DCIT, Circle - 3, Kolkata, Kolkata V. M/s. The Peerless General Finance & Investment Company Ltd., Kolkata

ITA 2305/KOL/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78359 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 5 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2014
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 29-06-2011
• Assessment Year: 1994-1995
• Appeal Filed On: 31-12-2010
• Court: TRIBUNAL
• Department Lawyers: RAVI JAIN
• Assessee Lawyers: S K TULSIYAN
• Keywords: Capital asset; Depreciation; Opportunity of being heard; Earning of tax free income; Cost of acquisition; Valuation report; Deemed dividend; Assessment record; Reason to believe
• Section: 143(3); 14A; 37

Judgement Text

, A , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA () BEFORE , /AND , ! ) [BEFORE SHRI MAHAVIR SINGH, JM & SHRI SHAMIM YAHYA, AM] ' / I.T.A NOS.2304 & 2305/KOL/2010 #$ %&/ ASSESSMENT YEARS: 1993-94 & 1994-95 & ' / I.T.A NO.136/KOL/2011 #$ %&/ ASSESSMENT YEAR: 2008-09 DEPUTY COMMISSIONER OF INCOME-TAX, VS. M/S. THE PE ERLESS GENERAL FINANCE & CIRCLE-3, KOLKATA. INVESTMENT CO. LTD.(PAN: AAB CT3043L) (() /APPELLANT ) (*+()/ RESPONDENT ) DATE OF HEARING: 07.05.2014 DATE OF PRONOUNCEMENT: 30.06.2014 FOR THE APPELLANT: SHRI RAVI JAIN, CIT, DR FOR THE RESPONDENT: SHRI S. K. TULSIYAN, ADVOCAT E / ORDER PER SHRI MAHAVIR SINGH, JM : I.T.A NOS. 2304 & 2305/KOL/2010 BY REVENUE ARE ARIS ING OUT OF COMMON ORDER OF CIT(A) -1, KOLKATA IN APPEAL NO. 2 & 3/CIT(A)-1/CIR -3/10-11DATED 02.09.2010 AND ITA NO. 136/KOL/2011 BY REVENUE IS ARISING OUT OF ORDER OF CIT(A)-1, KOLKATA IN APPEAL NO. 81/CIT(A)-1/CIR-3/10-11 DATED 25.0.2010. ASSESSME NTS WERE FRAMED BY DCIT, SPL. RANGE- 13, KOLKATA U/S. 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEARS 1993-94, 1994-95 AND 2008-09 (BY D CIT, CIRCLE-3) VIDE HIS SEPARATE ORDERS DATED 29.03.1996, 27.03.197 AND 20.07.2010. 2. FIRST WE TAKE UP ITA NO. 2304 & 2305/KOL/2010. THE FIRST COMMON ISSUE IN THESE TWO APPEALS OF REVENUE IS AS REGARDS TO THE ORDER OF C IT(A) DELETING THE PENALTY LEVIED BY AO U/S. 271(1)(C) OF THE ACT IN RESPECT IN RESPECT OF SURRE NDER CERTIFICATES AT RS.52,09,568/- IN AY 1993-94 AND RS.38,58,925/- IN AY 1994-95. THE FACT S AND CIRCUMSTANCES ARE EXACTLY IDENTICAL, HENCE WE WILL TAKE THE GROUND AND FACTS FOR AY 1993 -94 AND DECIDE THE ISSUE. THE RELEVANT GROUND NO. 1 RAISED IN 1993-94 READS AS UNDER: 1. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE , THE CIT(A) HAS ERRED IN DELETING THE PENALTY OF RS.52,09,568/- IN RESPECT OF CONCEALED I NCOME OF RS.90,60,118/- UNDER THE HEAD SURRENDERED CERTIFICATES WITHOUT APPRECIATING THE MERIT OF THE IMPOSITION OF PENALTY AND IGNORING THE FACTS OF CONCEALMENT OF INCOME. 2 ITA NO.2304, 2305/K/2010 & 136/K/2011 PEERLESS GENERAL FIN. & INV. CO. LTD... AY 1993-94, 1994-95 & 2008-09 3 . BRIEFLY STATED FACTS ARE THAT THE AO DURING THE COU RSE OF ASSESSMENT PROCEEDINGS U/S. 143(3) OF THE ACT CALCULATED THE INTEREST ON SURREN DER CERTIFICATES ON THE RETAINED AMOUNT AND MADE ADDITION OF RS.2,15,80,546/-. CIT(A) CONFIRME D THE ADDITION. THE ASSESSEE CARRIED THE MATTER TO TRIBUNAL IN QUANTUM APPEAL AND TRIBUNAL A FTER CONSIDERING THE SUBMISSIONS COMPUTATION OF THE ASSESSEE DIRECTED THE AO TO RECO MPUTE THE INCOME BY TAKING THE INTEREST ON SURRENDER CERTIFICATES AT RS.90,60,118/-. ON THE B ASIS OF THE DIRECTIONS OF THE TRIBUNAL, THE AO PASSED APPEAL GIVING EFFECT ORDER U/S. 254 OF THE A CT ADDING A SUM OF RS.90,60,118/- U/S. 41(1) OF THE ACT. THE AO ALSO INITIATED PENALTY PROCEEDI NGS U/S. 271(1)(C) OF THE ACT. DURING THE PENALTY PROCEEDINGS, THE ASSESSEE CONTENDED BEFORE THE AO THAT THIS ADDITION WAS MADE BY AO BY APPLYING LEGAL PROVISIONS WHICH WAS NOT KNOWN TO THE ASSESSEE. ASSESSEE CONTENDED THAT ALL MATERIAL FACTS RELATING TO SURRENDER CERTIFICATES W ERE AVAILABLE IN THE ASSESSMENT RECORDS AND COMPLETE DETAILS REGARDING SURRENDER CERTIFICATES W ERE FILED IN THE RETURN OF INCOME, WHICH IS PART OF AUDITED ACCOUNTS OF THE ASSESSEE. ASSESSEE ALSO CONTENDED THAT FULL FACTS AND DETAILS WERE DISCLOSED BY THE ASSESSEE AT THE STAGE OF ASSESSMEN T. IN TERM OF THE ABOVE, IT WAS CONTENDED THAT NO CONCEALMENT PENALTY U/S. 271(1)(C) CAN BE LEVIED . BUT THE AO LEVIED PENALTY FOR THE REASON THAT THE ASSESSEE DID NOT DISCLOSE ANY INCOME UNDER THIS HEAD DURING THE ASSESSMENT STAGE BUT THE INCOME WAS ADMITTED AT APPELLATE STAGE. ACCORD ING TO AO, THIS IS NOTHING BUT CLEAR CUT CONCEALMENT OF INCOME. ACCORDINGLY, HE LEVIED THE PENALTY. SIMILARLY, IN AY 1994-95, HE ALSO LEVIED THE PENALTY. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE PENALTY VIDE PARA 8 OF HIS ORDER AS UNDER: ADMITTEDLY, THE ASSESSEE FILED A WRITTEN SUBMISSIO N BEFORE THE AO IN RESPONSE TO HIS SHOW CAUSE LETTER. IN THE PENALTY ORDER THE AO HAS NOWHERE HELD THAT SUCH EXPLANATION OF THE ASSESSEE WAS FALSE OR NOT BONAFIDE AND FULL PAR TICULARS REGARDING THESE ADDITIONS/DISALLOWANCES WERE NOT FURNISHED BEFORE T HE AO. THE AO HAS IMPOSED A PENALTY OF RS.52,09,568 HOLDING THAT THE ADDITIONS OF INTEREST OF RS.90,60,118 ON ACCOUNT OF SURRENDERED CERTIFICATES U/S. 41(1) WAS A CONCEA LED INCOME. BUT WHILE DEALING WITH THIS ITEM IN PARA (1) OF HIS ORDER, HE HAS HIMSELF ADMITTED THAT IT IS TRUE THAT THERE WAS NO CONCEALMENT OF FACT. THIS IS THEREFORE NOT A F IT CASE FOR LEVY OF PENALTY. