D Pauls Capital Ltd., V. ITO, Ward-10(3),

ITA 2410/DEL/2004

• Counselvise Citation: 241020114 RSA 2004
• Duration Of Justice: 7 year(s) 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 17-10-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 17-05-2004
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Assessee Lawyers: ASHWANI TANEJA; TARUN KUMAR ARS
• Keywords: Capital asset; Depreciation; Opportunity of being heard; Period of limitation; Reasonable cause; Right to appeal; Commercial expediency; Time period of passing order; Condonation of delay
• Section: 143(3); 37(1); 37; 28; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI F BENC H BEFORE SHRI R.P. TOLANI, JM & SHRI A.N. PAHUJA, AM ITA N O.2410/DEL./2004 ITA NO.2105/DEL./2007 ITA NO.1781/DEL./2009 ASSESSMENT YEAR:2001-02 M/S D. PAUL CAPITAL LTD., 12/163, FIRST FLOOR, MALVIYA NAGAR, NEW DELHI V/S . INCOME TAX OFFICER, WARD 10(3), NEW DELHI [PAN/GIR:AAACD 3019 KDP6] (APPELLANT) (RESPONDENT) ASSESSEE BY S/SHRI ASHWANI TANEJA & TARUN KUMAR, ARS REVENUE BY MS. Y. KAKKAR, DR DATE OF HEARING 17-10-2011 DATE OF PRONOUNCEMENT 31-10-2011 O R D E R A.N.PAHUJA:- THESE THREE APPEALS BY THE ASSESSEE-FIRST QUANTUM A PPEAL IN ITA NO.2410/DEL./2004 AGAINST AN ORDER DATED 25 TH FEBRUARY, 2004, SECOND PENALTY APPEAL IN ITA NO.2105/DEL./2007 AGAINST AN ORDER DATED 12.2.2007 AND THIRD IN ITA NO.1781/DEL./2009 AGAINS T AN ORDER DATED 12.2.2007 U/S 154 OF THE INCOME-TAX ACT, 1961[HEREI NAFTER REFERRED TO AS THE ACT] OF THE LEARNED CIT(A)-XIII, NEW DELHI, RAISE THE FOLLOWING GROUNDS:- ITA NO.2410/DEL./2004 1 THE ORDER OF THE LEARNED CIT(A) IS BAD IN LAW AN D IS NOT ACCORDING TO THE PROVISIONS OF THE INCOME-TAX ACT. 2 THE ASSESSEE COMPANY WAS INCORPORATED UNDER THE COMPANIES ACT, 1956 TO CARRY ON THE BUSINESS OF LEA SING AND HIRE PURCHASE. THE COMPANY APPLIED FOR REGISTRATIO N OF NON BANKING FINANCIAL COMPANY (NBFC) BUT HOWEVER ITS REGISTRATION WAS CANCELLED IN DECEMBER, 2000. 3 THE ASSESSEE HAD APPEALED AGAINST THE ORDER OF TH E ASSESSING OFFICER, WARD 10(3), NEW DELHI FOR DISALL OWANCE OF SALARY OF ` `1,00,000/-. ITA NO.2410/DEL./2004 ITA NO.2105/DEL./2007 ITA NO.1781/DEL./2009 2 4 THE LEARNED CIT(A) HAS ENHANCED THE INCOME OF THE APPELLANT BY DISALLOWING THE EXPENDITURE CLAIMED BY THE APPELLANT BY ` `8,09,391/-. 5 THE LEARNED CIT(A) HAS TAKEN AN OPINION THAT THE MAIN ACTIVITY OF THE COMPANY WAS NOT FOR EARNING INCOME HENCE HE DISALLOWED THE 90% OF THE EXPENDITURE CLAIMED BY TH E APPELLANT. THE VIEW TAKEN BY THE LEARNED CIT(A) IS HIS PERSONAL VIEW NOT BASED ON ANY CONCRETE FACTS. ALL THE EXPENDITURE CLAIMED BY THE APPELLANT WERE INCURRED FOR THE PURPOSE OF THE BUSINESS. THE LEARNED ASSESSING OFF ICER DISALLOWED ` `1.00 LAC TOWARDS THE ESTABLISHMENT EXPENDITURE AS THE SAME WAS ON A HIGHER SIDE IN HIS OPINION. T HE APPEAL WAS FILED AGAINST HIS ORDER. ALL THE DETAILS REGAR DING THE EXPENDITURE WERE FILED DURING THE COURSE OF ASSESSM ENT. NO QUESTION COULD BE RAISED ABOUT THE AUTHENTICITY OF THE EXPENSES CLAIMED. BUT LEARNED CIT(A) IGNORED THIS FACT AND ENHANCED THE DISALLOWANCES TO ` 9,09,391/- WHICH IS NOT AS PER THE LAW. WHAT THE ACT PURPORTS TO TAX IS THE B USINESS PROFITS AND BUSINESS PROFITS ARE THE TRUE PROFITS O F A BUSINESSMAN. THE MAIN REQUIREMENT FOR ALLOWING THE EXPENDITURE U/S 30 TO 37 IS THAT THE EXPENDITURE HA S BEEN LAID OUT WHOLLY AND EXCLUSIVELY FOR THE BUSINESS. THAT THE APPELLANT CRAVES TO SUBMIT THE NECESSARY DOCUMENTS AT THE TIME OF HEARING BEFORE THE LEARNED BENCH. I.T.A. NO.2105/D/2007 1. LD. CIT(A) HAS ERRED IN LAW AND IN FACTS AND CIR CUMSTANCES OF THE CASE IN IMPOSING THE PENALTY U/S 271(1)(C) OF T HE INCOME-TAX ACT ON ACCOUNT OF FURNISHING INACCURATE PARTICULARS OF INCOME TO THE EXTENT OF ` 3,20,104/-. 2. THE APPELLANT CRAVES TO BE ALLOWED TO AMEND, DEL ETE OR ADD ANY OTHER GROUNDS OF APPEAL DURING THE COURSE OF HEARIN G OF THE APPEAL. I.T.A. NO.1781/D/2009 1. THAT HAVING REGARD TO FACTS AND CIRCUMSTANCES OF THE CASE, LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN WOR KING OUT THE DISALLOWANCE OF EXPENSES OF ` 8,09,391/-. ITA NO.2410/DEL./2004 ITA NO.2105/DEL./2007 ITA NO.1781/DEL./2009 3 2. THAT IN ANY VIEW OF THE MATTER AND IN ANY CASE, ORDER PASSED BY LEARNED CIT(A) U/S 154 DATED 12.02.2007 IS CONTRARY TO LAW AND FACTS AND THE ORDER PASSED BY LEARNED CIT(A) U/S 25 0 DATED 25.02.2004 AS WELL AS ORDER PASSED BY ASSESSING OFF ICER U/S 143(3) DATED 24.10.2003 ARE CONTRARY TO LAW AND FAC TS AND VOID ABINITIO. 3. THAT HAVING REGARD TO FACTS & CIRCUMSTANCES OF T HE CASE, LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN PAS SING THE ORDER U/S 154 AND MAKING DISALLOWANCE THEREIN THAT TOO WITHOUT GIVING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE A SSESSEE. 4. THAT THE APPELLANT CRAVES THE LEAVE TO ADD, ALTE R OR AMEND THE GROUNDS OF APPEAL AT ANY STAGE AND ALL THE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTHER. 2. ADVERTING FIRST TO QUANTUM APPEAL, THIS APPEAL, INITIALLY DISPOSED OF VIDE ORDER DATED 21.6.2006 WAS RECALLED VIDE ORDER DATED 6.3.2009 IN MA NO.170/DEL/2008. THE ASSESSEE RAISED FIVE GROUNDS O F APPEAL AGAINST DISALLOWANCE OF ` `9,09,391/-. GROUND NOS. 2 TO 4 ARE MERE STATEMENT OF FACTS AND DO NOT REVEAL ANY GRIEVANCE OF THE ASSESSEE. AS RE GARDS GROUND NO.5, FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLA RING LOSS OF ` ` 8,74,720/- FILED ON 31 ST OCTOBER, 2001 BY THE ASSESSEE, HAVING INCOME FROM INTEREST & HIRE CHARGES BESIDES MISCELLANEOUS INCOME, AFTER BEING PROCESSED ON 17.06.2002 U/S 143(1) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED T O AS THE ACT) WAS SELECTED FOR SCRUTINY WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE ACT ON 24.10.2002. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (A.O. IN SHORT) NOTICED THAT THE ASSESSEE CONDUCTED A DAILY DEPOSIT SCHEME, WHERE UNDER IT ACCEPTED DEPOSITS ON A DAILY BASIS FROM THE PUBLIC. THE MINIMUM AMOUNT OF DEPOSIT WAS ` 10/- PER DAY WITH THE MATURITY PERIOD OF ONE YEAR. THESE DAILY DEPOSITS WERE REFLECTED BY WAY OF UNSECURED LOANS IN THE BALANCE SHEET. ON PERUSAL OF PROFIT AND LOSS ACCOUNT, THE AO NOTICED THAT THE ASSESSEE EARNED INTEREST OF ` `1,59,413/- ON FDRS WITH THE BANK BESIDE INTEREST OF ` `21,500/- FROM COMBINED COURIERS. THE ASSESSEE CLAIMED ESTABLISHME NT EXPENSES OF ` 3,68,393/- AS AGAINST ` 6,40,648/- IN THE PRECEDING YEAR. TO A QUERY BY THE AO, AS TO WHY THESE EXPENSES WERE DISPROPORTIONATE VIS --VIS INCOME EARNED , THE ITA NO.2410/DEL./2004 ITA NO.2105/DEL./2007 ITA NO.1781/DEL./2009 4 ASSESSEE EXPLAINED THAT THEIR APPLICATION FOR REGIS TRATION AS NON BANKING FINANCE COMPANY (NBFC) WAS REJECTED BY THE RBI DUE TO WHICH BUSINESS OF THE COMPANY DECLINED. HOWEVER, AO DID NOT ACCEPT THE S UBMISSIONS OF THE ASSESSEE ON THE GROUND THAT THE EXPLANATION OF THE ASSESSEE WAS GENERAL AND NOT SUPPORTED BY ANY EVIDENCE. ACCORDINGLY, THE AO DISALLOWED AN ESTIMATED AMOUNT OF ` ` 1 LAC, OUT OF ESTABLISHMENT EXPENSES BESIDES DISALL OWANCE OF 50% OF THE TELEPHONE EXPENSES IN RESPECT OF TELEPHONES INS TALLED AT THE RESIDENCE OF DIRECTOR. 