: QUALITY ALLOWANCE/ CLAIM EXPENDITURE HAS BEEN BOR NE BY THE CONTRACTOR. ON ALL MATERIAL DISPATCHED ARE OF HOOD QUALITY ON LY: WITH REGARD TO AO S OBSERVATION THAT F THE ORE MIN ED BY ASSESSEE COMPANY IS OF LOW GRADE, IT HAS TO BE ONLY REPROCES SED FOR IMPROVING THE QUALITY AND ONCE, ORE IS DISPATCHED FROM MINES, IT IS CONSIDERED OF GOOD QUALITY, WE BEG TO DIFFER. WE SUBMIT THAT M INE OWNERS REPRESENTATIVE DOES ONLY SAMPLING OF THE ORE FOR QU ALITY, AT THE CRUSHING OR SCREENING PLANT AT THE MINES AND WITH L ARGE QUANTITIES OF ORE BEING PROCESSED AND DISPATCHED, IT WOULD NOT BE POSSIBLE TO ENSURE ENTIRE MATERIAL SENT CONFIRMS TO SPECIFICATI ONS. SUBSEQUENTLY AFTER THE MATERIAL IS DISPATCHED, THE BUYER IF NOT SATISFIED WITH THE QUALITY OF THE PROCESSED IRON ORE, IS ENTITLED TO R AISE THE SAME. THE QUALITY ALLOWANCE! CLAIM IS MADE BY THE BUYER AFTER THE RECEIPT OF THE MATERIAL AT HIS PLACE. IT WOULD NOT BE POSSIBLE TO TRANSPORT SUCH MATERIAL BACK TO THE MINES FOR REPROCESSING. SUCH M OVE WOULD NEGATE ANY COST ADVANTAGE OF THE PRICE OF THE ORE. THE CLAUSE ON REPROCESSING OF ORE WOULD OCCUR AND BE APPLICABLE ONLY WHERE THE MATERIAL REMAINS AT THE MINES OR MIN E STOCK YARD AND NOT WHEN DISPATCH HAS OCCURRED TO THE BUYER. FURTHE R, IN RESPECT OF THE WORK ORDER ISSUED BY OUR COMPANY TO SUB CONTRAC TORS ENGAGED BY US, THE CLAUSE IN THE CONTRACT SUB CONTRACTOR S HALL NOT BE ENTITLED FOR PAYMENT IF LOW GRADE ORE RAISED OR ACCUMULATED AND REMAIN UNSOLD, WE SUBMIT THAT THIS CLAUSE IS APPLICABLE O NLY WHEN THE LOW GRADE MATERIAL REMAINS UNSOLD. WHEREAS IN THE CASE OF QUALITY ALLOWANCE CLAIMED BY US, THE MATERIAL HAS BEEN DISP ATCHED TO THE BUYER WHO HAS IN TURN RAISED DEBIT NOTES ON OUR COM PANY. ON REBATE CHARGED BEING EQUIVALENT TO RATE PAID F OR ORE: THE MINE OWNER SELLS THE PROCESSED IRON ORE 5-18, 1 0-30 AND FINES MATERIAL TO THE BUYER AT MUTUALLY AGREED MARKET RAT ES AS PER THE PURCHASE ORDER ISSUED BY THE BUYER. AS ALREADY STAT ED, OWING TO THE NATURE OF OPERATION AND SERVICES RENDERED BY THE CO NTRACTOR, IT HAS BEEN AGREED THAT ANY QUALITY ISSUES OR CLAIM OR ALL OWANCE RELATING TO THE PROCESSED ORE SHALL BE BORNE AND SETTLED BY THE CONTRACTOR. AS FAR AS THE BUYER IS CONCERNED, ANY QUALITY ALLOWANC E OR CLAIM SHALL BE RELATING TO THE TOTAL PRICE PAID BY HIM FOR THE MAT ERIAL. GENERALLY, THE SALE PRICE OF 5-18 IS AROUND RS.5500/ PER MT AND RS .1600 TO 1800/PER MT FOR FINES. THE BUYER IS NOT CONCERNED A BOUT THE RATE OR THE PRICE WHICH THE CONTRACTOR GETS. THE QUALITY AL LOWANCE PAID, AMOUNTS TO AROUND 20% OF THE TOTAL SALE PRICE OF TH E ORE. WE ARE SUBMITTING FEW COPIES OF THE PURCHASE ORDER ISSUED BY THE BUYER TO MINE OWNER (ANNEXURE-I) WHICH CONTAINS THE QUANTITY AND RATE ITA NOS.2280-83 /2018 :- 64 -: AGREED IN THE CASE OF 1)SHYAM METALICS AND 2) SHYAM POWER SEL LTD. WE SUBMIT THAT THE COMPARISON OF REBATE ON ACCOUNT OF QUALITY ALLOWANCE TO WHAT THE CONTRACTOR GETS WOULD NOT BE APPROPRIATE TO THE INSTANT CASE. PAYMENTS MADE TO A) SHYAM METALICS AND ENERGY LTD. AND B) SHYAM SEL &POWER LTD . WE SUBMIT COPIES OF STATEMENT RECEIVED FROM SHYAM M ETALLICS & ENERGY LTD. FOR THE PERIOD 2013-1 