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSEE HAS OBJECTED TO LEV Y OF PENALTY BEFORE CIT(A) ON ACCOUNT OF ADDITION MADE BY AO ON ACCOUNT OF DIRECTION OF I TAT DIRECTING IT TO RECOMPUTE THE DISALLOWANCE OF INTEREST AT RS.90,60,118/- ON ACCOU NT OF SURRENDER CERTIFICATES U/S. 41(1) OF THE ACT INSTEAD OF ADDITION MADE BY AO AT RS.2,1 5,80,546/-. THE MAIN REASON WAS THAT IN RESPECT OF SURRENDER CERTIFICATES AT THE TIME OF PAYMENT, THE ASSESSEE COMPANY DID NOT PAY FULL AMOUNT TO THE CERTIFICATE HOLDERS WHICH TH E ASSESSEE RECEIVED FROM THE CERTIFICATE 3 ITA NO.2304, 2305/K/2010 & 136/K/2011 PEERLESS GENERAL FIN. & INV. CO. LTD... AY 1993-94, 1994-95 & 2008-09 HOLDERS AS SUBSCRIPTION. FIRST OF ALL, IT IS TO BE MENTIONED THAT IN WHICH YEAR ITS INCOME IS TO BE ADDED IS A DISPUTABLE POINT. THIS INCOME IS TO BE ASSESSED ON THE SURRENDER CERTIFICATES U/S. 41(1) OF THE ACT OR AT THE TIME O F SALE OF CERTIFICATE I.E. IN THE YEAR OF SALE OF CERTIFICATES. THIS IS A DEBATABLE ISSUE. SECON DLY, EXPLANATION (1) TO BELOW SECTION 271(1)(C) OF THE ACT PROVIDES THAT WHERE THE ASSESS EE HAS SUBMITTED AN EXPLANATION REGARDING THE ADDITION THE AO IS REQUIRED TO GIVE A FINDING THAT THE SAID EXPLANATION IS FALSE AND NOT BONAFIDE. ONE MORE FACT IS THAT THE AO HAS TO BRING ON RECORD IS THAT SUCH ADDITION OR DISALLOWANCE HAS NOT BEEN DISCLOSED BY THE ASSESSEE BEFORE HIM IN THE RETURN OF INCOME OR DURING THE COURSE OF ASSESSMENT PROCEE DINGS. THE ASSESSEE SUBMITTED EXPLANATION THAT ENTIRE DETAIL QUA THE SURRENDER CE RTIFICATES WERE AVAILABLE BEFORE THE AO DURING THE ASSESSMENT PROCEEDINGS AS THE ASSESSEE HAS FILED COMPLETE DETAILS IN RESPECT TO SURRENDER CERTIFICATES IN THE RETURN OF INCOME. TH E ASSESSEE VIDE LETTER DATED 17.03.2010 BEFORE THE AO SUBMITTED COMPLETED EXPLANATION REGAR DING THIS ADDITION. LD. COUNSEL FOR THE ASSESSEE HAS FULLY RELIED ON THE DECISION OF HO NBLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS LTD. (2010) 322 ITR 158 (SC), WHEREIN HONBLE SUPREME COURT HAS HELD AS UNDER: WE ARE NOT CONCERNED IN THE PRESENT CASE WITH THE MENS REA. HOWEVER, WE HAVE TO ONLY SEE AS TO WHETHER IN THIS CASE, AS A MATTER OF FACT , THE ASSESSEE HAS GIVEN INACCURATE PARTICULARS. IN WEBSTERS DICTIONARY, THE WORD INA CCURATE HAS BEEN DEFINED AS : NOT ACCURATE, NOT EXACT OR CORRECT ; NOT ACCORDING TO TRUTH ; ERRONEOUS ; AS AN INACCURATE STATEMENT, COPY OR TRANSCRIPT. WE HAVE ALREADY SEEN THE MEANING OF THE WORD PARTI CULARS IN THE EARLIER PART OF THIS JUDGMENT. READING THE WORDS IN CONJUNCTION, THEY MU ST MEAN THE DETAILS SUPPLIED IN THE RETURN, WHICH ARE NOT ACCURATE, NOT EXACT OR CORREC T, NOT ACCORDING TO TRUTH OR ERRONEOUS. WE MUST HASTEN TO ADD HERE THAT IN THIS CASE, THERE IS NO FINDING THAT ANY DETAILS SUPPLIED BY THE ASSESSEE IN ITS RETURN WERE FOUND TO BE INCO RRECT OR ERRONEOUS OR FALSE. SUCH NOT BEING THE CASE, THERE WOULD BE NO QUESTION OF INVIT ING THE PENALTY UNDER SECTION 271(1)(C) OF THE ACT. A MERE MAKING OF THE CLAIM, WHICH IS NO T SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDI NG THE INCOME OF THE ASSESSEE. SUCH CLAIM MADE IN THE RETURN CANNOT AMOUNT TO THE INACC URATE PARTICULARS. IT WAS TRIED TO BE SUGGESTED THAT SECTION 14A OF TH E ACT SPECIFICALLY EXCLUDED THE DEDUCTIONS IN RESPECT OF THE EXPENDITURE INCURRED B Y THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. IT WAS FURTHER POINTED OUT THAT THE DIVIDENDS FROM THE SHARES DID NOT FORM THE PART OF THE TOTAL INCOME. IT WAS, THEREFORE, REITERATED BEFORE US THAT THE ASSESSING OFFICER HAD CORRECTLY REACHED THE CONCLUSION THAT SINCE THE ASSESSEE HAD CLAIMED EXCESSIVE DEDUCTIONS KNOWING THAT THEY ARE INCORRECT ; IT AMOUNTED TO CONCEALMENT OF INCOME. IT WAS TRIED TO BE ARGUED THAT THE FALSEHOOD IN ACCOUNTS CAN TAKE EITHER OF THE TWO FORMS ; AN ITEM OF RECEIPT MAY BE SUPPRESSED FRAUDULENTLY ; (II) AN ITEM OF EXPENDITURE MAY BE F ALSELY (OR IN AN EXAGGERATED AMOUNT) CLAIMED, AND BOTH TYPES ATTEMPT TO REDUCE THE TAXAB LE INCOME AND, THEREFORE, BOTH TYPES AMOUNT TO CONCEALMENT OF PARTICULARS OF ONES INCOM E AS WELL AS FURNISHING OF INACCURATE PARTICULARS OF INCOME. WE DO NOT AGREE, AS THE ASSE SSEE HAD FURNISHED ALL THE DETAILS OF ITS 4 ITA NO.2304, 2305/K/2010 & 136/K/2011 PEERLESS GENERAL FIN. & INV. CO. LTD... AY 1993-94, 1994-95 & 2008-09 EXPENDITURE AS WELL AS INCOME IN ITS RETURN, WHICH DETAILS, IN THEMSELVES, WERE NOT FOUND TO BE INACCURATE NOR COULD BE VIEWED AS THE CONCEAL MENT OF INCOME ON ITS PART. IT WAS UP TO THE AUTHORITIES TO ACCEPT ITS CLAIM IN THE RETUR N OR NOT. MERELY BECAUSE THE ASSESSEE HAD CLAIMED THE EXPENDITURE, WHICH CLAIM WAS NOT ACCEPT ED OR WAS NOT ACCEPTABLE TO THE REVENUE, THAT BY ITSELF WOULD NOT, IN OUR OPINION, ATTRACT THE PENALTY UNDER SECTION 271(1)(C). IF WE ACCEPT THE CONTENTION OF THE REVEN UE THEN IN CASE OF EVERY RETURN WHERE THE CLAIM MADE IS NOT ACCEPTED BY THE ASSESSING OFF ICER FOR ANY REASON, THE ASSESSEE WILL INVITE PENALTY UNDER SECTION 271(1)(C). THAT IS CLE ARLY NOT THE INTENDMENT OF THE LEGISLATURE. IN THIS BEHALF THE OBSERVATIONS OF THIS COURT MADE IN SREE KRISHNA ELECTRICALS V. STATE OF TAMIL NADU [2009] 23 VST 249 AS REGARDS THE PENALTY ARE APPOSITE. IN THE AFOREMENTIONED DECISION WHICH PERTAINED TO THE PENA LTY PROCEEDINGS UNDER THE TAMIL NADU GENERAL SALES TAX ACT, THE COURT HAD FOUND THA T THE AUTHORITIES BELOW HAD FOUND THAT THERE WERE SOME INCORRECT STATEMENTS MADE IN T HE RETURN. HOWEVER, THE SAID TRANSACTIONS WERE REFLECTED IN THE ACCOUNTS OF THE ASSESSEE. THIS COURT, THEREFORE, OBSERVED (PAGE 251) : SO FAR AS THE QUESTION OF PENALTY IS CONCERNED THE ITEMS WHICH WERE NOT INCLUDED IN THE TURNOVER WERE FOUND INCORPORATED IN THE APPELLANTS ACCOUNT BOOKS. WHERE CERTAIN ITEMS WHICH ARE NOT INCLUDED I N THE TURNOVER ARE DISCLOSED IN THE DEALERS OWN ACCOUNT BOOKS AND THE ASSESSING AUTHORITIES INCLUDES THESE ITEMS IN THE DEALERS TURNOVER DISAL LOWING THE EXEMPTION, PENALTY CANNOT BE IMPOSED. THE PENALTY LEVIED STAND S SET ASIDE. THE SITUATION IN THE PRESENT CASE IS STILL BETTER A S NO FAULT HAS BEEN FOUND WITH THE PARTICULARS SUBMITTED BY THE ASSESSEE IN ITS RETURN . THE TRIBUNAL, AS WELL AS, THE COMMISSIONER OF INCOM E-TAX (APPEALS) AND THE HIGH COURT HAVE CORRECTLY REACHED THIS CONCLUSION AND, THEREFO RE, THE APPEAL FILED BY THE REVENUE HAS NO MERITS AND IS DISMISSED. 5. SIMILARLY, HONBLE SUPREME COURT IN THE CASE OF DILIP N. SHROFF 291 ITR 519 HELD THAT THE AO IS REQUIRED TO ARRIVE AT A FINDING THAT EXPL ANATION OFFERED BY THE ASSESSEE, IN THE EVENT HE OFFERS ONE, IS FALSE OR NOT BONAFIDE. THE AO MUST RECORD A FINDING THAT THE EXPLANATION IS NOT ONLY BONAFIDE BUT ALL THE FACTS RELATING TO THE SAM E AND THE MATERIAL INCOME WAS NOT DISCLOSED BY HIM. AS IS EVIDENT IN THE PRESENT CASE THAT THE ADDITION MADE BY AO ON ACCOUNT OF SURRENDER CERTIFICATES U/S. 41(1) OF THE ACT WAS ON THE BASIS OF THE DETAILS FILED IN THE RETURN OF INCOME AND AFTER APPLYING THE PROVISIONS OF SECTION 41(1) OF T HE ACT. FROM THE ABOVE FACTS AND CIRCUMSTANCES AND LEGAL POSITION AS ENUNCIATED BY H ONBLE SUPREME COURT IN THE CASE OF RELIANCE PETRO PRODUCT LTD. AND DILIP N. SHROFF (SU PRA), WE ARE OF THE CONSIDERED VIEW THAT IN THE PRESENT CASE THE FACTS DOES NOT WARRANT LEVY OF PENALTY. ACCORDINGLY, CIT(A) HAS RIGHTLY DELETED THE PENALTY AND WE CONFIRM THE SAME. THIS ISSUE OF REVENUES APPEALS IN BOTH THE YEARS IS DISMISSED. 