3. ON APPEAL, THE LEARNED CIT(A) ENHANCED THE DISAL LOWANCE TO ` `9,09,391/- (WRONGLY MENTIONED AS ` 6,08,391/-) IN THE FOLLOWING TERMS:- 4.1 I HAVE EXAMINED THE DETAILS OF INCOME AND EXPE NDITURE EXPENSES AND BALANCE SHEET OF THE APPELLANT COMPANY . IT IS NOTICED THAT THE SOURCE OF INCOME OF THE APPELLANT COMPANY DURING THE YEAR UNDER CONSIDERATION IS AS UNDER:- [IN RS.] . CURRENT YEAR PREVIOUS YEAR 1. INTEREST RECEIVED 1,80,913 2,48,305 2. HIRE CHARGES 15,530 57,886 3. COMMISSION RECEIVED ZERO 1,77,000 4. PROFIT FROM VENTURE ZERO 8,97,762 5.MISC. INCOME 79,750 21,227 IT IS NOTICED FROM THE DETAILS OF EXPENSES THAT THE MAJOR EXPENSES ARE AS UNDER:- . EXPENSES CURRENT YEAR PREVIOUS YEAR 1. INTEREST PAID 1,40,479 1,99,703 2. ESTABLISHMENT EXPENSES 3,68,893 6,40 ,648 3.FOREIGN TRAVELING EXPENSES 1,54,013 1,14,14 2 4.DEPRECIATION 3,45,977 1,14,142 5.POSTAGE TELEPHONE AND TELEGRAM 70,333 1,15,581 6.INSURANCE 12,568 ZERO IT IS OBSERVED FROM THE ABOVE THAT THE MAIN SOURCE OF INCOME OF THE APPELLANT COMPANY IS INTEREST AND HIRE CHARGES. TH E TOTAL LOAN RECEIVED ON INTEREST IS ONLY RS. 12,28,356/- ON WHICH INTEREST OF RS.1,40,479/- WAS PAID. THEREFORE, OUT OF THE TOTA L LOAN TAKEN OF ITA NO.2410/DEL./2004 ITA NO.2105/DEL./2007 ITA NO.1781/DEL./2009 5 RS.2,02,15,975/- ONLY ON THE LOAN OF RS.12,28,356/- INTEREST WAS PAID. 4.2 THE APPELLANT COMPANY HAS ADVANCED INTEREST FREE LOAN OF RS.3,76,20,303/-. THE FDR OF RS. 6,97,986/- ON W HICH INTEREST WAS EARNED. IT IS CLEAR FROM THE ABOVE FACTS THAT T HE MAIN OBJECT OF THE APPELLANT COMPANY IS TO COLLECT AND DISBURSE TH E FUNDS. THE INTEREST CHARGED ON THE AMOUNT OF RS. 6,97,986/- I .E. IESS THAN 2% OF THE TOTAL ADVANCES MADE OF RS.4,27 CRORES APPR OXIMATELY DURING THE YEAR UNDER CONSIDERATION. THE INTEREST F REE LOAN GIVEN WERE OF RS.3.76 CRORES. IT SHOWS THAT THE MAIN ACTI VITY OF THE APPELLANT COMPANY IS TO MANAGE THE FUNDS OF ITS GR OUP COMPANIES, DIRECTORS OF THE COMPANIES AND THEIR RELATIVES. THE REFORE, ALL THESE ACTIVITIES WERE CARRIED OUT NOT FOR EARNING ANY INC OME. NO INTEREST HAS BEEN CHARGED ON LOANS GIVEN TO DIFFERENT PARTIES. THE FUNDS HAVE ALSO BEEN RECEIVED AS INTEREST FREE FUNDS INCLUDING RS.1.72 CRORES AS LOAN AND RS.`2.82 CRORES AS SHARE CAPITAL AND RS.`45 LAKHS AS SHARE APPLICATION MONEY. OUT OF THE TOTAL FUNDS AVA ILABLE WITH THE APPELLANT COMPANY 90% OF THE FUNDS WERE ADVANCED AS INTEREST FREE LOAN ON WHICH NO INCOME HAS BEEN EARNED. THE MOTIVE OF THE APPELLANT COMPANY IS NOT TO EARN THE INCOME ON THE FUNDS AVAILABLE. THE PURPOSE OF THESE ACTIVITIES IS NOT TO EARN THE INCOME. THE EXPENSES CLAIMED BY THE APPELLANT COMPANY ON THESE ACTIVITIES ARE AT RS.`11,50,913/- WHILE IN THE EARLIER YEAR THE EX PENSES WERE CLAIMED AT RS.13,80,868/-. THE INCOME EARNED BY WA Y OF INTEREST, HIRE CHARGES, AND FROM CHIT FUNDS RECEIVED AND MISC . INCOME AND PROFIT FROM VENTURE IS ONLY RS. 276193/- WHILE IN T HE EARLIER YEAR INCOME WAS EARNED AT RS.14,02,280/-. THE CURRENT YE AR INCOME EARNED AS INTEREST ON FDRS AND HIRE CHARGES ON THE TRANSACTIONS WHICH WERE COMPLETED IN THE PRECEDING YEAR AND ALSO EARNED INCOME FROM-CHIT FUNDS I.E INTEREST INCOME. THESE INCOMES ARE EARNED ONLY ON 5% OF F UNDS, WHICH WERE ADVANCED BY THE APPELLANT COMPANY. THEREFORE. 95% EXPENSES CLAIMED BY THE APP ELLANT COMPANY WERE NOT INCURRED FOR EARNING THE INCOME. T HE SAME HAVE BEEN INCURRED ONLY FOR MANAGING THE FUNDS FOR GROUP COMPANIES, DIRECTORS AND THEIR RELATIVES. THESE ACTIVITIES ARE NOT BEING CARRIED OUT FOR EARNING THE INCOME. HENCE, NO INTEREST HAS BEEN CHARGED BY THE APPELLANT COMPANY. THE EXPENSES CLAIMED BY T HE APPELLANT COMPANY TO CARRY OUT ABOVE ACTIVITIES ARE NOT ALLOW ABLE UNDER SECTION 28 READ WITH SECTION 37(1) OF THE INCOME-TA X ACT, 1961. THEREFORE, ENHANCEMENT NOTICE WAS GIVEN TO THE APPE LLANT COMPANY VIDE ORDER SHEET ENTRY DATED 11.2.2004 AND 17.2.2004. IN VIEW OF THE ABOVE FACTS THE APPELLANT COMPANY WAS A SKED TO SHOW CAUSE AS TO WHY NOT THE EXPENSES CLAIMED IN THE PROFIT AND LOSS ITA NO.2410/DEL./2004 ITA NO.2105/DEL./2007 ITA NO.1781/DEL./2009 6 ACCOUNT SHOULD BE RESTRICTED TO THE EXTENT OF 10% A ND BALANCE 90% SHOULD NOT BE DISALLOWED. 4.3 IN RESPONSE TO THAT THE AUTHORIZED REPRESENTATIVE OF T HE APPELLANT COMPANY FILED A WRITTEN SUBMISSION ON 25.2.2004 WHEREIN HE HAS GIVEN THE JUSTIFICATION OF EXPENSES. THE SAM E IS SUMMARIZED AS UNDER.- 1) THE APPELLANT COMPANY MADE GOOD BUSINESS IN TH E YEAR 1999-2000 BUT IT COULD NOT GENERATE MORE REVENUE IN THE FINANCIAL YEAR 20 00-01 DUE TO GENERAL ECONOMIC RECESSION. 2) THE COMPANY HAS DECIDED TO PURCHASE LAND IN URBA N AND RURAL AREAS AND IN JULY, 99 THE COMPANY ENTERED INTO AN AGREEMENT TO BUY LAND MEASURING 1 BIGHA AND 13 BISWAS IN TAJPUL VILLAGE, NEW DELHI. THE COMPANY DECIDED TO CONSTRUCT A BUILDING AND SUBSEQUENTLY SALE TO PROSP ECTIVE BUYERS. BUT THE LAND WAS GRABBED BY UNSCRUPULOUS MA FIA GANG WHICH INCIDENT HAS RESULTED IN COURT CASES WHI CH ARE STILL PENDING. 3) FOREIGN TRAVELING EXPENSES WERE INCURRED FOR MEE TING WITH M/S HANS TRADING LLC AT DUBAI AND M/S UNIGLOBA L MAJESTIC CO. AS LOAN FOR BUSINESS COLLABORATION. TH E FOREIGN COMPANIES SUPPOSED TO INVEST MONEY IN INDIA WITH D P AULS C APITAL LTD. BUT UNFORTUNATELY THE COMPANY'S APPLICATION FOR REGISTRATION AS NBFC WAS REJECTED BY THE RESERVE BANK OF INDIA WHILE THE DISCUSSION WAS ON F OR THE VENTURE. AFTER REJECTION THE RESPONSE FROM THE FORE IGN COMPANIES WERE NOT FAVORABLE AND HENCE EFFORTS AND MONEY SPENT COULD NOT RESULT INTO FINANCIAL GAINS. BUT H OWEVER, THE EXPENSES WERE INCURRED FOR BUSINESS PURPOSES ONLY. 4) THE ESTABLISHMENT EXPENSES OF RS. 3,69,893/- WERE INCURRED DURING THE YEAR. THE COMPANY HAS RECRUITED STAFF IN THE LAST YEAR TO ENHANCE ITS BUSINESS ACTIVITIES. THE COMPAN Y HAS ACCEPTED DEPOSITS IN THE FORM OF DAILY DEPOSITS. TH E 13 PERSONS WERE RECRUITED IN THE BEGINNING OF THE YEAR WHICH. WERE .REDUCED TO 7. THE SALARY WAS PAID TO THEM. 5) THE COMPANY HAS MAINTAINED VEHICLES FOR THE PUR POSE OF BUSINESS. THE FOREIGN CLIENTS USED TO VISIT INDIA, AND THE VEHICLES WERE REQUIRED TO PICK UP THEM FROM AIRPORT IN THE HOTEL AND THE VEHICLES HAVE TO BE DISPOSED OF ACCO RDING TO THEIR REQUIREMENT. MOREOVER THE VEHICLES WERE REQU IRED FOR DAY-TO-DAY OPERATIONS OF THE COMPANY LIKE TO LOOK A FTER THE SITE (LAND) TO LIAISON WITH THE ADVOCATES ETC. HENC E THE COMPANY HAS TO MAINTAIN THE VEHICLES. THEREFORE, TH E EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR T HE BUSINESS. ITA NO.2410/DEL./2004 ITA NO.2105/DEL./2007 ITA NO.1781/DEL./2009 7 5. I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT COMPANY. IT IS OBSERVED THAT THE APPELLA NT COMPANY HAS CLAIMED TOTAL EXPENSES OF RS.