4 WHICH CONFIRMS THE QUALITY ALLOWANCE RECEIVED BY THEM PAYMENTS TO BHUSAN STEEL & POWER LTD: RS. 7,22,68 ,416/- IN RESPECT OF PAYMENTS MADE TO BHUSAN STEEL &POWER LTD. WE HAVE ENCLOSED COPIES OF ALL THE DEBIT NOTES ISSUED BY TH E PARTY. THE REBATE IN THE CASE OF BHUSAN STEEL &POWER LTD. AMOUNTED TO RS. 105/- PER METRIC TON. BAIT LOGITECH PRIVATE LIMITED: RS.3,16,1O,248/- OUR COMPANY HAD ENTERED INTO AN MOU WITH M/S.BAIT L OGITECH PRIVATE LIMITED TO FACILITATE BLPL TO PARTICIPATE I N A OPEN TENDER (COPY ENCLOSED- ANNEXURE 3) FOR SUPPLY OF IRON ORE FINES FOR 3.53 LAKH MT BY MMTC LTD. TO THE INTEGRATED STEEL PLANT AT NE LACHAL ISPTAT NIGAM LTD. UNDER THE ARRANGEMENT, IF THE BLPL IS AW ARDED THE CONTRACT FOR IRON ORE FINES SUPPLY, IT SHALL FLFL T HE FINES MATERIAL THAT IS ACCUMULATED AND HELD AT THE SERAJUDDIN &CO. BALDA M INES. OUR COMPANY HAD ENTERED WITH SUCH AN ARRANGEMENT WITH B LPL TO ENSURE THAT FINES STOCK OF SERAJUDDIN &CO. IS DISPO SED AND IN THE PROCESS STAND TO BENEFIT FROM GETTING ITS RAISING CONTRACT CHARGES FOR FINES MATERIAL DISPATCHED. UNDER THE MOU, OUR COMPA NY AGREED TO PAY RS.50 LAKH FOR THE ARRANGEMENT AND SERVICES REN DERED BY BLPL. OUR COMPANY AGREED TO BEAR DIFFERENTIAL PRICE BETWE EN THE PURCHASE PRICE OF BLPL AND THE TENDER AWARDED RATE. BESIDES, TEMPL AGREED TO BEAR ANY PUNITIVE CHARGES, TERMINAL CHARGES, DEA D FREIGHT AND DEMURRAGE CHARGES LEVIED BY MIVITL ON THE SAID SUPP LY OF IRON ORE FINES.PURSUANT TO THE TENDER, MMTC LTD. ISSUED AN O RDER FOR SUPPLY OF IRON ORE FINES TO BLPL FOR 176160 MT UNDER THIS BUSINESS ARRANGEMENT, BLPL PURCHASED IRON ORE FINES OF 176160 MT FROM SERAJUDDIN & CO AND SUPPLIED TO NINL OVER A PERIOD OF THREE MONTHS PLUS APRIL TO JULY,2013. ON COMPLET ION OF THE SUPPLIES,BLPL RAISED FOLLOWING DEBIT NOTES ( )FOR T HE DIFFERENTIAL PRICE AS LISTED BELOW: ITA NOS.2280-83 /2018 :- 65 -: SL.NO. DEBIT NOTE NO. DEBIT NOTE DATE DESCRIPTION OTY IN MT AMOUNT A 1 2 31.01.2014 DIFFERENTIAL 176160 1,46,01,886 2 3 28.02.2014 PRICE ON 1,07,97,962 3 4 31.03.2014 PURCHASE AND SALES 62,10,400 TOTAL 3,16,10,248 OUR COMPANY HAD ACCOUNTED THE ABOVE LOSS UNDER TH E HEAD QUALITY ALLOWANCES & CLAIMS. THE PRICE DIFFERENTIAL PER MT WORKS OUT TO AROUND 180/- PER MT. ON THE OTHER HAND OUR COMPANY HAD REALIZED ITS SHARE OF REVENUE FOR RAISING WORK OFFINES AT AR OUND RS. 780/- TO 820/- PER MT WE SUBMIT THE QUALITY ALLOWANCE EXPENDITURE HAS A D IRECT NEXUS WITH THE BUSINESS CARRIED ON BY THE ASSESSEE AND BEING R EVENUE IN NATURE RIGHTLY ALLOWABLE UNDER SECTION 3 7(1) OF THE INCOM E TAX ACT FOR THE FOLLOWING REASONS: A) IT IS DIRECTLY RELATED TO THE BUSINESS OF THE AS SESSEE B) OWING TO THE NATURE OF OPERATION WHEREBY ENTIRE WORK OF MINING, HAULING AND PROCESSING IS DONE BY THE CONTRACTOR. C) IS AS PER MUTUALLY AGREED COMMERCIAL TERMS D) THE PRACTICE OF QUALITY ALLOWANCE PAYMENT HAS BE EN IN VOGUE IN EARLIER PERIODS E) THE HIGHER CONTRACT PRICE PER MT AWARDED/RATE LI NKED TO SALE PRICE OF ORE TO THE CON TRACTOR VIS A VIS OTHER SIMILAR C ONTRACTS OF STATE GOVT. UNDERTAKING SUPPORTS AND JUSTFLES THE QUALITY ALLOWANCE BEING BORNE BY THE CONTRACTOR. F) THE COST OF