6. THE NEXT ISSUE IN THESE APPEALS OF REVENUE IS AG AINST THE ORDER OF CIT(A) DELETING THE PENALTY LEVIED BY THE AO IN RESPECT OF EXCESS CLAIM OF FOREIGN TRAVEL TO THE TUNE OF 5 ITA NO.2304, 2305/K/2010 & 136/K/2011 PEERLESS GENERAL FIN. & INV. CO. LTD... AY 1993-94, 1994-95 & 2008-09 RS.16,77,208/- IN AY 1993-94 AND RS.43,33,186/- IN AY 1994-95. SINCE GROUNDS ARE IDENTICAL EXCEPT VARIANCE IN AMOUNT AND FACTS ARE COMMON, WE DISPOSE OF THIS GROUND OF APPEAL TOGETHER BY REPRODUCING FOLLOWING GROUND NO. 2 FROM AY 1993- 94 AND ALSO BY TAKING FACTS FROM AY 1993-94: 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE , THE CIT(A) HAS ERRED IN DELETING THE PENALTY OF RS.9,64,395/- IN RESPECT OF EXCESS CLAIM OF RS.16,77,208/- UNDER THE HEAD FOREIGN TRAVEL WITHOUT APPRECIATING THE MERIT OF THE IMPOSITION OF PENALTY AND IGNORING THE FACT OF FURNISHING INACCUR ATE PARTICULARS OF INCOME. 7. BRIEFLY STATED FACTS ARE THAT THE AO DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS MADE A DISALLOWANCE ON ACCOUNT OF FOREIGN TRAVEL EX PENSES AT RS.16,77,208/-. THE ASSESSEE CARRIED THE MATTER BEFORE CIT(A) AND THE TRIBUNAL B UT TRIBUNAL RESTORED THE MATTER TO THE AO, WHO AGAIN CONFIRMED THE ADDITION DISALLOWING THE SA ME EXPENSES VIDE ORDER DATED 03.04.2009. THE AO INITIATED PENALTY PROCEEDINGS U/S. 271(1)(C) OF THE ACT AND LEVIED PENALTY ON THE DISALLOWANCE OF FOREIGN EXPENSES AT RS.9,64,395/- B Y OBSERVING AS UNDER: REGARDING TWO OPINIONS, IT THE RULE OF THE LAND TO ACCEPT THE DECISION OF THE HIGHER AUTHORITY. THIS CAN BE MENTIONED HERE, THAT THE DETECTION OF THE POINT WAS SO PROPER AND THE ADDITION WAS SO AUTHENTIC AND GEN UINE, THE ASSESSEE-CO DID NOT FILE ANY APPEAL AGAINST THIS ADDITION. AGAIN BY CL AIMING NON-ALLOWABLE EXPENSES THE ASSESSEE CO. INFLATED ITS EXPENSES AND IN THIS PROCESS REDUCED ITS INCOME, SO THIS IS NOTHING BUT FURNISHING OF INACCURATE PARTICULARS OF INCOME. HENCE, IT IS A FIT CASE FOR IMPOSITION OF PENALTY U/S. 271(1)(C) OF THE ACT . SO FOR FURNISHING INACCURATE PARTICULARS OF INCOME, PENALTY U/S. 271(1)(C) @ 100 % OF THE TAX SOUGHT TO BE EVADED WHICH IS CALCULATED AT RS.964395/- (RS.8,38, 604/- + SURCHARGE @ 15% 125791/-) IS HEREBY IMPOSED. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO DELETED THE PENALTY BY OBSERVING AS UNDER: THE SECOND ITEM OF LEVY OF PENALTY OF RS.9,64,395 /- RELATES TO DISALLOWANCE OF FOREIGN TRAVEL EXPENSES OF RS.16,77,208/-. NO PENALTY COUL D BE IMPOSED U/S. 271(1)(C) OF THE I. T. ACT IN VIEW OF THE CLEAR FINDING OF THE HONBLE SUP REME COURT THAT MERE MAKING OF A CLAIM WHICH IS NOT SUSTAINABLE IN LAW BY ITSELF WIL L NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS OF INCOME. ON THIS POINT THE A.R.S HAV E ALSO POINTED OUT THAT THE CIT(A) ALLOWED 50% OF THE ASSESSEES CLAIM OF FOREIGN TRAV EL EXPENSES. BUT ON FURTHER APPEAL BY THE DEPTT. AGAINST THE ORDER OF THE CIT(A), THE TRI BUNAL RESTORED THE ORDERS OF THE AO DISALLOWING THE TRAVELLING EXPENSES. THE A.R. HAS ALSO CLAIMED THAT THE AO HAS NOWHERE HELD THAT THE ASSESSEES CLAIM IN THIS REGARD WAS F ALSE. AGGRIEVED, NOW REVENUE IS IN APPEALS BEFORE US. 8. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE AO HAS MADE MERELY A DISALLOWANCE OF FOREIGN EXPENSES ON THE GROUND THAT THE SAME IS NOT ALLOWABLE. THE AO HAS MADE DISALLO WANCE ONLY ON THE PREMISE THAT THE ASSESSEE IS ENQUIRED TO GIVE DETAILS REGARDING EXPA NSION PLAN AND WHAT WAS THE PURPOSE FOR VISIT 6 ITA NO.2304, 2305/K/2010 & 136/K/2011 PEERLESS GENERAL FIN. & INV. CO. LTD... AY 1993-94, 1994-95 & 2008-09 FOR A PARTICULAR PROJECT TO THE FOREIGN NATIONS. F ROM THE PENALTY ORDER IT IS SEEN THAT THERE IS NO IOTA OF ANY CONCEALMENT BROUGHT OUT ON RECORD EVEN THE DISALLOWANCE IS JUST FOR THE SAKE OF DISALLOWANCE. THE ASSESSEE HAS FILED COMPLETE DETA ILS IN RESPECT TO FOREIGN TRAVEL EXPENSES BEFORE THE AO DURING THE COURSE OF ASSESSMENT PROCE EDINGS AND ALSO FILED EXPLANATION DURING THE COURSE OF PENALTY PROCEEDING U/S. 271(1)(C) OF THE ACT. FROM THE ABOVE, IT IS CLEAR THAT NO WHERE THE AO HAS PROVED CONCEALMENT OR THE EXPLANAT ION FURNISHED BY ASSESSEE IS FALSE OR NOT BONAFIDE. ONE MORE FACT IS TO BE BROUGHT TO THE NO TICE IS THAT THE CIT(A) IN THE FIRST ROUND OF APPELLATE PROCEEDINGS HAS DIRECTED THE AO TO ALLOW 50% OF FOREIGN EXPENSES AND DISALLOWED BALANCE 50%. IT MEANS THAT THERE ARE TWO OPINIONS AND THE ISSUE IS HIGHLY DEBATABLE. ONCE THIS IS THE POSITION HEREIN IN THE PRESENT CASE, THE PEN ALTY CANNOT BE LEVIED. EVEN OTHERWISE, THE ASSESSEE HAS FURNISHED COMPLETE DETAILS IN THE RETU RN OF INCOME AND EVEN DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE IS NOT LIABLE F OR PENALTY FOR CONCEALMENT OF INCOME U/S. 271(1)(C) OF THE ACT. ACCORDINGLY, WE CONFIRM THE ORDER OF CITA) DELETING THE PENALTY. THIS GROUND OF APPEAL OF REVENUE FOR BOTH THE YEARS IS D ISMISSED. 9. THE NEXT ISSUE IN THESE APPEALS OF REVENUE IS AG AINST THE ORDER OF CIT(A) DELETING THE PENALTY LEVIED BY THE AO IN RESPECT OF EXCESS CLAIM OF DEPRECIATION ON LEASEHOLD PROPERTIES TO THE TUNE OF RS.2,54,752/- FOR AY 1993-94 AND RS. 99 ,44,579/- IN AY 1994-95. SINCE GROUNDS ARE IDENTICAL EXCEPT VARIANCE IN AMOUNT AND FACTS A RE COMMON, WE DISPOSE OF THIS GROUND OF APPEAL TOGETHER BY REPRODUCING FOLLOWING GROUND NO. 3 FROM AY 1993-94 AND ALSO BY TAKING FACTS FROM AY 1993-94: 3. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT(A) HAS ERRED IN DELETING THE PENALTY OF RS.1,46,482/- IN RESPECT OF EXCESS CLAIM OF RS.2,54,752/- UNDER THE HEAD DEPRECIATION ON LEASE HOLD PROPERTIES WITHOUT APPRE CIATING THE MERIT OF THE IMPOSITION OF PENALTY AND IGNORING THE FACT OF FURNISHING INACCUR ATE PARTICULARS OF INCOME. 10. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. AT THE OUTSET, IT IS NOTICED FROM THE PENALTY ORDER THAT THE AO HAS LEVIED PENALTY ONLY ON THE PREMISE THAT THE ADDITION WAS AUTHENTIC AND GENUINE , SO THE IMPOSITION OF PENALTY IS OBVIOUSLY THE NEXT COURSE OF ACTION. THE AOS OBSERVATION VI DE PARA (III) READS AS UNDER: III) DISALLOWANCE OF DEPRECIATION ON LEASE HOLD PR OPERTIES: THE ASSESSEE CO. CLAIMED DEPRECIATION OF RS.2,54,752/- IN RESPECT OF LEASEH OLD PROPERTIES. NOW AS PER PROVISION OF SEC. 32(1) OF THE ACT DEPRECIATION IS NOT ALLOWABLE ON LEASEHOLD PROPERTIES. SO AT THE TIME OF ASSESSMENT U/S. 143(3) THE SAME AMOUNT WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. CIT(A) DELETED THE ADDITION, BUT THE TRIBUNAL RESTO RED THE ISSUE AND THE ADDITION WAS MADE. THE DETECTION OF THE POINT WAS SO PROPER AND THE ADDITION WAS SO AUTHENTIC AND GENUINE, THE ASSESSEE CO. DID NOT FILE ANY APPEAL A GAINST THIS ADDITION. SO THE IMPOSITION OF PENALTY IS AN OBVIOUS NEXT COURSE OF ACTION. HER E BY CLAIMING DEPRECIATION ON LEASE HOLD PROPERTIES THE ASSESSEE REDUCED ITS TOTAL INCO ME. NOW FOR FURNISHING INACCURATE PARTICULARS OF INCOME, PENALTY U/S. 271(1)(C) @ 100 % OF THE TAX SOUGHT TO BE EVADED 7 ITA NO.2304, 2305/K/2010 & 136/K/2011 PEERLESS GENERAL FIN. & INV. CO. LTD... AY 1993-94, 1994-95 & 2008-09 WHICH CALCULATED AT RS.146482/- (RS.1,27,376/- + SU RCHARGE @ 15% RS.19106/-), IS HEREBY IMPOSED. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), BUT CIT(A) DELETED THE PENALTY BY OBSERVING AS UNDER: THE LAST ITEM ON WHICH A PENALTY OF RS.1,46,482 HA S BEEN IMPOSED IS ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION OF RS.2,54,752 ON LEAS EHOLD BUILDINGS. THE AR HAS EXPLAINED THAT THESE LEASEHOLD BUILDINGS WERE TAKEN BY THE APPELLANT FOR MORE THAN 99 YEARS AND CONSEQUENTLY IT BECAME A BENEFICIAL OWNER OF SUCH PROPERTIES. IT WAS ALSO CLAIMED BEFORE THE AO THAT IN TERMS OF SEC. 27(IIIB ) AND SEC. 269UA(F) OF THE I. T. ACT, AN ASSESSEE IN SUCH CIRCUMSTANCES IS CONSIDERED AS THE OWNER OF THE BUILDINGS. THE APPELLANT FURTHER CLAIMED THAT SINCE THE WORD OWNE R HAD NOT BEEN DEFINED IN SEC. 32(1) OF THE I. T. ACT, THE OWNERSHIP COULD BE EITHER LEG AL OR BENEFICIAL AND CONSEQUENTLY THE APPELLANT WAS ENTITLED TO DEPRECIATION ON SUCH LEAS EHOLD BUILDINGS. THE ARS HAVE FINALLY SUBMITTED THAT SINCE IT WAS A LEGAL CLAIM WHICH COU LD NOT BE CALLED FRIVOLOUS, THE DISALLOWANCE OF SUCH CLAIM CANNOT ATTRACT PENALTY U /S. 271(1)(C). AGGRIEVED, REVENUE CAME IN APPEALS BEFORE US. 11. WE FIND THAT IT IS A SIMPLE CASE OF DISALLOWANC E OF DEPRECIATION AND ASSESSEE HAS TAKEN LAND ON LEASEHOLD FOR 99 YEARS. ONCE THE ASSESSEE HAS TAKEN LEASE FOR 99 YEARS THE ASSESSEE IS ENTITLED FOR DEPRECIATION. ONCE THE ASSESSEE IS EN TITLED FOR DEPRECIATION THEN WHERE IS THE QUESTION OF LEVY OF PENALTY. IN THE CASE OF LEASEH OLD PROPERTY THERE ARE MANY DECISIONS WHEREIN IT HAS HELD THAT THE LESSEE IS THE OWNER OF THE PRO PERTY WHERE LEASE EXCEEDS 10 YEARS PERIOD. EVEN HONBLE SUPREME COURT IN THE CASE OF CIT VS. MADRAS AUTO SERVICES (P) LTD. (1998) 233 ITR 468 (SC) HAS ALLOWED THE CLAIM OF ASSESSEE AS R EVENUE EXPENDITURE I.E. THE EXPENDITURE MADE ON CONSTRUCTION OF BUILDING ON LEASEHOLD PROPE RTY. IT MEANS THAT THE ISSUE IS HIGHLY DEBATABLE AND TWO VIEWS ARE POSSIBLE. EVEN OTHERWI SE, THE ASSESSEE FILED COMPLETE DETAILS OF DEPRECIATION BEFORE THE AO WHILE FILING THE RETURN OF INCOME AND ALSO DURING ASSESSMENT PROCEEDINGS. HENCE, THERE IS NO QUESTION OF CONCEA LMENT OF INCOME ON DEPRECIATION. IN VIEW OF THE ABOVE, WE ARE OF THE CONSIDERED VIEW THAT TH E CIT(A) HAS RIGHTLY DELETED THE PENALTY AND WE CONFIRM THE SAME. THIS ISSUE IN BOTH APPEALS OF REVENUE IS DISMISSED. 12. THE NEXT ISSUE IN THE APPEAL OF REVENUE IN AY 1 994-95 IS AGAINST THE ORDER OF CIT(A) DELETING THE PENALTY LEVIED BY AO U/S. 271(1)(C) OF THE ACT FOR CONCEALMENT OF INCOME EARNED FROM DIVIDEND. FOR THIS, REVENUE HAS RAISED FOLLOW ING GROUND NO.4: 5. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE , THE CIT(A) HAS ERRED IN DELETING THE PENALTY OF RS.52,32,500/- IN RESPECT OF CONCEALED I NCOME OF RS.91,00,000/- UNDER THE HEAD DIVIDEND INCOME WITHOUT APPRECIATING THE MERIT OF THE IMPOSITION OF PENALTY AND IGNORING THE FACTS OF CONCEALMENT OF INCOME. 8 ITA NO.2304, 2305/K/2010 & 136/K/2011 PEERLESS GENERAL FIN. & INV. CO. LTD... AY 1993-94, 1994-95 & 2008-09 13. BRIEFLY STATED FACTS ARE THAT THE AO ON ESTIMAT E BASIS MADE ADDITION OF DIVIDEND TO THE EXTENT OF RS.91 LAC ON 35 LAC UNITS OF UTI @ 26%. ASSESSEE CONTENDED THAT HE HAS NOT RECEIVED ANY DIVIDEND ON THIS 35 LACS UNIT BUT THE AO ESTIMA TED THE DIVIDEND @ 26% FOR THE REASON THAT FOR OTHER UNITS OF UTI THE DIVIDEND RECEIVED IS 26% , HE APPLIED THE SAME. THE ASSESSEE CARRIED THE MATTER TO THE CIT(A) AND TRIBUNAL. CIT(A) DELE TED THE ADDITION IN QUANTUM BUT TRIBUNAL RESTORED THE ADDITION ON LEGAL ISSUE REGARDING APPL ICABILITY OF SECTION 94(3) OF THE ACT. THE RELEVANT FINDING OF THE TRIBUNAL AT PAGES 28 AND 29 OF ITS ORDER DATED 30.06.2003 READS AS UNDER: WE HAVE TO EXAMINE AS TO WHETHER THERE HAS BEEN AN Y AVOIDANCE OF ANY INCOME-TAX ON A TRANSACTION OF SELLING AND BUYING BACK OF UNITS BY THE ASSESSEE IN RESPECT OF 77 LACS UNITS TO M/S. ASSAM CO. LTD. WITH REFERENCE TO THE CAPITA L GAIN SHOWN BY THE ASSESSEE AND THE DIVIDEND INCOME AVOIDED BY THE ASSESSEE. SINCE THI S ASPECT OF THE MATTER WAS NOT EXAMINED BY THE AO NOR FULL DETAILS AND INFORMATION S HAVE BEEN FURNISHED BY THE ASSESSEE BEFORE US WE THINK IT FIT AND PROPER THAT THE MATTE R BE RE-EXAMINED BY THE AO SO AS TO ASCERTAIN AS TO WHETHER THE ASSESSEE HAS BEEN ABLE TO PROVE ITS CASE AS PER THE PROVISIONS OF SUB-SEC. (3) OF SEC. 94 OF THE ACT. WE, THEREFO RE, REMIT THE MATTER BACK TO THE FILE OF THE AO FOR HIS FRESH ADJUDICATION AFTER GIVING REASONAB LE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE ASSESSEE SHALL BE UNDER ITS OBLIGATI ON TO PROVE ITS CASE TO THE SATISFACTION OF THE AO AS PROVIDED IN THE PROVISIONS OF SUB-SEC. (3 ) OF SEC. 94 OF THE ACT. WE ORDER ACCORDINGLY. THE AO MADE ADDITION AND THE SAME WAS CONFIRMED UPT O TRIBUNAL. THE ASSESSEE CARRIED THE MATTER TO THE HONBLE HIGH COURT AND HONBLE HIGH