`11.50 LAK HS AGAINST INCOME FROM INTEREST, HIRE CHARGES AND MISC . I.E. INCOME FROM CHIT FUND AMOUNTING TO RS.3.76 LAKHS. THE EXPENSES CLAIMED BY THE APPELLANT COMPANY ARE NOT INCIDENTAL TO THE INCOME EARNED AS DISCUSSED ABOVE. THE MAIN SOURCE OF INCOME WAS INTEREST INCOME OF RS.1.8 0 IAKHS OUT OF WHICH INTEREST ON FDR OF RS. 6.79 LAKH S HIRE CHARGES INCOME AT RS.15,530/- AND INCOME FROM CHIT FUNDS AT RS.79,959/-. THE INTEREST INCOME AND CHIT FUND I NCOME IS RECEIVED AGAINST THE INVESTMENT OF THE FUNDS. IT IS IMPORTANT TO MENTION HERE THAT FOR EARNING THIS INCOME THE AP PELLANT COMPANY HAS UTILIZED LESS THAN 10% OF F ITS FUNDS. REMAINING 90% FUNDS WERE GIVEN AS INTEREST FREE LOANS TO SIST ER CONCERNS THEREFORE, HARDLY ANY EXPENSES ARE REQUIRE D TO BE INCURRED FOR EARNING INCOME. THE EXPENSES CLAIMED BY THE APPELLANT COMPANY ARE LIKE ESTABLISHMENT EXPENSES, FOREIGN TRAVELL I NG EXPENSES, DEPRECIATION ON CARS, POSTAGE AND TELEPHONE EXPENSES ETC. WHICH ARE NOT INCIDENTAL OR DIRECTLY OR INDIRECTLY INCURRED FOR THE PURPOSE OF EARNING A NY INCOME. ALL THESE EXPENSES HAVE NOT BEEN INCURRED FOR CAR RYING OUT THE BUSINESS ACTIVITIES. IT IS FOR THE APPELLANT COMPAN Y TO SHOW THAT THE EXPENSES HAVE BEEN INCURRED WHOLLY AN D EXCLUSIVELY FOR THE BUSINESS PURPOSE WITHIN THE MEA NING OF SECTION 37 OF THE INCOME-TAX ACT, 1961. THE EXPENSE S ON FOREIGN TRAVELING HAVE NOT BEEN INCURRED FOR ANY BU SINESS PURPOSE AND ARE NOT INCIDENTAL TO THE BUSINESS OF T HE APPELLANT COMPANY DURING THE YEAR UNDER CONSIDERATI ON. SIMILARLY THE EXPENSES ON CONVEYANCE AND DEPRECIATI ON ON MOTORCAR, ESTABLISHMENT EXPENSES ARE NOT RELATED OR INCIDENTAL TO EARN THE INTEREST INCOME. THE APPELLANT COMPANY HAS COLLECTED FUNDS AS SHARE CAPITAL FROM SHAREHOLDERS, INTEREST FREE LOANS FROM DIRECTO RS AND/ RELATIVES AND THEIR ASSOCIATES AND ADVANCED TO THE GROUP COMPANIES AND FRIENDS AND RELATIVES OF DIRECTORS AS INTEREST FREE LOANS. OUT OF THE TOTAL FUNDS OF RS.`4.68 CRO RES, THE APPELLANT COMPANY HAS ADVANCED RS.`3.76 CRORES AS INTEREST FREE LOANS TO DIFFERENT CONCERNS OF THE GR OUP AND ONLY ON THE AMOUNT OF RS.6.98 LAKHS INTEREST WAS EA RNED I.E. TO MAINLY ON FDR. THEREFORE, THE MAIN ACTIVITY OF THE APPELLANT COMPANY IS MANAGEMENT OF FUNDS OF GROUP COMPANIES AND ITS ASSOCIATES AND DIRECTORS AND THEI R ITA NO.2410/DEL./2004 ITA NO.2105/DEL./2007 ITA NO.1781/DEL./2009 8 RELATIVES. THE FUNDS HAVE BEEN RAISED AS INTEREST FREE AND ADVANCED AS INTEREST FREE LOANS. THEREFORE, THE MO TIVE OF THE APPELLANT COMPANY IS NOT TO EARN THE INCOME. T HE APPELLANT COMPANY HAS ACTED AS A CONDUIT TO TRANSFE R THE FUNDS. IT IS CLEAR FROM THESE FACTS THAT THE EXPENSES INCU RRED ON ACCOUNT OF RUNNING MOTOR CARS, FOREIGN VISITS AND ESTABLISHMENT EXPENSES AND INSURANCE, TELEPHONE ARE NOT INCIDENTAL FOR EARNING OF INCOME. THE 90% OF THE A CTIVITIES OF THE APPELLANT COMPANY ARE CARRIED OUT BASICALLY FOR MANAGEMENT OF FUNDS OF ITS GROUP COMPANIES AND THEI R DIRECTORS AND RELATIVES. THE MOTIVE OF THESE FINAN CIAL ACTIVITIES IS NOT TO EARN THE PROFIT OR INCOME. TH EREFORE, THE EXPENSES INCURRED BY THE APPELLANT COMPANY ASSESSME NT ORDER NOT ALLOWABLE U/S 37(1) OF THE INCOME-TAX ACT , 1961. THE HON'BLE KERALA HIGH COURT HAS DECIDED IN THE CASE OF RAM BHAHDUR TAKUR VS. CIT 261 ITR 390 (KER) THAT WH ERE AN ASSESSEE SEEKS TO DEDUCT FROM HIM OR ITS BUSINES S PROFIT CERTAIN ITEMS OF EXPENDITURE THE ONUS OF PROVING TH AT SUCH DEDUCTIONS ARE PERMISSIBLE IS ON THE ASSESSEE. THIS IS PATENTLY SO WHEN THE CLAIMS ARE BASED ON THE FACTS WHICH ARE EXCLUSIVELY WITHIN THE KNOWLEDGE OF THE ASSESSE E. THUS IT IS FOR THE ASSESSEE TO PLEAD AND PROVE BEFORE TH E AUTHORITIES THAT THE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. WHEN THE CLAIM FOR DEDUCTION UNDER SECTION 37(1) OF THE INCOME-TAX ACT, 1961 IS MADE BY AN ASSESSEE THE A.O . IS BOUND TO CONDUCT AN INQUIRY AS TO WHETHER THE ASSES SEE SATISFIES ALL THE REQUIREMENTS OF THE SECTION BEFOR E EITHER ALLOWING OR REJECTING THE CLAIM. THEREFORE, THERE IS NO MOTIVE TO EARN THE INCOME OF THE APPELLANT COMPANY AS THE EXPENSES HAVE BEEN INCURRE D FOR RAISING FUNDS AND ALSO INCURRED FOR MANAGEMENT OF T HE FUNDS BECAUSE THE APPELLANT COMPANY HAS ITSELF NOT CHARGE D INTEREST ON THE ADVANCES MADE TO DIFFERENT PARTIES. THE CLAIM OF THE APPELLANT COMPANY THAT THE INCOME HAS BEEN R EDUCED SUBSTANTIALLY BECAUSE THE RESERVE BANK OF INDIA HAS NOT GIVEN THE STATUS TO THE COMPANY OF NON-BANKING FINA NCE CORPORATION HAS NO FORCE AND HAS NO BEARING ON THE ALLOWABILITY OF THE EXPENSES. THE PERMISSION WAS DE NIED IN THE MONTH OF JAN. 2001 WHILE THE COMPANY DID NOT CA RRY OUT ANY BUSINESS ACTIVITY AS AIR TICKET AGENTS, AND ACT IVITY RELATING TO SALE OF AIR TICKETS, TOUR PACKAGES AND FOREIGN E XCHANGE OF COMMISSION BASIS AND ALSO NOT APPOINTED SUB-AGENTS FOR PROMOTING ITS BUSINESS DURING THE YEAR CONSIDERATIO N WHILE IN THE EARLIER YEAR THE INCOME WAS EARNED AT RS.10.75 LAKHS. BUT THE APPELLANT COMPANY HAS CLAIMED EXPENSES ALMO ST THE SAME IN THE YEAR UNDER CONSIDERATION. THE FOREI GN ITA NO.2410/DEL./2004 ITA NO.2105/DEL./2007 ITA NO.1781/DEL./2009 9 TRAVELING EXPENSES, DEPRECIATION OF CARS AT RS.3.45 LAKHS, INSURANCE EXPENSES AT RS.12,658 ARE BASICALLY CLAIM ED IN THE YEAR UNDER CONSIDERATION IN SPITE OF THE FACT T HAT NO BUSINESS ACTIVITY HAS BEEN CARRIED OUT BY THE APPEL LANT COMPANY. THE APPELLANT COMPANY HAS EARNED THE INCOM E FROM INTEREST OR SOME INCOME AS HIRE CHARGES ON TRANSACTIONS WHICH WERE EARNED OUT IN THE EARLIER Y EAR. THEREFORE. IT. IS CLEAR FROM ABOVE DISCUSSION THAT THERE IS NO DOUBT THAT THE EXPENSES CLAIMED BY THE APPELLANT CO MPANY WERE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PU RPOSE OF BUSINESS. THE EXPENSES ARE DIRECTLY OR INDIRECTLY NOT INCURRED FOR THE PURPOSE OF BUSINESS. HENCE, THE SA ME ARE NOT FULLY ALLOWABLE. 4. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF LEARNED CIT(A). THE LD. AR ON BEHALF O F THE ASSESSEE WHILE CARRYING US THROUGH RELEVANT PAGES OF THE PAPER BOOK CONTEND ED THAT THEIR APPLICATION FOR REGISTRATION OF THE COMPANY AS NBFC WAS REJECTED IN JANUARY, 2001. THOUGH THE AO DISALLOWED AN AMOUNT OF ` `1 LAC OUT OF ESTABLISHMENT EXPENSES, THE LD. CIT(A) DISALLOWED 90% OF THE EXPENSES ON THE GROUND THAT 90% OF THE ACTIVITIES OF THE COMPANY WERE FOR MANAGING OF THE FUNDS OF TH E OTHER GROUP COMPANIES AND THEIR DIRECTORS AS ALSO THEIR RELATIVES, WHICH DID NOT YIELD ANY INCOME .WHILE RELYING ON THE DECISION IN CIT. VS BIRLA COTTON SP INNING AND WEAVING MILLS LIMITED,82 ITR 166 (SC) AND RAJASTHAN STATE WAREHOU SING CORPORATION. VS CIT, 242 ITR 450(SC), THE LD. AR CONTENDED THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN ENHANCING THE DISALLOWANCE. 