QUALITY CLAIM BORNE BY THE CONTRACTO R HAS ULTIMATELY BEEN PASSED ON TO THE BUYER. ITA NOS.2280-83 /2018 :- 66 -: MORE IMPORTANTLY, THE ASSESSING OFFICER HAD NOT DOU BTED THE GENUINENESS OF THE EXPENDITURE. THE ASSESSING OFFI CER IS ONLY QUESTIONING THE NECESSITY OF THE EXPENDITURE. IN T HE BACKDROP OF THE FACT THAT THERE IS NO CLAUSE IN THE AGREEMENT BETWE EN ASSESSEE COMPANY AND THE MINE OWNERS TO BEAR THE LIABILITY O F CLAIM OF BUYERS OF THE ORES. THE CIRCUMSTANCES UNDER WHICH EXPEND ITURE WAS INCURRED BY THE ASSESSEE COMPANY BEFORE ASSESSING OFFICER AS WELL A LD. CIT(A) STATING THAT EXPEDITION DISPOSAL OF THE ORE AND R EALIZATION THEREOF WOULD BENEFIT THE ASSESSEE COMPANY IN THE FORM OF L OWER WORKING CAPITAL AND THE CONTINUOUS BUSINESS RELATIONSHIP W ITH MINE OWNERS AND HIGHER REVENUE FROM THE CONTRACT COMPARED TO THE M ARKET RATES ETC., SUBMISSIONS MADE BY THE ASSESSEE COMPANY REMAIN UN CONTROVERTED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER HAD ALSO NOT QUESTIONED THE GENUINENESS OF THE EXPENDITURE BUT D ISALLOWANCE WAS MADE BY THE ASSESSING OFFICER QUESTIONING THE NECES SITY OF THE EXPENDITURE. NOW, IT IS SETTLED POSITION OF LAW TH AT IT IS NOT FOR THE ASSESSING OFFICER TO DICTATE THE ASSESSEE AS TO HOW THE ASSESSEE SHOULD CONDUCT HIS BUSINESS AND IT IS NOT FOR HIM TO TELL THE ASSESSEE ON WHAT EXPENDITURE ASSESSEE CAN INCUR. THE HON'B LE SUPREME COURT IN THE CASE OF EASTERN INVESTMENTS LTD VS. CIT, 20 ITR 1 HELD THAT IT IS NOT NECESSARY TO SHOW EXPENDITURE WAS PROFITABLE OR IN FACT ANY PROFIT WAS EARNED. THE RELEVANT PARA IS AS UNDER:- ITA NOS.2280-83 /2018 :- 67 -: (4) THAT THE TRANSACTION W AS MORE IN THE INTEREST OF THE SHAREHOLDER SCOTT THAN THAT OF THE COMPANY. THE DECISION OF THIS APPEAL RESTS ON THE TRUE CONST RUCTION OF SECTION 12(2). IN OUR OPINION, THE LAW ON THIS POINT HAS BE EN CORRECTLY SUMMARISED IN THE JUDGMENT OF THE HIGH COUR T. THE FOLLOWING PRINCIPLES ARE RELEVANT: (A) THOUGH THE QUESTION MUST BE DECIDED ON THE FACTS OF EACH CASE THE FINAL CONCLUSION IS ONE OF LAW: INDIAN RADIO & CABLE COMMUNI CATION LTD. V. THE COMMISSIONER OF INCOME- TAX, BOMBAY [1937] 5 ITR 270 PC, AND TATA HYDRO- ELECTRIC AGENCIES LTD. V. THE COMMISSIONER OF INCOME- TAX, BOMBAY [1937] 5 ITR 202 PC; (B) IT IS NOT NECESSARY TO SHOW THAT THE EXPENDITURE WA S A PROFITABLE ONE OR THAT IN FACT ANY PROFIT WAS EARNE D : MOORE V. STEWARTS AND LLOYDS [1906] 6 TAX CAS. 501AND USHER'S CASE [1915] AC 433; (C) IT IS ENOUGH TO SHOW THAT THE M ONEY WAS EXPENDED 'NOT OF NECESSITY AND WITH A VIEW TO A DIRECT AND IMMEDIATE BENEFIT TO THE TRADE, BUT VOLUNTARILY AND ON THE GROUND OF COM MERCIAL EXPEDIENCY, AND IN ORDER INDIRECTLY TO FACILITATE T HE CARRYING ON OF THE BUSINESS'. 