C OURT VIDE ITS ORDER DATED 26.09.2005 ADMITTED ASSESSEES APPEAL FOR AY 1994-95 ON THE PO INT OF DIVIDEND INCOME BEING A LEGAL ISSUE. THE AO INITIATED PENALTY PROCEEDINGS AND LEVIED PEN ALTY ON THIS DIVIDEND INCOME OF RS.91 LACS FOR CONCEALMENT OF INCOME U/S. 271(1)(C) OF THE ACT . AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO DELETED THE PENALTY VIDE PARA 15 OF HIS ORDER BY OBSERVING AS UNDER: 15. IN GROUND NO. 6, THE APPELLANT HAS OBJECTED TO THE LEVY OF PENALTY OF RS.52,32,500/- FOR CONCEALMENT OF THE APPELLANTS DIVIDEND INCOME OF RS.91,00,000/- WHICH WAS DELETED BY THE CIT(A) BUT RESTORED BY THE LD. TRIBUNAL. TH IS FACT CLEARLY ESTABLISHES THAT THE ADDITION OF DIVIDEND INCOME BY THE AO AT THE ASSESS MENT STAGE WAS MADE ON LEGAL GROUND. THIS IS ALSO THEREFORE NOT A FIT CASE FOR LEVY OF PENALTY U/S. 271(1)(C) OF THE I. T. ACT. THE PENALTY OF RS.52,32,500 IS THEREFORE DELE TED. AGGRIEVED, NOW REVENUE IS IN APPEAL BEFORE US. 14. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE TRIBUNAL IN THE QUANTUM APPEAL HAS RAISED THE ISSUE OF DEEMED DIVIDEND I.E. DIRECTING THE AO TO APPLY THE PROVISION OF SUB SECT ION (3) OF SECTION 94 OF THE ACT. WE FIND THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST REVENUE BY THE DECISION OF HONBLE SUPREME COURT THE CASE OF CIT V. WALFORT SHARE & STOCK BROKERS (P.) LTD. [2010] 326 ITR 1, . WHEREIN IT HAS BEEN HELD AS UNDER: 9 ITA NO.2304, 2305/K/2010 & 136/K/2011 PEERLESS GENERAL FIN. & INV. CO. LTD... AY 1993-94, 1994-95 & 2008-09 THE MAIN ISSUE INVOLVED IN THIS BATCH OF CASES IS- WHETHER IN A DIVIDEND STRIPPING TRANSACTION (ALLEGED TO BE COLOURABLE DEVICE BY THE DEPARTMENT) THE LOSS ON SALE OF UNITS COULD BE CONSIDERED AS EXPENDITURE IN RELATIO N TO EARNING OF DIVIDEND INCOME EXEMPT UNDER SECTION 10(33), DISALLOWABLE UNDER SE CTION 14A OF THE ACT ? ACCORDING TO THE DEPARTMENT, THE DIFFERENTIAL AMOUNT BETWEEN THE PURCHASE AND SALE PRICE OF THE UNITS CONSTITUTED 'EXPENDITURE INCURRED' BY THE ASS ESSEE FOR EARNING TAX-FREE INCOME, HENCE, LIABLE TO BE DISALLOWED UNDER SECTION 14A. A S A RESULT OF THE DIVIDEND PAYOUT, ACCORDING TO THE DEPARTMENT, THE NAV OF THE MUTUAL FUND, WHICH WAS RS. 17.23 PER UNIT ON THE RECORD DATE, FELL TO RS. 13.23 ON MARCH 27, 2000 (THE NEXT TRADING DATE) AND, THUS, RS. 4 PER UNIT, ACCORDING TO THE DEPARTM ENT, CONSTITUTED 'EXPENDITURE INCURRED' IN TERMS OF SECTION 14A OF THE ACT. IN I TS RETURN, THE ASSESSEE, THUS, CLAIMED THE DIVIDEND RECEIVED AS EXEMPT UNDER SECTION 10(33 ) AND ALSO CLAIMED SET OFF FOR THE LOSS AGAINST ITS TAXABLE INCOME, THEREBY SEEKING TO REDUCE ITS TAX LIABILITY AND GAIN TAX ADVANTAGE. THE INSERTION OF SECTION 14A WITH RETROSPECTIVE EFF ECT IS THE SERIOUS ATTEMPT ON THE PART OF PARLIAMENT NOT TO ALLOW DEDUCTION IN RESPECT OF ANY EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME, WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT AGAINST THE TAXABLE INCOME (SEE CIRCULAR NO. 14 OF 2001 DATED NOVEMBER 22, 2001). IN OTHER WORDS, SECTION 14A CLARIFIES THAT E XPENSES INCURRED CAN BE ALLOWED ONLY TO THE EXTENT THEY ARE RELATABLE TO THE EARNING OF TAXABLE INCOME. IN MANY CASES THE NATURE OF EXPENSES INCURRED BY THE ASSESSEE MAY BE RELATABLE PARTLY TO THE EXEMPT INCOME AND PARTLY TO THE TAXABLE INCOME. IN THE ABS ENCE OF SECTION 14A, THE EXPENDITURE INCURRED IN RESPECT OF EXEMPT INCOME WAS BEING CLAI MED AGAINST TAXABLE INCOME. THE MANDATE OF SECTION 14A IS CLEAR. IT DESIRES TO CURB THE PRACTICE TO CLAIM DEDUCTION OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME AGAI NST TAXABLE INCOME AND AT THE SAME TIME AVAIL OF THE TAX INCENTIVE BY WAY OF EXEMPTION OF EXEMPT INCOME WITHOUT MAKING ANY APPORTIONMENT OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME. THE BASIC REASON FOR INSERTION OF SECTION 14A IS THAT CERTAIN INCOME S ARE NOT INCLUDIBLE WHILE COMPUTING TOTAL INCOME AS THESE ARE EXEMPT UNDER CERTAIN PROV ISIONS OF THE ACT. IN THE PAST, THERE HAVE BEEN CASES IN WHICH DEDUCTION HAS BEEN SOUGHT IN RESPECT OF SUCH INCOMES WHICH IN EFFECT WOULD MEAN THAT TAX INCENTIVES TO CERTAI N INCOMES WAS BEING USED TO REDUCE THE TAX PAYABLE ON THE NON-EXEMPT INCOME BY DEBITIN G THE EXPENSES, INCURRED TO EARN THE EXEMPT INCOME, AGAINST TAXABLE INCOME. THE BASI C PRINCIPLE OF TAXATION IS TO TAX THE NET INCOME, I.E., GROSS INCOME MINUS THE EXPENDITUR E. ON THE SAME ANALOGY THE EXEMPTION IS ALSO IN RESPECT OF NET INCOME. EXPENSE S ALLOWED CAN ONLY BE IN RESPECT OF EARNING OF TAXABLE INCOME. THIS IS THE PURPORT OF S ECTION 14A. IN SECTION 14A, THE FIRST PHRASE IS 'FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THIS CHAPTER' WHICH MAKES IT CLEAR THAT VARIOUS HEADS OF INCOME AS PRES CRIBED UNDER CHAPTER IV WOULD FALL WITHIN SECTION 14A. THE NEXT PHRASE IS, 'IN RELATIO N TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT'. IT MEANS THAT IF AN INCOME DOES NOT FORM PART OF TOTAL INCOME, THEN THE RELATED EXPENDITURE IS OUTSIDE THE AMBIT OF THE APPLICABILITY OF SECTION 14A. FURTHER, SECTION 14 SPECIFIES FIVE HEADS OF IN COME WHICH ARE CHARGEABLE TO TAX. IN ORDER TO BE CHARGEABLE, AN INCOME HAS TO BE BROUGHT UNDER ONE OF THE FIVE HEADS. SECTIONS 15 TO 59 LAY DOWN THE RULES FOR COMPUTING INCOME FOR THE PURPOSE OF CHARGEABILITY TO TAX UNDER THOSE HEADS. SECTIONS 15 TO 59 QUANTIFY THE TOTAL INCOME CHARGEABLE TO TAX. THE PERMISSIBLE DEDUCTIONS ENUME RATED IN SECTIONS 15 TO 59 ARE NOW TO BE ALLOWED ONLY WITH REFERENCE TO INCOME WHICH I S BROUGHT UNDER ONE OF THE ABOVE HEADS AND IS CHARGEABLE TO TAX. IF AN INCOME LIKE D IVIDEND INCOME IS NOT A PART OF THE TOTAL INCOME, THE EXPENDITURE/DEDUCTION THOUGH OF T HE NATURE SPECIFIED IN SECTIONS 15 TO 59 BUT RELATED TO THE INCOME NOT FORMING PART OF TH E TOTAL INCOME COULD NOT BE ALLOWED AGAINST OTHER INCOME INCLUDIBLE IN THE TOTAL INCOME FOR THE PURPOSE OF CHARGEABILITY TO TAX. THE THEORY OF APPORTIONMENT OF EXPENDITURE BET WEEN TAXABLE AND NON-TAXABLE HAS, IN PRINCIPLE, BEEN NOW WIDENED UNDER SECTION 14A. R EADING SECTION 14 IN JUXTAPOSITION WITH SECTIONS 15 TO 59, IT IS CLEAR THAT THE WORDS 'EXPENDITURE INCURRED' IN SECTION 14A REFERS TO EXPENDITURE ON RENT, TAXES, SALARIES, IN