5. ON THE OTHER HAND, THE LD. DR WHILE CARRYING US THROUGH THE FINDINGS OF THE AO SUBMITTED THAT THE APPLICATION FOR REGIST RATION OF THE ASSESSEE COMPANY AS NBFC HAVING BEEN REJECTED, THE ASSESSEE COULD N OT ACCEPT DEPOSITS. THE COMPANY WAS SET UP ON 1991 AS REVEALED FROM PAGE 11 8 OF THE PAPER BOOK. TO CARRY ON THE BUSINESS OF LEASING AND HIRE PURCHASE, THE COMPANY ACCEPTED DAILY DEPOSITS. SINCE 90% OF THE EXPENDITURE WAS NOT RE LATED TO EARNING INTEREST INCOME OR HIRE PURCHASE INCOME, THE LD. CIT(A) WAS JUSTIFIED IN DISALLOWING THE SAID AMOUNT. THE LD. DR FURTHER POINTED OUT THAT S HARE APPLICATION MONEY OF ITA NO.2410/DEL./2004 ITA NO.2105/DEL./2007 ITA NO.1781/DEL./2009 10 ` `28,35,000/- WAS TRANSFERRED FROM THE UNSECURED LOA NS AND THERE WAS NO COMMERCIAL EXPEDIENCY IN ADVANCING THE INTEREST FRE E LOANS TO OTHER PERSONS. WHILE REFERRING TO DECISION IN PUNJAB STAINLESS STE EL INDS. VS. CIT,324 ITR 396(DEL.), THE LD. DR CONTENDED THAT SIMPLY BECAUSE THE AO TEST CHECKED THE BOOKS DOES NOT IMPLY THAT THE ENTIRE EXPENDITURE WA S GENUINE. AS REGARDS VISIT OF THE DIRECTORS TO DUBAI, THE LD. DR RELIED UPON THE DECISION IN THE CASE OF TRADE WINGS LTD.VS. CIT,185 ITR 267(BOM.) AND CONTENDED T HAT THE FOREIGN TRAVEL EXPENSES WERE NOT RELATED TO THE BUSINESS OF THE AS SESSEE FOR EARNING INTEREST INCOME, ESPECIALLY WHEN THE DIRECTORS HAD GONE TO D UBAI TO ESTABLISH A NEW VENTURE. WHILE REFERRING TO PAGE 103 & 104 OF THE PAPER BOOK, THE LD. DR ARGUED THAT SINCE THE DOCUMENTS WERE NOT CERTIFIED BY THE INDIAN EMBASSY, THESE DOCUMENTS WERE NOT ADMISSIBLE IN EVIDENCE. INTER AL IA, THE LEARNED DR RELIED UPON THE DECISIONS IN ELMER HAVELL ELECTRICS AND OTHERS VS. CIT,277 ITR 5 49 (DELHI); AND CIT VS. ACCELERATED FREEZE DRYING CO. LTD.,324 ITR 316 (KERALA).IN NUTSHELL, THE LEARNED DR SUPPORTED THE FINDINGS OF LEARNED CIT(A). 6. IN HIS REJOINDER, WHILE DISTINGUISHING THE DE CISIONS RELIED UPON BY THE LEARNED DR, THE LD. AR ON BEHALF OF THE ASSESSEE WHILE REFE RRING TO DECISION IN CIT VS. DALMIA CEMENT (BHARAT) LTD. ,254 ITR 377 (DELHI); S ANJEEVI & CO. VS. CIT,62 ITR 156 (MADRAS), AND J.K. WOOLLEN MANUFACTURERS VS. C IT, 72 ITR 612 (SC) CONTENDED THAT THE AO WAS REQUIRED TO EXAMINE AS TO WHETHER THE AMOUNT WAS ACTUALLY LAID OUT WHOLLY AND EXCLUSIVELY FOR THE P URPOSE OF BUSINESS. WHILE REFERRING TO DECISION IN HINDUSTAN CHEMICAL WORKS V S. CIT 124 ITR 500(BOMBAY), THE LEARNED AR CONTENDED THAT EXPENSES FOR HOLDING ON TO THE BUSINESS ASSETS WERE ALLOWABLE U/S 37 OF THE ACT. 7. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE VARIOUS DECISIONS REFERRED TO BY BOTH THE SIDES.. AS IS APPARENT FROM THE AFORESAID FACTS, THE AO DISALLOWED MERELY AN AMOUNT OF ` ``1 LAC OUT OF ESTABLISHMENT EXPENSES WITHOUT RECORDING ANY FINDIN GS FOR THE REMAINING EXPENDITURE WHILE THE LD. CIT(A) CONCLUDED THAT 90% ACTIVITIES OF THE ASSESSEE ITA NO.2410/DEL./2004 ITA NO.2105/DEL./2007 ITA NO.1781/DEL./2009 11 COMPANY WERE FOR MANAGING LOANS AND ADVANCES TO OTH ER GROUP CONCERNS AND THEIR DIRECTORS OR THEIR RELATIVES AND, THEREFORE, 90% OF THE EXPENDITURE INCURRED BY THE ASSESSEE OUT OF TOTAL EXPENSES OF ` ` `10,10,743/- COULD NOT BE ALLOWED. THE ISSUE BEFORE US IS IN RESPECT OF EXPENSES OF DE BITED TO PROFIT AND LOSS ACCOUNT. OUT OF TOTAL SUCH EXPENSES OF ` `11,50,913/-, THERE IS NO DISPUTE IN RESPECT OF AN AMOUNT OF ` `1,40,479/- TOWARDS INTEREST. THE LD. CIT(A) DISALL OWED 90% OF THE REMAINING EXPENSES OF ` `10,10,743/-. THE MAJOR AMOUNT OF THESE EXPENSES ARE ` `3,68,893/- TOWARDS ESTABLISHMENT, ` 1,54,013/- TOWARDS FOREIGN TRAVEL, ` `70,333- ON ACCOUNT OF POSTAGE, TELEPHONE AND TELE GRAM AND ` `12,568/- ON ACCOUNT OF INSURANCE OF ASSETS OF THE COMPANY BE SIDES ` 3 ,45,977/- ON ACCOUNT OF DEPRECIATION. THE AO DISALLOWED AN ESTIM ATED SUM OF ` ` 1,00,000/- OUT OF ESTABLISHMENT EXPENSES ON THE GROUND THAT TH ESE EXPENSES WERE DISPROPORTIONATE TO THE INCOME EARNED. THE LD. CIT( A) DISALLOWED 90% OF THE EXPENSES OF RS. 10,10,743/-ON THE GROUND THAT 90% O F THE ACTIVITIES WERE FOR MANAGING LOANS AND ADVANCES OF OTHER GROUP CONCERNS AND THEIR DIRECTORS OR THEIR RELATIVES. WHETHER OR NOT THE ESTABLISHMENT EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, THERE IS NO FINDING BY THE AO. THE LD. CIT(A) OBSERVED THAT THE EXPENSES CLAIMED BY THE C OMPANY TOWARDS ESTABLISHMENT, FOREIGN TRAVEL, DEPRECIATION ON CARS , POSTAGE AND TELEPHONE ETC. WERE NOT INCIDENTAL ,DIRECTLY OR INDIRECTLY, FOR TH E PURPOSE OF EARNING ANY INCOME. IT IS FURTHER HELD BY HIM THAT FOREIGN TRAVEL EXPENSES , INSURANCE AND DEPRECIATION ON CARS WERE CLAIMED WITHOUT ANY BUSINESS ACTIVITY CARRIED ON BY THE ASSESSEE COMPANY. INDISPUTABLY, THE RBI REJECTED THE APPLICA TION OF THE ASSESSEE COMPANY FOR REGISTRATION AS NBFC ONLY IN JANUARY,20 11/- AND BEFORE THAT THE ASSESSEE CONTINUED TO COLLECT DAILY DEPOSITS OR FIX ED DEPOSITS FOR THE PUBLIC BESIDES HAVING UNSECURED LOANS ON WHICH INTEREST HA S BEEN ALLOWED BY THE LOWER AUTHORITIES. DETAILS OF DAILY DEPOSITS AND FIXED D EPOSITS AS ON 31.3.2001 ARE PLACED ON PAGE 55 TO 62 OF THE PAPER BOOK. THE AO OR THE LD. CIT(A) DID NOT IDENTIFY THE PERSON, WHO HAS BEEN PAID SALARY ,WHI CH IS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSE SSEE. THE GENUINENESS OF ITA NO.2410/DEL./2004 ITA NO.2105/DEL./2007 ITA NO.1781/DEL./2009 12 INCURRING OF EXPENDITURE HAS NOWHERE BEEN DOUBTED. THE ISSUE BEFORE US IS APPROPRIATENESS OF THE AMOUNT OUT OF ESTABLISHMENT AND OTHER EXPENSES, WHICH HAVE BEEN INCURRED BY THE ASSESSEE. BOTH THE AO AND THE LD. CIT(A) HAVING ALLOWED A PORTION OF ESTABLISHMENT EXPENSES , THE G ENUINENESS OF THE EXPENDITURE IS NOT IN DOUBT. AS OBSERVED BY THE HON BLE JURISDICTIONAL HIGH COURT IN DALMIA CEMENT (BHARAT) LTD.(SUPRA) THE JURISDICT ION OF THE REVENUE IS CONFINED TO 'DECIDING THE REALITY OF THE EXPENDITURE', NAMEL Y, WHETHER THE AMOUNT CLAIMED AS DEDUCTION WAS FACTUALLY EXPENDED OR LAID DOWN AN D WHETHER IT WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. THE RE ASONABLENESS OF THE EXPENDITURE COULD BE GONE INTO ONLY FOR THE PURPOSE OF DETERMINING WHETHER, IN FACT, THE AMOUNT WAS SPENT. ONCE IT IS ESTABLISHED THAT THERE WAS A NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF THE BUSI NESS, THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARMCHAIR OF A BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE SAID ROLE TO DECIDE HOW MUCH IS A REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMS TANCES OF THE CASE. IT IS WELL SETTLED POSITION IN LAW IS THAT NO BUSINESSMAN CAN BE COMPELLED TO MAXIMISE HIS PROFITS. HONBLE MADRAS HIGH COURT ALSO TOOK A SIM ILAR VIEW IN CIT VS. RAMAN & RAMAN LTD.,71 ITR 345(MAD.) WHILE ACCEPTING THE PRINCIPLE THAT FOR ELIGIBILITY OF AN ALLOWANCE UNDER SECTION 10(2)(XV), THERE SHOULD BE A NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF THE BUSINESS AND THE EXPENDITURE SHOULD HAVE BEEN WHOLLY AND EXCLUSIVELY LAID OUT FOR THAT PURPO SE. THE HONBLE COURT OBSERVED AS UNDER: THE FIRST PART OF THIS PROPOSITION MAY NOT RAISE A NY PROBLEM OF COMPLEXITY, FOR ITS DETERMINATION WILL BE ON A FACTUAL BASIS. FROM THE GIVEN FACTS, IT SHOULD BE EASY TO SAY WHETHER THERE IS ANY CONNECTION BETWEEN THE EXP ENDITURE AND THE PURPOSE OF THE BUSINESS. BUT THE EXPRESSION, 'WHOLLY AND EXCLU SIVELY LAID OUT' IS CAPABLE OF RAISING FINE QUESTIONS. BUT WE DO NOT PROPOSE IN TH IS CASE TO EMBARK ON THAT ASPECT, FOR IT HAS NOT BEEN SUGGESTED AT ANY