13 BRITISH INSULATED AND HELSBY CABLES LTD. V. ATHERTONH [1926] AC 205; AND ( D ) BEYOND THAT NO HARD AND FAST RULE CAN BE LAID DOWN TO EXPLAIN WHAT IS MEANT BY THE WORD 'SOLELY '. FURTHER, SUBSEQUENTLY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. WALCHAND AND CO. PVT LTD, 65 ITR 381 HAD HELD T HAT WHILE APPLYING THE TEST OF COMMERCIAL EXPEDIENCY WHETHER THE EXPEN DITURE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF BUSINES S, REASONABLENESS OF THE EXPENDITURE HAS TO BE JUDGED FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT OF THE REVENUE. IT IS FURTHER OBSERVED THAT THE ITA NOS.2280-83 /2018 :- 68 -: RULE THAT EXPENDITURE CAN ONLY BE JUSTIFIED IF THER E IS CORRESPONDING INCREASE IN THE PROFITS IS ERRONEOUS. IN THE CASE OF SASSOON J. DAVID AND CO. PVT. LTD. V. CIT [1979] 118 ITR 261 (SC), THE SUPREME COURT AFTER REFERRING TO THE LEGISLATIVE HISTORY HELD THA T ASSESSING OFFICER CANNOT QUESTION THE NECESSITY OF THE EXPENDITURE NO R IS THAT NECESSARY FOR THE ASSESSEE TO SHOW THAT ANY EXPENDITURE INC URRED BY THE ASSESSEE FOR THE PURPOSE OF BUSINESS CARRIED ON BY HIM HAS ACTUALLY RESULTED IN PROFIT OR INCOME EITHER IN THE SAME YEA R OR IN ANY OF THE SUBSEQUENT YEARS. THE ONLY CONDITION IS THAT THE EX PENDITURE SHOULD HAVE BEEN INCURRED 'WHOLLY AND EXCLUSIVELY' FOR THE PURPOSE OF BUSINESS. THE RELEVANT PARA IS REPRODUCED HEREUNDER :- 20 IT HAS TO BE OBSERVED HERE THAT TH E EXPRESSION 'WHOLLY AND EXCLUSIVELY' USED IN SECTION 10(2)(XV) OF THE ACT DOES NOT MEAN 'NECESSARILY'. ORDINARILY IT IS FOR THE ASSESSEE TO DECIDE WHETHER ANY EXPENDITURE SHOULD B E INCURRED IN THE COURSE OF HIS OR ITS BUSINESS. SUCH EXPENDITURE MAY BE INCURRED VOLUNTARILY AND WITHOUT ANY NECESSITY AND IF IT IS INCURRED FOR PROMOTING THE BUSINESS AND TO EARN PROFITS, THE ASSESSEE CAN CLAIM DEDUCTION UNDER SECTION 10(2)(XV) OF THE ACT EVEN THOUGH THERE WAS NO COMPELLING NECESSITY TO INCUR SUCH EXP ENDITURE. IT IS RELEVANT TO REFER AT THIS STAGE TO THE LEGISLATIVE HISTORY OF SECTION 37 OF THE INCOME-TAX ACT, 1961 WHICH CORRESPONDS TO SECTION 10(2)(XV) OF THE ACT. AN ATTEMPT WAS MADE IN THE IN COME-TAX BILL OF 1961 TO LAY DOWN THE 'NECESSITY' OF THE EXPENDIT URE AS A CONDITION FOR CLAIMING DEDUCTION UNDER SECTION 37. SECTION 37(1) IN THE BILL READ 'ANY EXPENDITURE. . . . LAID OUT OR E XPENDED WHOLLY, NECESSARILY AND EXCLUSIVELY FOR THE PURPOSE S OF THE BUSINESS OR PROFESSION SHALL BE ALLOWED' THE INTROD UCTION OF THE WORD 'NECESSARILY' IN THE ABOVE SECTION RESULTED IN PUBLIC PROTEST. CONSEQUENTLY WHEN SECTION 37 WAS FINALLY ENACTED IN TO LAW, THE ITA NOS.2280-83 /2018 :- 69 -: WORD 'NECESSARILY' CAME TO BE DROPPED. THE FACT THA T SOMEBODY OTHER THAN THE ASSESSEE IS ALSO BENEFITED BY THE EX PENDITURE SHOULD NOT COME IN THE WAY OF AN EXPENDITURE BEING ALLOWED BY WAY OF DEDUCTION UNDER SECTION 10(2)(XV) OF THE ACT IF IT SATISFIES OTHERWISE THE TESTS LAID DOWN BY LAW. THIS VIEW IS IN ACCORD WITH THE FOLLOWING OBSERVATIONS MADE BY THIS COURT IN CI T V. CHANDULAL KESHAVLAL & CO. [1960] 3 SCR 38 AT PAGE 48 : 'ANOTHER FACT THAT EMERGES FROM THESE CASES IS THAT IF THE EXPENSE IS INCURRED FOR FOSTERING THE BUSINESS OF A NOTHER ONLY OR WAS MADE BY WAY OF DISTRIBUTION OF PROFITS OR WA S WHOLLY GRATUITOUS OR FOR SOME IMPROPER OR OBLIQUE PURPOSE OUTSIDE THE COURSE OF BUSINESS THEN THE EXPENSE IS NOT DEDU CTIBLE. IN DECIDING WHETHER A PAYMENT OF MONEY IS A DEDUCTIBLE EXPENDITURE ONE HAS TO TAKE INTO CONSIDERATION QUES TIONS OF COMMERCIAL EXPEDIENCY AND THE PRINCIPLES OF ORDINAR Y COMMERCIAL TRADING. IF THE PAYMENT OR EXPENDITURE