TEREST, ETC., IN RESPECT OF WHICH 10 ITA NO.2304, 2305/K/2010 & 136/K/2011 PEERLESS GENERAL FIN. & INV. CO. LTD... AY 1993-94, 1994-95 & 2008-09 ALLOWANCES ARE PROVIDED FOR (SEE SECTIONS 30 TO 37) . EVERY PAY-OUT IS NOT ENTITLED TO ALLOWANCES FOR DEDUCTION. THESE ALLOWANCES ARE ADMI SSIBLE TO QUALIFIED DEDUCTIONS. THESE DEDUCTIONS ARE FOR DEBITS IN THE REAL SENSE. A PAY-BACK DOES NOT CONSTITUTE AN 'EXPENDITURE INCURRED' IN TERMS OF SECTION 14A. EVE N APPLYING THE PRINCIPLES OF ACCOUNTANCY, A PAY-BACK IN THE STRICT SENSE DOES NO T CONSTITUTE AN 'EXPENDITURE' AS IT DOES NOT IMPACT THE PROFIT AND LOSS ACCOUNT. PAY-BA CK OR RETURN OF INVESTMENT WILL IMPACT THE BALANCE-SHEET WHEREAS A RETURN ON INVEST MENT WILL IMPACT THE PROFIT AND LOSS ACCOUNT. THE COST OF ACQUISITION OF AN ASSET IMPACT S THE BALANCE-SHEET. RETURN OF INVESTMENT BRINGS DOWN THE COST. IT WILL NOT INCREA SE THE EXPENDITURE. HENCE, EXPENDITURE, RETURN ON INVESTMENT, RETURN OF INVEST MENT AND COST OF ACQUISITION ARE DISTINCT CONCEPTS. THEREFORE, ONE NEEDS TO READ THE WORDS 'EXPENDITURE INCURRED' IN SECTION 14A IN THE CONTEXT OF THE SCHEME OF THE ACT AND, IF SO READ, IT IS CLEAR THAT IT DISALLOWS CERTAIN EXPENDITURE INCURRED TO EARN EXEM PT INCOME FROM BEING DEDUCTED FROM OTHER INCOME WHICH IS INCLUDIBLE IN THE 'TOTAL INCOME' FOR THE PURPOSE OF CHARGEABILITY TO TAX. AS STATED ABOVE, THE SCHEME O F SECTIONS 30 TO 37 IS THAT PROFITS AND GAINS MUST BE COMPUTED SUBJECT TO CERTAIN ALLOWANCE S FOR DEDUCTIONS/EXPENDITURE. THE CHARGE IS NOT ON GROSS RECEIPTS, IT IS ON PROFITS A ND GAINS. PROFITS HAVE TO BE COMPUTED AFTER DEDUCTING LOSSES AND EXPENSES INCURRED FOR BU SINESS. A DEDUCTION FOR EXPENDITURE OR LOSS WHICH IS NOT WITHIN THE PROHIBITION MUST BE ALLOWED IF IT IS ON THE FACTS OF THE CASE A PROPER DEBIT ITEM TO BE CHARGED AGAINST THE INCOMINGS OF THE BUSINESS IN ASCERTAINING THE TRUE PROFITS. A RETURN OF INVESTME NT OR A PAY-BACK IS NOT SUCH A DEBIT ITEM AS EXPLAINED ABOVE, HENCE, IT IS NOT 'EXPENDIT URE INCURRED' IN TERMS OF SECTION 14A. EXPENDITURE IS A PAY-OUT. IT RELATES TO DISBUR SEMENT. A PAY-BACK IS NOT AN EXPENDITURE IN THE SCHEME OF SECTION 14A. FOR ATTRA CTING SECTION 14A, THERE HAS TO BE A PROXIMATE CAUSE FOR DISALLOWANCE, WHICH IS ITS RELA TIONSHIP WITH THE TAX EXEMPT INCOME. PAY-BACK OR A RETURN OF INVESTMENT IS NOT SUCH PROX IMATE CAUSE, HENCE, SECTION 14A IS NOT APPLICABLE IN THE PRESENT CASE. THUS, IN THE AB SENCE OF SUCH PROXIMATE CAUSE FOR DISALLOWANCE, SECTION 14A CANNOT BE INVOKED. IN OUR VIEW, A RETURN OF INVESTMENT CANNOT BE CONSTRUED TO MEAN 'EXPENDITURE' AND IF IT IS CONSTRUED TO MEAN 'EXPENDITURE' IN THE SENSE OF PHYSICAL SPENDING STILL THE EXPENDI TURE WAS NOT SUCH AS COULD BE CLAIMED AS AN 'ALLOWANCE' AGAINST THE PROFITS OF THE RELEVA NT ACCOUNTING YEAR UNDER SECTIONS 30 TO 37 OF THE ACT AND, THEREFORE, SECTION 14A CANNOT BE INVOKED. HENCE, THE TWO ASSET THEORY IS NOT APPLICABLE IN THIS CASE AS THERE IS N O EXPENDITURE INCURRED IN TERMS OF SECTION 14A. IN TERM OF THE ABOVE, WE CONFIRM THE ORDER OF CIT(A ) DELETING THE PENALTY LEVIED BY THE AO WHEREIN IT IS HELD THAT THE DEEMED DIVIDEND OR ESTI MATED DIVIDEND CANNOT BE SUBJECT MATTER OF PENALTY U/S. 271(1)(C) OF THE ACT AND NO PENALTY CA N BE LEVIED FOR CONCEALMENT OF INCOME ON SUCH INCOME. ACCORDINGLY, THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 15. NOW, WE TAKE UP ITA NO.136/K/2011. THE FIRST I SSUE IN THIS APPEAL OF REVENUE IS AGAINST THE ORDER OF CIT(A) DELETING THE ADDITION M ADE BY AO BY INVOKING THE PROVISION OF RULE 8D READ WITH SECTION 14A OF THE ACT AT RS.2,7 7,57,075/- ON ACCOUNT OF INTEREST AND A SUM OF RS.20,24,545/- AS DEMAT ACCOUNT CHARGES. FOR TH IS REVENUE HAS RAISED FOLLOWING GROUND NOS. 1 TO 3: 1. THAT IN THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.2,77,57,075/- MADE U/S. 14A OF THE ACT READ WITH RULE 8D OF THE I.T. RULE AS EXPENSES RELATED TO EXEMPTED INCOME, WITHOUT APPLYING THE PROVISION OF RULE 8D PROPERLY. 11 ITA NO.2304, 2305/K/2010 & 136/K/2011 PEERLESS GENERAL FIN. & INV. CO. LTD... AY 1993-94, 1994-95 & 2008-09 2. THAT IN THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.2,77,57,075/- ADDED AS INTEREST AS P ER PROVISION OF RULE 8D(2)(II), BY CONSIDERING THE INTEREST COMPONENT AS NIL. 3. THAT IN THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.20,24,545/-/- AS EXP ENSES RELATED TO EXEMPTED INCOME, WITHOUT APPLYING PROVISION OF RULE 8D(2)(I) OF THE I.T. RULE, 1962 AND IGNORING THE DIRECT NEXUS BETWEEN EXEMPTED DIVIDEND INCOME AND DEMAT AC COUNT. 16. BRIEFLY STATED FACTS ARE THAT THE AO NOTED THAT THE ASSESSEE COMPANY HAS EARNED INTEREST OF RS.2,51,32,798/- FROM TAX FREE BONDS AND A SUM O F RS.1,94,94,600/- AS DIVIDEND INCOME. THESE TWO INCOMES ARE EXEMPTED INCOMES. ACCORDING TO AO, THE ASSESSEE HAS NOT ATTRIBUTED ANY EXPENSES RELATED TO THIS TAX FREE ITEM. HENCE, HE COMPUTED THE DISALLOWANCE BY INVOKING RULE 8D READ WITH SECTION 14A OF THE ACT AND HE CAL CULATED THE DISALLOWANCE ON ACCOUNT OF INTEREST AT RS.2,77,57,075/- AS UNDER: AS PER RULE 8D(2)(I) EXPENDITURE DIRECTLY RELATIN G TO EXEMPT INCOME RS. NIL AS PER RULE 8D(2)(II) A. INTEREST DEBITED TO P&L A/C. RS.160,40,30, 000 B. AVERAGE VALUE OF INVESTMENT YIELDING THE EXEMPT INCOME NATURE OF EXEMPT INCOME AVERAGE VALUE TAX FREE INTEREST (RS.2,51,32,798) RS.27,12,73,26 6 (ANN-A) DIVIDEND (RS.1,94,94,600) RS.63,77,79,257 ANN-B) RS.90,90,52,523 C. AVERAGE OF TOTAL ASSETS AS IN BALANCE SHEET AS ON 31.03.07 AS ON 31.03.08 AVERAGE RS.5292,72,50,000 RS.5113,76,70,000 RS.5253,24,60 ,000 APPLY THE FORMULA AXB C RS.160,40,30,000 X RS.90,90,52,523 = RS.2,77,57,075 RS.5253,24,60,000 THE AO ALSO MADE DISALLOWANCE OF DEMAT ACCOUNT EXPE NSES AT RS.20,24,545/-. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO DELETE D THE DISALLOWANCE OF INTEREST OF RS.2,77,57,075/- AND ALSO THE DISALLOWANCE OF DEMAT EXPENSES AT RS.20,24,545/- BY OBSERVING AS UNDER: I HAVE GONE THROUGH THE JUDICIAL DECISIONS REFERRE D TO BY THE A.R. IN HIS REPLY TO THE A.O.S REMAND REPORT. IN THE CASE OF P. FIRM MUAR ( 56-ITR-67), R. B. JEESA RAM FATEH CHAND (81-ITR-409, 442) AND D.I. VS. POORAN MALL (9 6-ITR- 390) THE HONBLE SUPREME COURT HAD HELD THAT AN ASSESSEE CANNOT BE TAXED ON THE PRINCIPLE OF ESTOPPEL. A SIMILAR VIEW HAD BEEN TAKEN BY THE APEX COURT IN THE CASE O F NATIONAL THERMAL POWER CO. LTD. (229-ITR-363) IN WHICH IT HAS BEEN OBSERVED THAT A THE PURPOSE OF THE ASSESSMENT PROCEEDINGS BEFORE THE TAXING AUTHORITIES IS TO COR RECTLY ASSESS A THE TAX LIABILITY OF AN ASSESSEE IN ACCORDANCE WITH LAW. RESPECTFULLY FOLL OWING THESE DECISIONS, THE CONTENTION OF THE A.O. IN HIS REMAND REPORT THAT THE REVISED C OMPUTATION OF DISALLOWANCE UNDER RULE 8D SHOULD NOT BE ACCEPTED IN VIEW OF THE ORIGI NAL COMPUTATION SUBMITTED BY THE APPELLANT ITSELF HAS NO LOCUS STANDI, IF THE REV SED COMPUTATION IS LEGALLY AND FACTUALLY CORRECT. TO REPEAT THE A.O., IN HIS REMAND REPORT H AS NOT DISPUTED THE REVISED COMPUTATION ON MERIT. APPARENTLY, HE DID NOT FIND A NY MATERIAL OR GROUND FOR REJECTING 12 ITA NO.2304, 2305/K/2010 & 136/K/2011 PEERLESS GENERAL FIN. & INV. CO. LTD... AY 1993-94, 1994-95 & 2008-09 IT. I HAVE ALSO GONE THROUGH THE ARGUMENTS AND SUBMISSI ON OF THE A.R REDUCING THE DSALLOWANCE UNDER RULE 8D (2)(II) FROM RS.2,77,57, 075 AS SHOWN IN THE ORIGINAL COMPUTATION TO NIL AS IN THE REVISED COMPUTATION. T HE APPELLANT COMPANY WAS REQUIRED TO MAKE INVESTMENT IN A PARTICULAR MANNER AS PER TH E GUIDELINES PRESCRIBED BY THE RBI IN PARA-6 OF THE RESIDUARY NON-BANKING COMPANIES (R ESERVE BANK) DIRECTION 1987 AND THE SAME INVESTMENTS ARE MONITORED BY THE RBI THROU GH THE MONTHLY STATEMENTS CERTIFIED BY THE COMPANYS AUDITORS TO THE RBI. IT IS THEREFO RE CLEAR THAT THE INTEREST OF RS.160,40,30,000 PAYABLE TO THE CERTIFICATE-HOLDERS AS DEBITED TO ITS P&L ACCOUNT IS ATTRIBUTABLE TO THE INVESTMENTS AS CERTIFIED BY ITS AUDITORS. THE EXEMPT DIVIDEND INCOME AND TAX FREE INTEREST FROM BONDS WERE THEREFORE MAD E OUT OF ITS OWN FUND CONSISTING OF SHARE CAPITAL AND RESERVE. THE A.O. IS THEREFORE DI RECTED TO REDUCE THE DISALLOWANCE U/S.14A/RULE-8D TO RS.45,45,263 AS SHOWN BY THE APP ELLANT IN ITS REVISED COMPUTATION. I HAVE GONE THROUGH THE A.OS ORDER DISALLOWING THE DEMAT EXPENSES OF RS.20,24,545. THE CONTENTION OF THE APPELLANT THAT THE PURPOSE OF SHARE HOLDING BY IT IS NOT ONLY FOR EARNING FROM THE DIVIDEND INCOME BUT ALSO FOR DERIV ING CAPITAL GAIN HAS MERIT. IN FACT, I FIND FROM THE ASSTT. ORDER ITSELF THAT THE APPELLAN T HAD SHOWN BOTH LONG TERM AND SHORT TERM CAPITAL GAIN/LOSS WHICH HAD BEEN ASSESSED BY T HE AO. HENCE, KEEPING IN MIND THE HONBLE SUPREME COURTS DECISION REFERRED TO ABOVE, THE DEMAT EXPENSES CANNOT BE TREATED AS DIRECT EXPENSES FOR EARNING DIVIDEND INC OME. THE AO IS DIRECTED TO DELETE IT. AGGRIEVED, NOW REVENUE IS IN APPEAL BEFORE US. 17. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. IN THE PRESENT CASE BEFORE US THE ASSESSEE DEBITED A SUM OF RS.160,40,30,000 TO ITS P&L A/C ON ACCOUNT OF INTEREST PAYABLE TO CERTIFICATE HOLDERS. THE ASSESSEE IS A RESIDUARY NON-BANKING FINANCE COMPANY. IN THE COURSE OF CARRYING ON ITS F INANCING BUSINESS, IT FLOATED SEVERAL SMALL SAVING SCHEMES IN WHICH THE PUBLIC DEPOSITED MONEY WITH IT. AGAINST SUCH DEPOSITS, INTEREST ON ACCRUAL BASIS IS DEBITED TO P&L A/C TO THE TUNE OF RS.160.40 CR, WHICH RELATES TO SUCH ACCRUED INTEREST. AS PER THE BALANCE SHEET OF THE ASSESSEE AS ON 31.3.08, THE TOTAL AMOUNT OF DEPOSITS FROM THE PUBLIC IS RS.4301.98, WHICH INCLUDED UNPAI D/ UNCLAIMED MATURITY VALUE OF CERTIFICATES AMOUNTING TO RS.1394.68 CR. SINCE NO INTEREST IS PA ID OR PAYABLE ON UNPAID / UNCLAIMED MATURITY VALUE, INTEREST OF RS.160.40 CR. DEBITED T O P&L A/C RELATED TO TOTAL DEPOSIT OF RS.2907.30 CR. FROM THE CERTIFICATE HOLDERS. THE AS SESSEE BEFORE US STATED THAT IT BEING A RESIDUARY NON-BANKING FINANCE COMPANY, ITS ACTIVITI ES ARE DIRECTLY CONTROLLED BY THE RESERVE BANK OF INDIA. IN ORDER TO PROTECT THE INTEREST OF THE CERTIFICATE HOLDERS, THE RBI ISSUED GUIDELINES DIRECTING THE ASSESSEE TO INVEST ITS FUN D IN A PARTICULAR MANNER. SUCH GUIDELINES ARE CONTAINED IN RESIDUARY NON-BANKING COMPANIES (RESER VE BANK) DIRECTION 1987. AS THESE GUIDELINES WERE ISSUED BY THE RBI IN EXERCISE OF IT S STATUTORY POWERS CONFERRED BY SEC.45J AND 45K OF THE RBI ACT 1934, THESE WERE MANDATORY AND B INDING ON THE ASSESSEE. AS PER PARA-6 OF THESE DIRECTION THE ASSESSEE WAS REQUIRED TO INVEST ITS FUND REPRESENTING ITS AGGREGATE LIABILITY TO 13 ITA NO.2304, 2305/K/2010 & 136/K/2011 PEERLESS GENERAL FIN. & INV. CO. LTD... AY 1993-94, 1994-95 & 2008-09 ITS CERTIFICATE-HOLDERS IN APPROVED SECURITIES, FIX ED DEPOSITS / CERTIFICATE OF DEPOSITS OF SCHEDULED COMMERCIAL BANKS / FINANCIAL INSTITUTIONS , IN GOVERNMENT SECURITIES, DEBENTURES ETC. AS A RESULT, THE INTEREST OF RS.160.40 CR. DEBITED TO ITS P&L A/C IS DIRECTLY ATTRIBUTABLE TO ITS INCOME OR RECEIPT BY WAY OF INTEREST FROM INVESTMEN TS MADE IN TERMS OF PARA-6 OF RBI DIRECTION E.G. APPROVED SECURITIES FD / CDS FROM COMMERCIAL B ANKS AND CENTRAL AND STATE GOVERNMENT SECURITIES ETC. REFERRED TO ABOVE. 18. IN THE ABOVE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE ASSESSEES INVESTMENTS IN BONDS AND SHARES IN COMPANIES AND UNITS OF MUTUAL FUNDS W HICH GENERATED ITS EXEMPT DIVIDEND INCOME OR TAX FREE INTEREST WERE MADE OUT OF ITS OWN FUNDS INSTEAD OF FUNDS BORROWED FROM THE CERTIFICATE HOLDERS. AS A RESULT, NEITHER THE FUND BORROWED FROM THE CERTIFICATE HOLDERS NOR THE INTEREST OF RS.160.40 CR. PAYABLE ON SUCH BORROWED FUND COULD BE ATTRIBUTED TO THE EXEMPT DIVIDEND INCOME OR TAX FREE INTEREST AND HENCE NO P ART OF THE INTEREST OF RS.160.40 CR. COULD BE DISALLOWED IN TERMS OF RULE-8D(2)(II) OF THE RULES. IF SO, THE DISALLOWANCE IN TERMS OF RULE 8D(2)(II) OF THE RULES IS REQUIRED TO BE TAKEN AT N IL AS SHOWN BY ASSESSEE IN ITS ENCLOSED REVISED COMPUTATION OF DISALLOWANCE UNDER RULE-8D OF THE RU LES. THE ASSESSEE IS ABLE TO PROVE THAT THE EXEMPTED INCOME EARNED IS OUT OF ITS OWN FUNDS NOT FROM BORROWED FUNDS AND IN SUCH CIRCUMSTANCES CIT(A) HAS RIGHTLY DELETED THE ADDITI ON AND WE CONFIRM THE SAME. 19. AS REGARDS TO THE ISSUE OF D-MAT CHARGES, WE FI ND THAT THE AO HELD THAT THE INCOME FROM SHARES HELD BY ASSESSEE IN ITS INVESTMENT ACCOUNT W AS DIVIDEND INCOME AND OF RS.1,94,96,400/-. AS THE ASSESSEE BEFORE US COULD NOT SUBSTANTIATE HO W THIS DEMAT EXPENSES ARE CORRELATED WITH LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN, AS CONTENDED BY THE ASSESSEE, WE FIND NO REASON TO BELIEVE THE ARGUMENT OF ASSESSEE THAT THE DEMAT CHARGES ARE NOT ON ACCOUNT OF DIVIDEND INCOME. CERTAINLY, THE DIVIDEND INCOME IS EARNED OUT OF INVESTMENTS HELD IN DEMAT ACCOUNT BUT WHAT IS THE PROPORTION OF THIS EXPENDIT URE, WE CANNOT SAY AT THIS STAGE BECAUSE FACTS ARE NOT AVAILABLE REGARDING PROPORTIONATE EXPENSES. ACCORDINGLY, THIS ISSUE OF REVENUES APPEAL IS PARTLY ALLOWED. 20. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) DELETING THE DISALLOWANCE OF LONG TERM CAPITAL LOSS. FOR THIS R EVENUE HAS RAISED FOLLOWING GROUND NO.4: 4. THAT IN THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.3,16,71,69 0/- UNDER LONG TERM CAPITAL LOSS WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE COM PANY CONSIDERED THE PRICE PER SHARE OF PAFL @ RS.1/- ARBITRARILY. 14 ITA NO.2304, 2305/K/2010 & 136/K/2011 PEERLESS GENERAL FIN. & INV. CO. LTD... AY 1993-94, 1994-95 & 2008-09 21. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE COMP ANY WAS THE OWNER OF 53.59 LACS OF SHARES OF PEERLESS ABASAN FINANCE LTD. (IN SHORT PAFL). T HIS COMPANY INCURRED HEAVY LOSSES AND ENTERED INTO AN MOU WITH SHRISTI INFRASTRUCTURE DEV ELOPMENT CORPORATION LTD. (IN SHORT SIDCL) AND ITS PROMOTER MILAN COMMERCIAL LTD. FOR S ELLING SHARES OF THIS COMPANY AT A PRICE NOT EXCEEDING RS.53.59 LACS. BY WAY OF THIS MOU, T HE ASSESSEE GOT THE SHARES OF THIS COMPANY VALUED BY A CHARTERED ACCOUNTANT FIRM RAY & RAY, WH O COMPUTED THE VALUE PER SHARE OF PAFL AT RS.1.10 PER SHARE ON THE BASIS OF NET WORTH OF T HE COMPANY. ACCORDING TO AO, THE MARKET PRICE OF THE SHARE OF PAFL SHOULD BE VALUED AT RS.5 .91. THEREFORE, HE COMPUTED LONG TERM CAPITAL LOSS OF SALE OF SHARES AT RS.12,58,35,981/- AS AGAINST THE CLAIM OF THE ASSESSEE AT RS.15,75,07,671/-. ACCORDINGLY, AO DISALLOWED LONG TERM CAPITAL LOSS TO THE EXTENT OF RS.3,16,71,690/-. AGGRIEVED, ASSESSEE PREFERRED APP EAL BEFORE CIT(A), WHO DELETED THE DISALLOWANCE BY OBSERVING AS UNDER: FROM THE ASSTT. ORDER IT IS APPARENT THAT THE A.O. HAD COMPUTED THE MARKET VALUE OF SHARES OF M/S PAFL @ RS.5.91 PER SHARE ON THE BASIS OF NET WORTH OF THE AMALGAMATED COMPANY. THE APPELLANT HAD CLAIMED THAT IT HAD NO C ONNECTION WHATSOEVER WITH M/S SRISHTI OR ITS PROMOTER M/S MILLAN COMMERCIAL LTD. THE MOU DT.25.11.05 WAS ENTERED WITH THEM IN THE NORMAL COURSE AND THE SHARE PRICE (NOT EXCEEDING RS.53,59,000) WAS FIXED AT ARMS LENGTH RELYING ON THE VALUATION REPOR T GIVEN BY M/S RAY & RAY. ALTHOUGH THE DOCUMENTARY EVIDENCES REFERRED TO ABOVE WERE FURNIS HED BEFORE THE A.O. AT THE ASSESSMENT STAGE, HE HAD NOT DISPUTED THE GENUINENESS OF SUCH EVIDENCES. HE HAS ALSO NOT ALLEGED ANY COLLUSION IN THE MATTER OF EXECUTION OF THE MOU DT. 25.11.05 NOR HE HAS ALLEGED THAT THE APPELLANT HAD RECEIVED ANY AMOUNT HIGHER THAN THE S UM OF RS.53,59,000 ON THE SALE OF THE SHARES. WHILE THE SALE PRICE OF THE SHARES WAS ALRE ADY FIXED IN THE YEAR 2005 AT THE TIME OF EXECUTION OF THE MOU, THE A.O. HAD COMPUTED THE NET WORTH OF THESE SHARES @ RS.5.91 PER SHARE AFTER THE AMALGAMATION OF THE TWO COMPANIES I N F.Y. 2007-08. THERE IS, THUS HARDLY ANY REASON FOR ESTIMATING THE VALUE OF SHARE OF M/S PAFL @ 5.91 PER SHARE AND RE- COMPUTING THE LONG-TERM CAPITAL LOSS ON THAT BASIS. THE DISALLOWANCE OF LONG- TERM CAPITAL LOSS OF RS.3,16,71,690 IS THEREFORE DELETED. AGGRIEVED, NOW REVENUE IS IN APPEAL BEFORE US. 22. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSEE COMPANY IS A PROMOTER OF PAFL, WHICH IS CONSISTENTLY INCURRING LOSSES. THIS COMPANY FINALLY DECIDED TO SELL ITS S HAREHOLDING IN PAFL. ACCORDINGLY, AN MOU DATED 25.11.2005 WAS ENTERED WITH SIDCL. THIS MOU IS ENCLOSED IN ASSESSEES PAPER BOOK AT PAGES 36 TO 39. IN VIEW OF CLAUSE 10 OF THIS MOU, ASSESSEES ENTIRE SHAREHOLDING IN PAFL WAS AGREED TO BE TRANSFERRED @ RS.5/- PER SHARE OF THE AMALGAMATED COMPANY BUT NOT EXCEEDING RS.53.59 LACS. ACCORDINGLY, THE VALUE OF THE SHARE S OF THIS COMPANY WAS WORKED OUT @ RS.1/- PER SHARE. THE ASSESSEE ALSO OBTAINED A VALUATION REPORT OF THE EQUITY SHARES OF PAFL AND AN AUDITOR FIRM VIDE ITS REPORT DATED 07.07.2005 VALUE D THE SHARE OF PAFL @ RS.1.10 PER SHARE. THIS VALUATION REPORT WAS AVAILABLE BEFORE THE AO A T THE TIME OF ASSESSMENT AND EVEN BEFORE 15 ITA NO.2304, 2305/K/2010 & 136/K/2011 PEERLESS GENERAL FIN. & INV. CO. LTD... AY 1993-94, 1994-95 & 2008-09 CIT(A). WE FIND FROM THE ASSESSMENT ORDER THAT THE AO HAS NOT DISPUTED THE VALUATION REPORT ON THE MERITS OF THIS VALUATION. PRIOR TO OMISSION OF SECTION 52 OF THE ACT THE AO EMPOWERED TO ESTIMATE THE MARKET VALUE OF CAPITAL ASSET I.E. THE EQUITY SHARES ALSO. BUT IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ITO VS. K. P. VARGHESE 131 ITR 597 (SC) WHEREIN IT IS HELD THAT THE AO HAS NO POWER TO ENHANCE THE SAL E PRICE UNLESS HE PROVES THAT THE CONSIDERATION FOR TRANSFER OF CAPITAL ASSET WAS UND ERSTATED IN THE INSTRUMENT OR THE CONSIDERATION RECEIVED IS LESSER THAN WHAT ACTUALLY IT IS. IN TH E PRESENT CASE BEFORE US, THERE IS NO EVIDENCE BEFORE AO THAT ASSESSEE HAS RECEIVED AMOUNT HIGHER THAN THE DECLARED SUM OF RS.53.59 LACS AND THAT ALSO WITHOUT ANY BASIS. IN VIEW OF THE ABOVE FACTS, WE ARE OF THE CONSIDERED VIEW THAT THE CIT(A) HAS RIGHTLY DELETED THE SAME. WE CONFIRM THE SAME. THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 23. IN THE RESULT, APPEALS OF REVENUE IN ITA NO. 23 04 & 2305/K/2010 ARE DISMISSED. APPEAL OF REVENUE IN ITA NO. 136/K/2011 IS PARTLY ALLOWED. 24. ORDER IS PRONOUNCED IN THE OPEN COURT ON 30.06. 2014. SD/- SD/- , ! , (SHAMIM YAHYA ) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 30TH JUNE, 2014 -. #/0 1 JD.(SR.P.S.) 2 *3 4 3%5- COPY OF THE ORDER FORWARDED TO: 1 . () / APPELLANT DCIT, CIRCLE-3, KOLKATA. 2 *+() / RESPONDENT M/S. THE PEERLESS GENERAL FINANCE & I NVESTMENT COMPANY LTD., 3, ESPLANADE EAST, KOLKATA-700 069. 3 . # ( )/ THE CIT(A), KOLKATA 4. 5. # / CIT KOLKATA 3:; *# / DR, KOLKATA BENCHES, KOLKATA +3 */ TRUE COPY, #