STAGE OF THE ASSESSMENT PROCEEDINGS THAT FACTUALLY THE PAYMENT AS REMUNERAT ION HAS NOT BEEN MADE AND IN THAT CHARACTER. IT IS ALSO OBVIOUS THAT THE REMU NERATION WAS PAID TO THE DIRECTORS IN THAT CAPACITY. ONCE THOSE FACTS ARE FO UND, SELDOM CAN THE REVENUE OR THE COURT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE AR M-CHAIR OF A BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE R OLE OF ASCERTAINING HOW MUCH ITA NO.2410/DEL./2004 ITA NO.2105/DEL./2007 ITA NO.1781/DEL./2009 13 IS A REASONABLE REMUNERATION, HAVING REGARD TO ALL THE CIRCUMSTANCES. THAT IS A MATTER OF BUSINESS EXPEDIENCY AND SHOULD BE WISELY LEFT TO THE BUSINESSMAN CONCERNED OR THE BOARD OF DIRECTORS. BUT THAT IS NO T TO SAY THAT THE REVENUE OR THE COURT SHOULD SIMPLY TAKE IT FOR GRANTED THAT ONCE T HE PAYMENT HAS BEEN AS A FACT MADE AS REMUNERATION, IT IS NECESSARILY WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF THE BUSINESS. THERE MAY BE CASES WHERE T HE QUANTUM OF REMUNERATION CLAIMED TO HAVE BEEN PAID IS SO PATENT LY EXCESSIVE THAT IT MAY THROW DOUBT AT THE HONESTY AND PURPOSE OF THE OUTGO ING. BUT, AS WE OBSERVED, NO SUCH QUESTION ARISES ON THE FACTS OF THIS CASE. WE NOTICED ABOVE THE POINT PUT FORWARD BEFORE THE TRIBUNAL FOR THE REVENUE. WE DO NOT THINK THAT IT IS A CORRECT APPROACH FOR THE PURPOSE OF APPLYING SECTION 10(2)( XV) TO DETERMINE SO MUCH OF REMUNERATION HAS TO BE ALLOWED AS MAY BE JUSTIFIED BY SO MUCH OF SERVICES. WE ARE SATISFIED THAT, ON THE FACTS OF THIS CASE, THE TRIBUNAL WAS RIGHT IN ITS VIEW THAT THE ASSESSEE IS ENTITLED TO THE FULL ALLOWANCE OF T HE ENTIRE PAYMENT MADE AS REMUNERATION TO THE DIRECTORS IN THE YEARS IN QUEST ION. 7.1 IN THE INSTANT CASE ,INDISPUTABLY SALARY HAS BEEN TO 15 PERSONS AS PER DETAILS PLACED ON PAGE 54 OF THE PAPER BOOK. THE FA CTUM OF PAYMENT OF SALARY IS NOT IN DISPUTE. MAXIMUM SALARY OF ` 7,000/- PM HAS BEEN PAID ONLY TO TWO PERSONS WHILE TO OTHERS SALARY BELOW ` 3,360/ - . PM HAS BEEN PAID . THERE IS NOTHING TO SUGGEST THAT SALARY PAID TO ANY PERSON I S EXCESSIVE OR IN FACT, HAS NOT BEEN PAID. IN APPLYING THE TEST OF COMMERCIAL EXP EDIENCY, FOR DETERMINING WHETHER THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF THE BUSINESS, THE REASONABLENESS OF THE EXPENDITURE HAS TO BE JUDGED FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT THE REVENU E [C.F. CIT V. WALCHAND AND CO. (P.) LTD. [1967] 65 ITR 381 (SC); J.K. WOOLLEN MANUFACTURERS V. CIT [1969] 72 ITR 612 (SC); ALUMINIUM CORPORATION OF INDIA LTD. V. CIT [ 1972] 86 ITR 11 (SC) AND CIT V. PANIPAT WOOLLEN AND GENERAL MILLS C O. LTD. [1976] 103 ITR 66 (SC)]. AS POINTED OUT BY THE HONBLE SUPREME COURT IN THE CASE OF WALCHAND & CO. (P.) LTD. ( SUPRA ), THE INCOME-TAX AUTHORITIES HAVE TO DECIDE WHETHE R THE EXPENDITURE CLAIMED AS AN ALLOWANCE WAS INCURRED VO LUNTARILY AND ON GROUNDS OF COMMERCIAL EXPEDIENCY. IN APPLYING THE TEST OF COMM ERCIAL EXPEDIENCY FOR DETERMINING WHETHER THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF THE BUSINESS, THE HONBLE SUPREME COURT OBSERVED THAT THE REASONABLENESS OF THE EXPENDITURE HAS TO BE ADJUDGE D FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT OF THE REVENUE. IN THE SAID CASE, THE INCOME-TAX ITA NO.2410/DEL./2004 ITA NO.2105/DEL./2007 ITA NO.1781/DEL./2009 14 OFFICER WAS OF THE VIEW THAT THERE WAS NO ADEQUATE INCREASE IN THE EARNINGS OF THE ASSESSEE, FOR THE INCREASE IN REMUNERATION WAS NOT REFLECTED IN THE INCREASE IN PROFITS OF THE ASSESSEE AND THAT IT APPEARED THA T AS COMPARED TO THE PREVIOUS YEARS, THE BUSINESS PROFITS DISCLOSED BY THE ASSESS EE HAD FALLEN BY RS. 2 LACS AND, THEREFORE, THE INCREASE IN EXPENDITURE COULD N OT BE JUSTIFIED AS LAID OUT WHOLLY AND NECESSARILY FOR THE PURPOSES OF THE BUSI NESS. THE HONBLE SUPREME COURT, HOWEVER, DISAPPROVED THE SAID REASON AND HEL D THAT AN EMPLOYER IN FIXING THE REMUNERATION OF HIS EMPLOYEES IS ENTITLED TO CO NSIDER THE EXTENT OF HIS BUSINESS, THE NATURE OF THE DUTIES TO BE PERFORMED, AND THE SPECIAL APTITUDE OF THE EMPLOYEE, FUTURE PROSPECTS OF EXTENSION OF THE BUSI NESS AND A HOST OF OTHER RELATED CIRCUMSTANCES. THE RULE THAT INCREASED REMU NERATION CAN ONLY BE JUSTIFIED IF THERE BE CORRESPONDING INCREASE IN THE PROFITS O F THE EMPLOYER WAS ERRONEOUS. IN CIT VS. CITY AHMEDABAD SPINNING AND WEAVING MANU FACTURING CO.,207 ITR 427(GUJ), IT WAS HELD THAT WHERE IT IS FOUND AS A M ATTER OF FACT THAT THE SAID EXPENDITURE WAS INCURRED AND IT DID RELATE TO THE B USINESS ACTIVITY OF THE ASSESSEE., MERELY BECAUSE THE ASSESSEE'S INCOME, AF TER INCURRING SUCH EXPENSES, WAS FOUND TO BE LITTLE OR NEGLIGIBLE, IT CANNOT BE SAID THAT THE SAID EXPENDITURE BECAME AN IMPERMISSIBLE DEDUCTION. ONC E IT IS FOUND THAT THE EXPENDITURE WAS BONA FIDE INCURRED AND THAT THE SAM E RELATED TO THE BUSINESS ACTIVITY, THEN IT WOULD BECOME DEDUCTIBLE AS THE SA ME IS PERMITTED BY THE PROVISIONS OF LAW. IN THE LIGHT OF VIEW TAKEN IN TH ESE DECISIONS, WE ARE OF THE OPINION THAT DISALLOWANCE OF A PORTION OF ESTABLIS HMENT EXPENSES BY THE LD. CIT(A) WAS NOT JUSTIFIED. 7.2 ADVERTING NOW TO THE CLAIM FOR DEDUCTION OF FOREIGN TRAVEL EXPENSES, THE ASSESSEE PLEADED THAT THE DIRECTOR OF THE COMPANY UNDERTOOK FOREIGN TRAVEL FOR A BUSINESS COLLABORATION AND TO HAVE FUNDS FOR THEI R BUSINESS. THE EXPENSES OF THIS NATURE MUST STAND THE TEST OF COMMERCIAL EXPED IENCY. THE TEST OF COMMERCIAL EXPEDIENCY CANNOT BE REDUCED IN THE SHAPE OF A RITU ALISTIC FORMULA, NOR CAN IT BE PUT IN A WATER-TIGHT COMPARTMENT SO AS TO BE CONFIN ED IN A STRAITJACKET FORMULA. ALL THAT THE LAW REQUIRES IS THAT THE EXPENDITURE SHOUL D NOT BE IN THE NATURE OF CAPITAL ITA NO.2410/DEL./2004 ITA NO.2105/DEL./2007 ITA NO.1781/DEL./2009 15 EXPENDITURE OR PERSONAL EXPENDITURE OF THE ASSESSEE AND IT SHOULD BE WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSES OF THE BUSINE SS. IT IS WELL SETTLED THAT ITEMS OF EXPENDITURE ARE TO BE CONSIDERED FROM THE POINT OF VIEW OF A NORMAL, PRUDENT BUSINESSMAN. THIS TEST MERELY MEANS THAT THE COURT WILL PLACE ITSELF IN THE POSITION OF A BUSINESSMAN AND FIND OUT WHETHER THE EXPENSES INCURRED COULD BE SAID TO HAVE BEEN LAID OUT FOR THE PURPOSE OF THE B USINESS. IT SEEMS THAT IN THE ULTIMATE ANALYSIS THE MATTER WOULD DEPEND ON THE ST ATUS OF THE PARTIES AS SPELT OUT AND THE NATURE OR CHARACTER OF THE TRADE OR VEN TURE, THE PURPOSE FOR WHICH THE EXPENSES WERE INCURRED AND THE OBJECT WHICH WAS SOU GHT TO BE ACHIEVED IN INCURRING THOSE EXPENSES. THERE IS NOTHING TO SUGGE ST THAT THE PURPOSE AND OBJECT OF EXPENDITURE WAS TO CREATE A CAPITAL ASSET OR START ALTOGETHER A NEW BUSINESS. IN THIS CONTEXT, HONBLE APEX COURT IN CO MMISSIONER OF INCOME-TAX V. MALAYALAM PLANTATIONS LTD. OBSERVED : ' THE EXPRESSION 'FOR THE PURPOSE OF THE BUSINESS' IS WIDER IN SCOPE THAN THE EXPRESSION 'FOR THE PURPOSE OF EARNING PROFITS'. IT S RANGE IS WIDE : IT MAY TAKE IN NOT ONLY THE DAY TO DAY RUNNING OF A BUSINESS, BUT ALSO THE RATIONALIZATION OF ITS ADMINISTRATION AND MODERNIZATION OF