I S INCURRED FOR THE PURPOSE OF THE TRADE OF THE ASSESSEE IT DOE S NOT MATTER THAT THE PAYMENT MAY INURE TO THE BENEFIT OF A THIRD PARTYUSHER'S WILTSHIRE BREWERV V. BRUCE 6 TC 399 ( HL). ANOTHER TEST IS WHETHER THE TRANSACTION IS PROPERLY ENTERED INTO AS A PART OF THE ASSESSEE'S LEGITIMATE COMMERC IAL UNDERTAKING IN ORDER TO FACILITATE THE CARRYING ON OF ITS BUSINESS ; AND IT IS IMMATERIAL THAT A THIRD PARTY ALSO BENEFITS THEREBY [EASTERN INVESTMENTS LTD. V. CIT [1951] 2 0 ITR 1 (SC)] . BUT IN EVERY CASE IT IS A QUESTION OF FACT WHETHE R THE EXPENDITURE WAS EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF TRADE OR BUSINESS OF THE ASSESSEE.' THE ISSUE IN THE PRESENT CASE IS REQUIRED TO BE AD JUDICATED HAVING REGARD TO THE PRINCIPLE ENUMERATED IN THE ABOVE D ECISIONS. ADMITTEDLY, IN THE PRESENT CASE, THE ASSESSING OFFI CER HAD NOT DOUBTED THE EXPENDITURE, HE ONLY QUESTIONED THE NECESSITY O F THE EXPENDITURE IN THE BACKDROP OF THE FACTS THAT THERE IS NO CLAU SE IN THE AGREEMENT ENTERED BETWEEN ASSESSEE COMPANY AND MINE OWNERS TO BEAR THE LOSS ITA NOS.2280-83 /2018 :- 70 -: CLAIMS FROM THE BUYERS OF THE ORE. THE EXPLANATION OFFERED TO SUBSTANTIATE THAT PAYMENTS WERE MADE OUT OF BUSIN ESS EXPEDIENCY REMAIN UNCONVERTED BY THE ASSESSING OFFICER. HAVIN G REGARD TO THE PRINCIPLES ENUMERATED ABOVE, IT IS NOT FOR THE ASS ESSING OFFICER TO QUESTION THE NECESSITY OF EXPENDITURE IRRESPECTIVE OF THE FACT WHETHER EXPENDITURE HAS RESULTED IN PROFIT OR MORE INCOME, AS LONG AS PAYMENT WAS MADE WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOS E, THE SAME SHOULD BE ALLOWED AS DEDUCTION. FROM THE MATERIAL ON RECORD, IT CAN INFERRED THAT EXPENDITURE WAS INCURRED VOLUNTARILY INDIRECTLY TO FACILITATE THE CARRYING ON OF THE ASSESSEE COMPANY AS THE EXPE NDITURE WAS INCURRED ON GROUNDS OF COMMERCIAL EXPEDIENCY. THE H ONBLE SC IN THE CASE GORDON WOODROFEE LEATHER MFG VS. CIT, 44 ITR 551 (SC) HELD THAT ANY EXPENDITURE EXPENDED ON THE GROUND OF COM MERCIAL EXPEDIENCY IN ORDER TO INDIRECTLY FACILITATE THE C ARRYING ON THE BUSINESS IS ALLOWABLE AS DEDUCTION. THEREFORE THE CLAIM FAL LS WITHIN THE PURVIEW OF THE PROVISIONS OF SECTION37(1) OF THE ACT. IN TH E CIRCUMSTANCES, THE ORDER OF THE LD. CIT(A) IS BASED ON PROPER APPRECIA TION OF FACTS AND LEGAL PRINCIPLES GOVERNING THE ISSUE ON HAND. THE REFORE WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A). THUS THE GROUND OF APPEAL NO. 2 RAISED BY THE REVENUE IS DIS MISSED. 56. GROUND NO.3 CHALLENGES THE DECISION OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) TO RESTRICT TH E CSR ITA NOS.2280-83 /2018 :- 71 -: DISALLOWANCE TO 10%. THIS GROUND IS SIMILAR TO THE GROUND NO. 3 RAISED BY THE REVENUE FOR ASSESSMENT YEAR 2012-13 IN ITA NO.2281/CHNY/2018. WE HAVE ALREADY DELETED THE DISA LLOWANCE IN PARA 29 ABOVE IN THE GROUND OF APPEAL INVOLVING ID ENTICAL FACTS AND ISSUE. FOR THE PARITY OF REASONS MENTIONED THEREIN , WE DISMISS THIS GROUND OF APPEAL ALSO FILED BY THE REVENUE. 