ITS MACHINERY ; IT MAY INCLUDE MEASURES FOR THE PRESERVATION OF THE BUSINESS AND FOR THE PROTEC TION OF ITS ASSETS AND PROPERTY FROM EXPROPRIATION, COERCIVE PROCESS OR ASSERTION O F HOSTILE TITLE ; IT MAY ALSO COMPREHEND PAYMENT OF STATUTORY DUES AND TAXES IMPO SED AS A PRECONDITION TO COMMENCE OR FOR CARRYING ON OF A BUSINESS ; IT MAY COMPREHEND MANY OTHER ACTS INCIDENTAL TO THE CARRYING ON OF A BUSINESS. ' 7.21 THE MERE FACT THAT NO TANGIBLE BUSINESS CAME OUT OF THE FOREIGN VISIT IS NOT A GROUND FOR DISALLOWING THE FOREIGN TRAVEL EXPENDI TURE, BECAUSE IT IS POSSIBLE THAT IN THE FIRST MEETING ONLY BUSINESS DISCUSSIONS WOUL D TAKE PLACE AND NOTHING TANGIBLE MAY COME OUT. THE AO IN FACT DID NOT DISA LLOW THIS EXPENDITURE AND THE LD. CIT(A) EVEN WHILE HOLDING THAT EXPENDITURE WAS NOT INCURED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSE SSEE COMPANY, DISALLOWED ONLY 90% OF THE EXPENSES. THIS APPROACH OF THE LD. CIT(A) IS NOT IN ACCORDANCE WITH LAW. IN THE ABSENCE OF ANY FINDING THAT FOREIG N TRAVEL EXPENDITURE WAS CAPITAL IN NATURE OR WAS INCURRED FOR ALTOGETHER NEW BUSINE SS, APPLYING NORMAL, PRUDENT BUSINESSMAN'S APPROACH, WE DO NOT THINK THAT THE EX PENSES INCURRED BY THE ITA NO.2410/DEL./2004 ITA NO.2105/DEL./2007 ITA NO.1781/DEL./2009 16 ASSESSEE ON A FOREIGN TRIP IN ORDER TO HAVE BUSI NESS COLLABORATION COULD BE SAID TO BE NOT FOR THE PURPOSES OF THE BUSINESS OF THE A SSESSEE-COMPANY. IN VIEW THEREOF, DISALLOWANCE OF A PORTION OF FOREIGN TRAV EL EXPENSES BY THE LD. CIT(A) WAS ALSO NOT JUSTIFIED. 7.3. NOW ADVERTING TO OTHER EXPENSES ON ACCOUNT ON DEPRECIATION ON ASSETS, INSURANCE OR POSTAGE AND TELEPHONE AS ALSO CONVEYA NCE, LEGAL AAND PROFESSIONAL, PRINTING AND STATIONERY, AUDITORS RE MUNERATION, REPAIR AND MISCELLANEOUS EXPENSES, THE LD. CIT(A) DISALLOWED 9 0% OF THESE EXPENSES FOR REASONS MENTIONED ALREADY HEREINBEFORE. IN CIT V. RAMPUR TIMBER AND TURNERY CO. LTD. [1981] 129 ITR 58, THE ASSESSEE CLAIMED CE RTAIN EXPENSES WHICH WERE DISALLOWED. THE EXPENDITURE INCURRED THERE WAS FOR RETAINING THE STATUS OF THE COMPANY, NAMELY, MISCELLANEOUS EXPENSES, SALARY, LE GAL EXPENSES, TRAVELLING EXPENSES, ETC. THE HONBLE ALLAHABAD HIGH COURT HEL D THAT SUCH EXPENSES ARE ALLOWABLE FOR THE PURPOSE OF KEEPING THE BUSINESS O F THE ASSESSEE-COMPANY ALIVE AND FOR RETAINING THE STATUS OF THE ASSESSEE-COMPAN Y. LIKEWISE IN CIT VS. GANGA PROPERTIES LTD.,199 ITR94(CAL.),FOLLOWING THEIR VIE W IN CIT V. NEW SAVAN SUGAR AND GUR REFINING CO. LTD [1990] 185 ITR 564 (CAL)), HONBLE HIGH COURT OBSERVED THAT A LIMITED COMPANY, EVEN IF IT DOES NOT CARRY O N BUSINESS BUT IT DERIVES INCOME FROM ' OTHER SOURCES ' HAS TO MAINTAIN ITS ESTABLIS HMENT FOR COMPLYING WITH STATUTORY OBLIGATIONS SO LONG IT IS IN OPERATION AN D ITS NAME IS NOT STRUCK OFF THE REGISTER OR UNLESS THE COMPANY IS DISSOLVED WHICH M EANS CESSATION OF ALL CORPORATE ACTIVITIES OF THE COMPANY FOR ALL PRACTIC AL PURPOSES. SO LONG AS IT IS IN OPERATION, IT HAS TO MAINTAIN ITS STATUS AS A COMPA NY AND IT HAS TO DISCHARGE CERTAIN LEGAL OBLIGATIONS AND, FOR THAT PURPOSE, IT IS NECESSARY TO APPOINT CLERICAL STAFF AND SECRETARY OR ACCOUNTANT AND INCUR INCIDEN TAL EXPENSES. IN THIS BACKGROUND, THE CONCLUSION OF THE TRIBUNAL THAT THE EXPENSES INCURRED WERE WHOLLY AND EXCLUSIVELY FOR THE ACTIVITIES TO EARN I NCOME IS PRE-EMINENTLY A REASONABLE CONCLUSION, THE HONBLE HIGH COURT CONCL UDED. SIMILAR VIEW WAS TAKEN IN NAKODAR BUS SERVICES PVT. LTD. VS. CIT,179 ITR 506(P&H). ITA NO.2410/DEL./2004 ITA NO.2105/DEL./2007 ITA NO.1781/DEL./2009 17 7.31 IN THE INSTANT CASE, THE ASSESSEE BEING AN ARTIFICIAL JURIDICAL PERSON, IT NEEDS TO INCUR CERTAIN EXPENDITURE AND CAN OPERATE THROUGH OTHER NATURAL PERSONS-WHETHER EMPLOYEES OR OTHERS. IN THE CASE OF L.VE. VAIRAVAN CHETTIAR VS. CIT (1969) 72 ITR 114 (MAD), THEIR LORDSHIPS OF HON 'BLE MADRAS HIGH COURT FOUND THAT THE ASSESSEES BOOKS OF ACCOUNT REVEALED THAT HE WAS MEETING THE ESTABLISHMENT CHARGES AND INTEREST PAYMENTS AS DETA ILED IN THE ACCOUNTS IN THE YEAR OF ACCOUNTS. THEIR LORDSHIPS THEN REFERRED TO, WITH APPROVAL. LORD SUMMER'S OBSERVATION IN IRC VS. SOUTH BEHAR RAILWAY CO. LTD. (1925) 12 TAX CASES 657 THAT BUSINESS IS NOT CONFINED TO BEING BUSY; IN MAN Y BUSINESSES LONG INTERVALS OF INACTIVITY OCCUR.... 'THE CONCERN IS STILL A GOING CONCERN THOUGH A VERY QUIET ONE.' AFTER CONSIDERING VARIOUS JUDICIAL PRECEDENTS ,HON BLE HIGH COURT CONCLUDED THAT 'AS THE ASSESSEE WAS MAINTAINING THE ESTABLISHMENT AND WAITING FOR THE IMPROVED MARKET CONDITIONS IN ARECANUTS AND THERE WAS NOTHIN G TO SHOW THAT HE COMPLETELY ABANDONED OR CLOSED THE BUSINESS FOREVER, THE BUSIN ESS MUST BE DEEMED TO BE CONTINUING'. IN THE LIGHT OF THIS LEGAL POSITION, I T FOLLOWS THAT UNLESS THE BUSINESS IS ABANDONED OR CLOSED AND EVEN IF BUSINESS IS AT A DO RMANT STAGE WAITING FOR PROPER MARKET CONDITIONS TO DEVELOP, THE EXPENDITUR E INCURRED IN THE COURSE OF SUCH A BUSINESS IS TO BE ALLOWED AS DEDUCTION. A S IMILAR VIEW WAS TAKEN IN ITO VS. MOKUL FINANCE LTD.,110 TTJ(DEL.)445. 7.4 AS REGARDS DECISION IN PUNJAB STAINLESS STE EL INDS.(SUPRA), WE ARE OF THE OPINION THAT RELIANCE BY THE LD. DR ON THIS DECISI ON IS TOTALLY MISPLACED, SAME HAVING BEEN RENDERED IN THE CONTEXT OF DISALLOWANCE OF INTEREST ON BORROWED FUNDS ATTRIBUTABLE TO INTEREST FREE FUNDS ADVANCED BY THE ASSESSEE IN THAT CASE. SIMILARLY THE DECISIONS IN ELMER HAVELL ELECTRICS AND OTHERS (SUPRA) AND ACCELERATED FREEZE DRYING CO. LTD.(SUPRA) WERE REND ERED IN THE CONTEXT OF DISALLOWANCE OF INTEREST IN RELATION TO INTEREST FR EE FUNDS ADVANCED TO A SISTER CONCERN. IN THE INSTANT CASE, THE ISSUE OF DISALLOW ANCE OF INTEREST IS NOT BEFORE US. LIKE WISE IN TRADE WINGS LTD.(SUPRA) ISSUE WAS I N RELATION TO THE EXPENDITURE INCURRED IN CONNECTION WITH THE FEASIBILITY OF A NE W BUSINESS VENTURE WHEREAS IN THE INSTANT CASE SUCH ARE NOT THE FACTS. THERE IS N OTHING TO SUGGEST THAT FOREIGN ITA NO.2410/DEL./2004 ITA NO.2105/DEL./2007 ITA NO.1781/DEL./2009 18 TRAVEL WAS UNDER TAKEN FOR AN ALTOGETHER NEW VENTUR E. THUS , RELIANCE BY THE LD. DR ON THESE DECISIONS IS TOTALLY MISPLACED. 