57. GROUND NO.4 CHALLENGES THE DECISION OF LD. CIT(A) I N ALLOWING LEGAL EXPENSES TO THE TUNE OF A1,06,60,000/-. THE A SSESSING OFFICER DISALLOWED LEGAL CHARGES IN CONNECTION WITH THE CA SE OF T.N. GODAVARMAN THIRUMALPAD VS. UOI, A PIL FILED AGAINS T ILLEGAL MINING IN ODISHA. IT IS THE CASE OF THE ASSESSING OFFICER TH AT ASSESSEE IS BEING A CONTRACTOR FOR MINE OWNERS AND HE HAD NO LOCUS STAN DI IN LITIGATION BEFORE HON'BLE SUPREME COURT. THEREFORE THE ASSESS ING OFFICER WAS OF THE OPINION THAT LEGAL EXPENDITURE WAS NOT ALLOWABL E AS DEDUCTION. THE ASSESSEE COMPANY SUBMITTED THAT IT IS A MEMBER OF FIMI, WHICH IS ALSO IMPLEADED BEFORE THE HON'BLE SUPREME COUR T IN THE PIL AND THE ASSOCIATION HAD ALLOTTED ITS EXPENDITURE AMONG MEMBERS. APPARENTLY, BUSINESS OF THE ASSESSEE IS DIRECTLY CO NNECTED WITH MINING AND EXPENDITURE WAS INCURRED ONLY TO PROTECT THE BU SINESS INTEREST OF THE ASSESSEE COMPANY AND THE SAME IS ALLOWABLE AS L EGAL EXPENDITURE IN THE LIGHT OF THE DECISIONS OF HONBLE SUPREME CO URT IN THE CASE OF DALMIAL JAIN AND CO LTD VS CIT, 81 ITR 754 (SC) AND SREE MEENKSHI ITA NOS.2280-83 /2018 :- 72 -: MILLS LTD VS. CIT, 63 ITR 207 (SC). THE HONBLE KA RNATAKA HIGH COURT IN THE CASE OF DCIT VS. B.KUMARA GOWDA, 396 ITR 386 AFTER REFERRING TO THE ABOVE DECISIONS OF SC HAD HELD AS FOLLOWS:- 13. BEFORE WE PROCEED FURTHER, WE SHALL REFER TO THE F OLLOWING JUDGMENTS CITED AT THE BAR: (A) IN DALMIA JAIN & CO., LTD., IT HAS BEEN OBSERVED TH US: 'THE QUESTION FOR DECISION IS WHETHER THE LITIGATIO N EXPENSES INCURRED BY THE ASSESSEE WERE FOR THE PURPOSE OF CREATING, CURI NG OR COMPLETING THE ASSESSEE'S TITLE TO CAPITAL OR WHETHER IT WAS FOR T HE PURPOSE OF PROT ECTING ITS BUSINESS. IF IT IS THE FORMER THEN THE EXPENSES INC URRED MUST BE CONSIDERED AS CAPITAL EXPENDITURE. BUT, ON THE OTHER HAND, IF IT IS HELD THAT THE EXPENSES WERE INCURRED TO PROTECT THE BUSINESS OF THE ASSESS EE, THEN IT MUST BE CONSIDERED AS A BU SINESS LOSS. THE PRINCIPLE WHICH HAS TO BE DEDUCED FROM DECIDED CASES IS THAT, WHERE THE EXPENDITURE LAID O UT FOR THE ACQUISITION OR IMPROVEMENT OF A FIXED CAPITAL ASSET IS ATTRIBUTABL E TO CAPITAL, IT IS A CAPITAL EXPENDITURE BUT IF IT IS INCURRED TO PROTE CT THE TRADE OR BUSINESS OF THE ASSESSEE THEN IT IS A REVENUE EXPENDITURE. IN DECID ING WHETHER THE PARTICULAR EXPENDITURE IS CAPITAL OR REVENUE IN NAT URE, WHAT THE COURTS HAVE TO SEE IS WHETHER THE EXPENDITURE IN QUESTION WAS I NCURRED TO CREATE ANY NEW ASS ET OR WAS INCURRED FOR MAINTAINING THE BUSINESS OF THE COMPANY. IF IT IS THE FORMER IT IS THE CAPITAL EXPENDITURE; IF IT IS THE LATTER, IT IS THE REVENUE EXPENDITURE.' (B) IN DALMIA JAIN, THIS COURT RELIED UPON SHREE MEENAK SHI MILLS AND HELD THAT 'DEDUC TIBILITY OF EXPENDITURE INCURRED IN PROSECUTING A C IVIL PROCEEDING DEPENDS UPON THE NATURE AND PURPOSE OF THE LEGAL PR OCEEDING IN RELATION TO THE ASSESSEE'S BUSINESS AND THE SAME CANNOT BE AFFE CTED BY THE FINAL OUTCOME OF THAT PROCEEDING. HOWEVER WRONG-HEA DED, ILL ADVISED, UNDULY OPTIMISTIC OR OVERCONFIDENT IN HIS CONVICTION THE A SSESSEE MIGHT APPEAR IN THE LIGHT OF THE ULTIMATE DECISION; EXPENDITURE IN STARTING AND PROSECUTING A CIVIL PROCEEDING CANNOT BE DENIED AS A PERMISSIBLE DEDUCTION IN COMPUTING THE TAXABLE INCOME MERELY BECAUSE THE PROCEEDING HAD FA ILED, IF OTHERWISE