8. IN VIEW OF THE FOREGOING, WE ARE OF THE OPIN ION THAT EXPENDITURE INCURRED BY THE ASSESSEE FOR MAINTAINING THE ESTABLISHMENT AND RETAINING THE STATUS OF THE COMPANY AS ALSO FOR HOLDING ON TO ASSETS OF THE COM PANY IS ALLOWABLE . CONSEQUENTLY, GROUND NO.5 IN THE APPEAL OF THE ASSE SSEE IS ALLOWED. IT MAY BE CLARIFIED THAT WE HAVE GONE THROUGH ALL THE DECISIO NS REFERRED TO BEFORE US AND ACCORDINGLY, RECORDED OUR FINDINGS IN THE LIGHT OF THOSE DECISIONS. ITA NO.2105/DEL./2007 9. NOW COMING TO PENALTY APPEAL. SINCE THE AO INITI ATED PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT WHILE DISALLOWING AN AMOUN T OF RS. 1 LAC AND THE LD. CIT(A) ALSO INITIATED PENALTY UPHELD DISALLOWANCE O F ` 9,09,931/- INCLUDING ` `1 LAC DISALLOWED BY THE AO, THE AO VIDE HIS ORDER DATED 1 4 TH SEPTEMBER, 2004 LEVIED A PENALTY OF ` `39,500/- ON THE DISALLOWANCE OF `1 LAC UPHELD BY T HE LEARNED CIT(A) OUT OF ESTABLISHMENT EXPENSES ON THE GROUND THAT AS SESSEES CASE IS COVERED BY EXPLANATION 1 TO SECTION 271(1)(C) OF THE ACT. 9.1 AS REGARDS AMOUNT ENHANCED BY THE LEARNED CIT(A ) TO THE EXTENT OF ` `8,09,391/-, THE LD. CIT(A) ISSUED NOTICE U/S 271(1 )(C) OF THE ACT. IN RESPONSE TO A SHOW CAUSE NOTICE ISSUED BY THE LEARNED CIT(A) BEFO RE LEVY OF PENALTY, THE ASSESSEE SOUGHT ADJOURNMENT ON 8 TH JANUARY, 2007 AND 16 TH JANUARY, 2007 AND ACCORDINGLY MATTER WAS FIXED FOR HEARING ON 12 TH FEBRUARY, 2007, ON WHICH DATE AGAIN REQUEST FOR ADJOURNMENT WAS FILED. IN ESSENC E, THE ASSESSEE DID NOT FILE ANY REPLY BEFORE THE LEARNED CIT(A). ACCORDINGLY, THE LEARNED CIT(A) UPHELD THE LEVY OF PENALTY OF ` `3,20,114 IN THE FOLLOWING TERMS:- 2.4 AGAINST THE ORDER OF LEARNED CIT(A)-XIII, NEW DELHI, THE APPELLANT FILED AN APPEAL BEFORE THE ITAT AND ITAT IN I.T.A. NO.2410/DEL./2004 PASSED AN ORDER DATED 7.7.2006 AS PER WHICH ITA NO.2410/DEL./2004 ITA NO.2105/DEL./2007 ITA NO.1781/DEL./2009 19 THE APPELLANTS APPEAL HAS BEEN DISMISSED IN LIMINE . ORDER OF HONBLE ITAT HAS BEEN RECEIVED BY THE OFFICE OF CIT , DELHI-IV, NEW DELHI ON 28.09.2006 AND ACCORDINGLY, THE APPELLANT HAS BEEN ISSUED TWO NOTICES DATED 18.12.2006 AND 20.12.2006 FIXING THE HEARING ON 22.12.2006 AND 8.1.2007 RESPECTIVELY IN CONNECTION WITH THE LEVY OF PENALTY FOR CONCEALMENT. ON 8.1.2007 S H. SUNIL TREHAN, CA FILED POA AND THE QUESTION OF LEVY OF PENALTY U/ S 271(1)(C), PROCEEDINGS FOR WHICH HAZS BEEN INITIATED BY MY PRE DECESSOR IN AN APPELLATE ORDER DATED 25.2.2004 (A.NO.127/03-04), H AS BEEN DISCUSSED. HEARING GOT ADJOURNED TO 16.1.2007 ON W HICH DATE ONE SH. C.N. MATHUR ATTENDED THE OFFICE WITH POA SH. MA THUR REQUESTED FOR ADJOURNMENT AND ACCORDINGLY GRANTED F OR 12.2.2007. TODAY ON 12.2.2007 AGAIN A LETTER HAS BEEN FILED FO R ADJOURNMENT BUT THE SAME HAS BEEN REJECTED AS ON AN EARLIER OCC ASION ALSO THE DATE WAS GIVEN AS PER /THE CONVENIENCE OF THE LEARN ED AR. TIME AND AGAIN SEEKING ADJOURNMENT SHOWS THAT /THE APPEL LANT IS NOT REALLY INTERESTED IN REPRESENTING THE CASE TO SUPPO RT IT VIEW POINTS AGAINST LEVY OF PENALTY U/S 271(1)(C). IN THESE CI RCUMSTANCES, I DO NOT HAVE ANY OTHER OPTION BUT TO RELY ON THE APPELL ATE ORDER DATED 25.2.2004 PASSED BY MY LEARNED PREDECESSOR. THE AP PELLATE ORDER HAS BEEN GONE THROUGH AND IT IS NOTICED THAT THE AP PELLANT HAS BEEN RECEIVING INTEREST FREE LOANS AS WELL AS ADVANCING INTEREST FREE LOANS FOR AND ON BEHALF OF ITS ASSOCIATES. IN PARA 4.2 O F THE APPELLATE ORDER MY PREDECESSOR HAS EXHAUSTIVELY DEALT WITH TH E ISSUE AT HAND AND OBSERVED THAT THE APPELLANT COMPANY HAS ADVANCE D/RECEIVED INTEREST FREE LOANS/ADVANCES AND THE APPELLANT COMP ANY HAS NOT CARRIED OUT ANY WORTHWHILE ACTIVITY FOR EARNING ANY INCOME. IT HAS ALSO BEEN NOTICED THAT THE APPELLANT EARNED INCOME TO THE TUNE OF 5% OF FUNDS ADVANCED BY THE APPELLANT AND 90% OF TH E FUNDS ARE GIVEN AS INTEREST FREE LOANS AND ACCORDINGLY, THE 9 0% OF THE EXPENSES ASSESSMENT ORDER DISALLOWED AFTER SEEKING EXPLANATION FROM THE APPELLANT. ON THE FACTS AND CIRCUMSTANCES OF THE CASE I DO AGREE THAT THE APPELLANT INDULGED IN OVER STATEMENT OF EXPENSES WHICH TANTAMOUNT TO REDUCTION OF TAXABLE INCOME AND HENCE, IT IS A FIT CASE FOR LEVY OF PENALTY FOR CONCEALMENT. CLAI MING EXCESSIVE DEDUCTIONS AMOUNTS TO CONCEALMENT OF INCOME AS FALS EHOOD IN ACCOUNTS CAN TAKE EITHER OF THE TWO FORMS EITHER AN ITEM OF RECEIPT MAY BE SUPPRESSED FRAUDULENTLY, OR AN ITEM OF EXPEN DITURE MAY BE FALSELY OR IN AN EXAGGERATED AMOUNT CLAIMED. BOTH TYPES ATTEMPT TO REDUCE THE TAXABLE INCOME. B OTH TYPES AMOUNT TO CONCEALMENT OF THE PARTICULARS OF ONES I NCOME AS WELL AS FURNISHING OF INACCURATE PARTICULARS OF INCOME. INCOME CAN BE IMPOSED FOR EITHER OR BOTH SUCH ATTEMPTS. (CIT VS. INDIA SEA FOODS (1976) 105 ITR 708 (KER.), NAGIN CHAND SHIV SAHAI V S. CIT (1938) ITA NO.2410/DEL./2004 ITA NO.2105/DEL./2007 ITA NO.1781/DEL./2009 20 6 ITR 534 (LAH), CIT VS. GATES FOOM & RUBBER CO. (1 973) 91 ITR 467 (KER.). ACCORDINGLY, A PENALTY OF `3,20,114/- BEING 100% OF THE TAX SOUGHT TO BE EVADED IS LEVIED ON THE APPELLANT FOR FURNISHING INACCURATE PARTICULARS OF INCOME. 10. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF LEARNED CIT(A). THE LEARNED AR ON BEHALF OF THE AS SESSEE RELIED UPON DECISIONS IN CASE OF RELIANCE PETROPRODUCTS 322 ITR 159 (SUPR EME COURT). ON THE OTHER HAND, LEARNED DR SUPPORTED THE FINDINGS OF LEARNED CIT(A) WHILE REFERRING TO VARIOUS DECISIONS IN CIT VS. ZOOM COMMUNICATION (P) LTD.,327 ITR 510 (DELHI),CIT VS. NAV BHARAT TRADERS,248 ITR 255 (P&H );K.P. MADHUSUDANAN VS. CIT,251 ITR 99 (SC) AND CIT VS. SREE KRISHNA TRADIN G CO.253 ITR 645 (KER). 11. SINCE WE HAVE DELETED THE ADDITION IN QUANTUM A PPEAL, IN ITA NO.2410/DEL./2004, APPARENTLY , THE PENALTY DOES NO T SURVIVE.. 12. WE FIND THAT HONBLE HONBLE SUPREME COURT IN THE CASE OF K.C.BUILDERS VS. ACIT,265 ITR 562(SC) HELD THAT ORDINARILY, PENA LTY CANNOT STAND IF THE ASSESSMENT ITSELF IS SET ASIDE. WHERE AN ORDER OF A SSESSMENT OR REASSESSMENT ON THE BASIS OF WHICH PENALTY HAS BEEN LEVIED ON TH E ASSESSEE, HAS ITSELF BEEN FINALLY SET ASIDE OR CANCELLED BY THE TRIBUNAL OR O THERWISE, THE PENALTY CANNOT STAND BY ITSELF AND THE SAME IS LIABLE TO BE CANCEL LED. HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. R.DALMIA,(1992)107 TAXATION 107 , HELD THAT NO PENALTY SURVIVES AFTER DELETION OF ADDITIONS, FORMING THE B ASIS FOR THE LEVY OF PENALTY. SINCE THE VERY BASIS UPON WHICH THE PENALTY HAS BEE N IMPOSED DOES NOT EXIST IN VIEW OF AFORESAID ORDER IN ITA NO.2410/DEL./2004, WE ARE OF THE OPINION THAT PENALTY LEVIED IN RELATION TO THE ADDITIONS UP HELD BY THE LD. CIT(A) DOES NOT SURVIVE AND IMPUGNED ORDERS ARE , THEREFORE, SET ASIDE. WITH THESE OBSERVATIONS, GROUND NO.1 IN THE APPEAL IS ALLOWED. ITA NO.2410/DEL./2004 ITA NO.2105/DEL./2007 ITA NO.1781/DEL./2009 21 13.. NO ADDITIONAL GROUND HAVING BEEN RAISED I N TERMS OF THE RESIDUARY GROUND NO.2 IN THE APPEAL, ACCORDINGLY, THIS GROUND IS D ISMISSED. ITA NO.1781/DEL./2009 14. COMING NOW TO APPEAL AGAINST AN ORDER DATED 12. 2.2007 U/S 154 OF THE ACT OF THE LEARNED CIT(A), AT THE OUTSET, WE NOTICE D THAT APPEAL IN THIS CASE WAS DELAYED BY 778 DAYS, IMPUGNED ORDER HAVING BEEN SER VED ON THE ASSESSEE ON 14.3.2007 AND APPEAL HAVING BEEN FILED ONLY ON 1.5. 2009 WHILE THE ASSESSEE DID NOT CARE TO FILE ANY APPLICATION FOR CONDONATION O F DELAY IN FILING THE APPEAL. THOUGH THE REGISTRY POINTED OUT THIS DEFECT IN THEI R NOTICE DATED 01.05.2009,THE ASSESSEE DID NOT FILE ANY APPLICATION FOR CONDONATI ON OF DELAY RIGHT UNTIL THE HEARING OF THE APPEAL FIXED FOR 17.10.2011. TO A QUERY BY THE BENCH, THE LD. AR ON BEHALF OF THE ASSESSEE SUBMITTED A PRAYER FOR CO NDONATION OF DELAY, MENTIONING THAT THE ASSESSEE WAS UNDER THE BELIEF T HAT THE MAIN ORDER HAVING ALREADY BEEN CONTESTED BEFORE THE ITAT, THERE WAS N O REQUIREMENT OF CONTESTING THE ORDER PASSED U/S 154 OF THE ACT. WHEN THE QUAN TUM APPEAL CAME UP FOR HEARING ON 27 TH APRIL, 2009, THE ASSESSEE COMPANY ENGAGED A NEW CO UNSEL WHO ADVISED FILING OF APPEAL AGAINST ORDER U/S 154 AND ACCORDINGLY, APPEAL WAS FILED ON 01.05.2009. THE LD. AR WHILE RELYING UPON DECIS ION IN COLLECTOR LAND ACQUISITION VS. MST. KATIJI & OTHERS 167 ITR 471 (S C), CONTENDED THAT THE DELAY IN FILING THE APPEAL, BEING NOT DELIBERATE OR WILLFUL, BE CONDONED IN THE INTEREST OF JUSTICE. 