THE EXPENDITURE WAS LAID OUT FOR THE PURPOSE OF THE BUSINESS WHOLLY AND EXCLUSIVELY, THAT IS, REASONABLY AND HONESTLY INCUR RED TO PROMOTE THE INTEREST OF THE BUSINESS. PERSISTENCE OF THE ASSESSEE IN LAUNCHING THE PROCEEDING AND CARRYING IT FROM COURT TO COURT AND INCURRING EXPENDITURE IS NOT A GROUND FOR DISALLOWING THE CLAIM.' (C) IN B. JAGANMOHAN RAO, IT HAS BEEN HELD, IT IS WELL ESTABLISHED THAT WHERE MONEY IS PAID TO PERFECT A TITL E OR AS CONSIDERATION FOR GETTING RID OF A DEFECT IN THE TITLE OR A THREAT OF LITIGATION THE P AYMENT WOULD BE CAPITAL PAYMENT AND NOT REVENUE PAYMENT. WHAT IS ESSENTIAL TO BE SEEN IS WHETHER THE AMOUNT WAS PAID FOR BRINGING INTO EXISTENCE A R IGHT OR AN ASS ET OF AN ENDURING NATURE. IN OTHER WORDS, IF THE ASSET WHICH IS ACQUIRED IS IN ITS ITA NOS.2280-83 /2018 :- 73 -: CHARACTER A CAPITAL ASSET, THEN ANY SUM PAID TO ACQ UIRE IT MUST SURELY BE CAPITAL OUTLAY. MONEY PAID IN CONSIDERATION OF THE ACQUISITION OF A SOURCE OF PROFIT OF INCOME IS CAPITAL EXPENDITURE. IN THE AFORESAID JUDGMENT, RELIANCE HAS BEEN PLACED ON ATHERTON V. BRITISH INSULATED AND HELSBY CABLES LTD. [1926] A.C. 205 (H L), WHEREIN, VISCOUNT CAVE HAS SAID AS UNDER: BUT WHEN AN EXPENDITURE IS MADE, NOT ONLY ONCE AND FOR ALL, BUT WITH A VIEW TO BRINGING INTO EXISTENCE AN ASSET OR AN ADVANTAGE FOR THE ENDURING BENEFIT OF A TRADE, I THINK THAT THERE IS VERY GOOD REASON (IN THE ABSENCE OF SPECIAL CIRCUMSTANCES LEADING TO AN OPPOSITE CONCLUSION) FO R TREATING SUCH AN EXPENDITURE AS PROPERTY ATTRIBUTABLE NOT TO REVENUE BUT TO CAPITAL. 7. IN COMMISSIONER OF TAXES V. NCHANGA CONSOLIDATED COPPER MINES LTD. [1964] A.C. 948 [1965] 58 I.T.R. 241. LORD RADCLIFFE OBSERVED AT PAGE 960: . COURTS HAVE STRESSED THE IMPORTANCE OF OBSERVI NG A DEMARCATION BETWEEN THE COST OF CREATING, ACQUIRING OR ENLARGIN G THE PERMANENT (WHICH DOES NOT MEAN PERPETUAL) STRUCTURE OF WHICH THE INC OME IS TO BE THE PRODUCE OR FRUIT AND THE COST OF EARNING THAT INCOM E ITSELF OR PERFORMING THE INCOME-EARNING OPER ATIONS. PROBABLY THIS IS AS ILLUMINATING A LINE OF DISTINCTION AS THE LAW BY ITSELF IS LIKELY TO ACHIE VE.' (D) IN MANGALORE GANESH BEEDI WORKS , IT HAS BEEN OBSERVED AT PARAGRAPH NO.17, THAT ON A CONSIDERATION OF THE ISSUES PLACED BEFORE THE TRIBUNAL, INCLUDING THE DECISION OF THIS COURT IN DALMIA JAIN , IT IS HELD THAT THE EXPENSES INCURRED BY THE ASSESEE WERE HONEST AND RE ASONABLE AND WERE INCURRED FOR THE PURPOSE OF PROTECTING THE BUSINESS OF THE FIRM AS A GOING CONCERN. (E) IN M/S. ITC HOTELS LTD., IT HAS BEEN OBSERVED THAT ON A CONSIDERATION OF THE FACTS IN DETAIL, THE TRIBUNAL HAS RECORDED A FINDIN G THAT THE LITIGATION EXPENSES WERE INCURRED NOT TO PROTECT THE LEASE HOL D RIGHTS OR TO PROTECT ITS TITLE, BUT WERE INCURRED TO DEFEND ITS RIGHT TO CAR R Y ON BUSINESS OF A HOTEL AND THEREFORE, THE EXPENSES ARE REVENUE IN NATURE A ND IT IS PURELY A FINDING OF FACT AND DOES NOT INVOLVE ANY QUESTION OF LAW. (F) SIMILARLY, IN ASSAM BENGAL CEMENT CO. LTD. V. CIT [ 1955] 27 ITR 34 (SC) , IT HAS BEEN HELD THAT THE QUESTION AS TO WHETHER AN Y EXPENDITURE IS CAPITAL OR REVENUE IN NATURE HAS ALL ALONG BEEN CONSIDERED TO BE A QUESTION OF FACT TO BE DETERMINED BY THE INCOME-TAX AUTHO RITIES ON AN APPLICATION OF THE BROAD PRINCIPLES LAID DOWN AND THE COURTS OF LAW WO ULD NOT ORDINARILY INTERFERE WITH SUCH FINDINGS OF FACT IF THEY HAVE B EEN ARRIVED AT ON A PROPER APPLICATION OF THOSE PRINCIPLES. IT HAS ALSO BEEN H ELD IN THE SAID DECISION THAT THE AIM AND OBJECT OF THE EXPENDITURE WOULD DE TERMINE THE CHARACTER OF THE EXPENDITURE WHETHER IT IS A CAPITAL EXPENDITURE OR A REVENUE EXPENDITURE. THE SOURCE OR THE MANNER OF THE PAYMEN T WOULD THEN BE OF NO CONSEQUENCE. ITA NOS.2280-83 /2018 :- 74 -: 14. IN B. JAGANMOHAN RAO, FACTS WERE THAT PAYMENT OF M ONEY MADE BY THE ASSESSEE THEREIN WAS IN ORDER TO PERFECT HIS TITLE TO THE CA PITAL ASSET. IT WAS A LUMP SUM PAYMENT FOR ACQUISITION OF A CAPITAL ASSET AND THER EFORE, THE HON'BLE SUPREME COURT HELD THAT THE AMOUNT SHOULD BE TREATED AS CAPITAL P AYMENT AND THE ASSESSEE WAS NOT ENTITLED TO EXCLUDE FROM THE INCOME SOUGHT TO BE AS SESSED IN HIS HANDS ANY PORTION OF THAT AMOUNT. BUT HAVING REGARD TO THE FACTS IN T HE PRESENT CASE NOTED ABOVE AND BY APPLYING THE DECISIONS IN THE AFOREMENTIONED JUD GMENTS, WE FIND THAT THE TRIBUNAL WAS JUSTIFIED IN HOLDING IN FAVOUR OF THE ASSESSEE AND THEREBY, DISMISSING DEPARTMENT'S APPEAL. THUS THE LAW IS SETTLED TO THE EXTENT THAT LEGAL EX PENDITURE INCURRED IN ORDER TO PROTECT THE BUSINESS IS ALLOWABLE AS REVEN UE EXPENDITURE. IN THE PRESENT CASE AS HELD BY US (SUPRA) IT IS AN EXP ENDITURE INCURRED TO PROTECT THE BUSINESS OF THE ASSESSEE COMPANY. THERE FORE WE HOLD THAT THE SAME IS ALLOWABLE AS DEDUCTION WITHOUT ANY HES ITATION. THUS THE GROUND NO.4 FILED BY THE REVENUE IS DISMISSED. 58. GROUND NO.5, CHALLENGES THE DECISION OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING TH E ADDITION U/S.14A OF THE ACT. IDENTICAL ISSUE HAS ARISEN IN THE PRECEDING YEAR IN ITA NO.2281/CHNY/2018 FOR ASSESSMENT YEAR 2012-13, WHEREIN WE HAD UPHELD THE DELETION OF ADDITION UNDER CLAUSE (I I) OF RULE 8D. HOWEVER, IN RESPECT OF ADDITION MADE UNDER CLAUSE ( III) OF RULE 8D, WE RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSIN G OFFICER TO COMPUTE THE AMOUNT OF DISALLOWANCE BY CONSIDERING ONLY VALU E OF INVESTMENTS WHICH YIELDED EXEMPT INCOME. ACCORDINGLY, GROUND NO .5 FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ITA NOS.2280-83 /2018 :- 75 -: 59. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IN ITA NO.2283/CHNY/2018 FOR ASSESSMENT YEAR 2014-2015 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 60. TO SUMMARIZE THE RESULTS, THE APPEALS FILED BY THE REVENUE IN ITA NO.2280/CHNY/2018 FOR ASSESSMENT YEAR 2011-1 2 IS PARTLY ALLOWED, WHEREAS ITA NOS. 2281 TO 2283/CHNY/2018, F OR ASSESSMENT YEARS, 2012-13, 2013-14 AND 2014-15 ARE PARTLY ALLO WED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON 25TH DAY OF SEPTEMBER, 2019, AT CHENNAI. SD/- SD/- ( . ) (DUVVURU RL REDDY) ! '# /JUDICIAL MEMBER ( ) (INTURI RAMA RAO) /ACCOUNTANT MEMBER 1 #- / CHENNAI 2# / DATED:25TH SEPTEMBER, 2019. KV 3 ) +.4 5' !6 5&. / COPY TO: 1 . !' '( / APPELLANT 3. 7. (!' ) / CIT(A) 5. 5 :; +.#< / DR 2. +,'( / RESPONDENT 4. 7. / CIT 6. ;$ =- / GF