15. ON THE OTHER HAND, LEARNED DR VEHEMENTLY OPPOSE D THE APPLICATION FOR CONDONATION OF DELAY OF MORE THAN TWO YEARS ON THE GROUND THAT THE ASSESSEE WAS NEITHER DILIGENT NOR EVEN CARED TO SUBMIT ANY PRAYER FOR CONDONATION OF DELAY. THERE IS NO RECORD IN SUPPORT OF THE ALLEG ED BELIEF OR ADVISE MENTIONED IN PARA 7 & 8 OF THE PRAYER FOR CONDONATION OF DELAY, THE LD. DR ARGUED. IN THESE CIRCUMSTANCES, PRAYER FOR CONDONATION OF DELAY IN F ILING THE APPEAL ,SHOULD NOT BE ACCEPTED, THE LD. DR PLEADED. ITA NO.2410/DEL./2004 ITA NO.2105/DEL./2007 ITA NO.1781/DEL./2009 22 16. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE PRAYER FOR CONDONATION OF DELAY IN FILING THE APPEAL. AS IS EVIDENT FROM THE AVERMENTS IN THE APPLICATION FOR CONDONATION OF DELAY, APPEAL FILED BY THE ASSESSEE IS DELAYED BY 778 DAYS AND NO REQUEST HAD BEEN MADE BY THE ASSES SEE FOR CONDONATION OF DELAY IN FILING THE APPEAL AT THE TIME OF FILING OF APPEAL. IT WAS ONLY WHEN THE APPEAL WAS FIXED FOR HEARING, THE LD. AR SUBMITTED AN APPLICATION, SEEKING CONDONATION OF DELAY. IT IS SUBMITTED IN THE APPLIC ATION THAT THE ASSESSEE WAS UNDER THE BELIEF THAT THE MAIN ORDER HAVING ALREAD Y BEEN CONTESTED BEFORE THE ITAT, THERE WAS NO REQUIREMENT OF CONTESTING THE OR DER PASSED U/S 154 OF THE ACT. BUT THE LD. AR DID NOT EXPLAIN THE CIRCUMSTANC ES LEADING TO SUCH BELIEF AND MADE ONLY A PERFUNCTORY AND GENERAL STATEMENT. . IT IS NOT THE LAW WHEN AN APPLICATION SEEKING CONDONATION OF DELAY IS FILED B Y A PARTY, COURT MUST INVARIABLY CONDONE THE DELAY, IRRESPECTIVE OF WHETH ER SUFFICIENT CAUSE IS SHOWN OR NOT. THE CONDUCT OF THE ASSESSEE BEFORE US REFLE CTS THAT THE RIGHT GRANTED UNDER LAW TO CHALLENGE THE ORDER WAS ABANDONED. NO MATERIAL HAS BEEN PLACED BEFORE US, EVIDENCING THAT THE ASSESSEE WAS UNDER THE BELI EF THAT APPEAL WAS NOT REQUIRED TO BE FILED AGAINST THE ORDER DATED 12.2.2 007 U/S 154 OF THE ACT AND WHEN AND HOW THAT BELIEF WAS SHAKEN. NO EVIDENCE HA S BEEN FILED BY THE ASSESSEE AS TO WHEN THE ASSESSEE WAS ADVISED AND WH O ADVISED TO FILE APPEAL BELATEDLY NOR ANY AFFIDAVIT IN SUPPORT HAS BEEN FILED. THERE IS NOTHING TO SUGGEST THAT THE ASSESSEE WAS DILIGENT IN PURSUING THE MATT ER AFTER THE ORDER U/S 154 WAS PASSED. IN THESE CIRCUMSTANCES, THERE BEING NO SUF FICIENT CAUSE FOR DELAY OF 778 IN FILING THE APPEAL, THE APPEAL CAN NOT BE ADMITTE D . REGARDING SUFFICIENT CAUSE,IN THE CASE OF GOPAL FILMS VS. CIT AND OTHER S,237 ITR 655(KAR) IT WAS HELD BY THE HONBLE COURT THAT WHENEVER A PARTY WANTS DELAY TO BE CONDONED, HE SHOULD SHOW SUFFICIENT CAUSE. IF NO CAUSE IS SHOWN AT ALL, THE ONLY CONCLUSION THAT CAN BE REACHED IS THAT THE DELAY CANNOT BE CONDONED, PARTI CULARLY WHEN LACK OF BONA FIDES IS EVIDENT. ITA NO.2410/DEL./2004 ITA NO.2105/DEL./2007 ITA NO.1781/DEL./2009 23 16.1 IT IS WELL ESTABLISHED THAT THE ONUS IS ALW AYS ON THE ASSESSEE TO PROVE THE EXISTENCE OF SUFFICIENT CAUSE AND THERE IS NO PRESU MPTION THAT THE DELAY OCCASIONED IN THE FILING OF THE APPEAL IS ALWAYS BO NA FIDE . THE LAW OF LIMITATION PRESCRIBED IN THE PROVISIONS OF SECTION 253(5) OF T HE ACT ENVISAGES THAT THERE SHOULD HAVE BEEN A SUFFICIENT CAUSE FOR NOT PRESENT ING THE APPEAL WITHIN THE PERIOD AS PRESCRIBED. IN THE INSTANT CASE, THE ASSE SSEE HAS FAILED TO SHOW SUFFICIENT CAUSE FOR CONDONATION OF DELAY AND INACT ION AS ALSO NEGLIGENCE GALORE. IT IS FOR THE PARTY CONCERNED TO SUBSTANTIATE THE R EASONS FOR DELAY AND IT IS NOT THE FUNCTION OF THE APPELLATE AUTHORITY TO FIND THE CAU SE OF THE DELAY. THE APPELLATE AUTHORITY HAS TO EXAMINE, WHETHER SUFFICIENT CAUSE HAS BEEN SHOWN BY THE PARTY FOR CONDONING THE DELAY AND WHETHER SUCH CAUSE IS A CCEPTABLE OR NOT. INACTION AND WANT OF DILIGENCE ON THE PART OF THE ASSESSE WO ULD NOT ENTITLE THE ASSESSEE TO THE BENEFIT OF THE PROVISIONS OF SECTION 253(5) OF THE ACT. 16.2. IN THE CASE OF SITARAM RA MCHARAN [1959-60] 17 FJR 379 ; AIR 1960 SC 260, THE HONBLE SUPREME COURT OBSERVED THA T THE WHOLE OF THE PERIOD OF DELAY WAS REQUIRED TO BE EXPLAINED, WHICH WOULD INDICATE EVEN THE PERIOD PRESCRIBED BY THE LAW OF LIMITATION. 16.3. IN THE CASE OF COMMISSIONER OF INCOME-TAX.VS RAM MOHAN KABRA,257 ITR 773(PB), IT WAS OBSERVED BY THE HONB LE COURT AS UNDER: THE PROVISIONS RELATING TO PRESCRIPTION OF LIMI TATION IN EVERY STATUTE MUST NOT BE CONSTRUED SO LIBERALLY THAT IT WOULD HAVE THE EFFEC T OF TAKING AWAY THE BENEFIT ACCRUING TO THE OTHER PARTY IN A MECHANICAL MANNER. WHERE THE LEGISLATURE SPELLS OUT A PERIOD OF LIMITATION AND PROVIDES FOR POWER T O CONDONE THE DELAY AS WELL, THERE SUCH DELAY CAN BE CONDONED ONLY FOR SUFFICIEN T AND GOOD REASONS SUPPORTED BY COGENT AND PROPER EVIDENCE. NOW IT IS A SETTLED PRINCIPLE OF LAW THAT THE PROVISIONS RELATING TO SPECIFIED PERIOD OF LIMI TATION MUST BE APPLIED WITH THEIR RIGOUR AND EFFECTIVE CONSEQUENCES. 16.31 IN THIS REGARD, REFERENCE CAN BE MADE TO THE DECISION IN THE CASE OF P.K. RAMACHANDRAN V. STATE OF KERALA, AIR 1998 S C 2276. THE RELEVANT PORTION READS AS UNDER: ITA NO.2410/DEL./2004 ITA NO.2105/DEL./2007 ITA NO.1781/DEL./2009 24 LAW OF LIMITATION MAY HARSHLY AFFECT A PARTICULAR PARTY BUT IT HAS TO BE APPLIED WITH ALL ITS RIGOUR WHEN THE STATUTE SO PRESCRIBES AND THE COURTS HAVE NO POWER TO EXTEND THE PERIOD OF LIMITATION ON EQUITABLE GROUNDS. THE DISCRETION EXERCISED BY THE HIGH COURT, WAS, THUS, NEITHER PROPER NOR JUDICIOUS. THE ORDER CONDONING THE DELAY CANNOT BE S USTAINED. THIS APPEAL, THEREFORE, SUCCEEDS AND THE IMPUGNED ORDER IS SET A SIDE. CONSEQUENTLY, THE APPLICATION FOR CONDONATION OF DELAY FILED IN THE H IGH COURT WOULD STAND REJECTED AND THE MISCELLANEOUS FIRST APPEAL SHALL ST AND DISMISSED AS BARRED BY TIME. NO COSTS.' 16.4 THE ITAT, IN THE CASE O F SRI VENKATESA PAPER AND BOARDS LTD. VS. DCIT,98 ITD 200, HELD THAT IN GRANTING I NDULGENCE AND CONDONATION OF DELAY, APPELLATE AUTHORITY MUST BE SATISFIED THAT THERE HAD BEEN DILIGENCE ON THE PART OF THE APPELLANT. IN THE INSTANT CASE, THERE I S NO MATERIAL BEFORE US, ESTABLISHING DILIGENCE ON THE PART OF THE ASSESSEE, EVEN WHEN SPECIFIC OPPORTUNITY WAS ALLOWED TO THE ASSESSEE. 16.5 IN THE CASE OF VINAY EXTRACTION (P) LTD. V . VIJAY KHANNA [2004] 271 ITR 450 (GUJ) , IT WAS HELD BY THE HONBLE HIGH COURT THAT IT IS TRUE THAT THE APEX COURT HAS HELD THAT THE COURT SHOULD ADOPT A LIBERAL APPROACH IN CONSIDERING THE APPLICATION FOR CONDONA TION OF DELAY AND THAT SUBSTANTIAL JUSTICE DESERVES TO BE PREFERRED OVER T ECHNICAL CONSIDERATIONS. HOWEVER, IT IS EQUALLY WELL SETTLED THAT A PERSON I NVOKING THE DISCRETION OF THE APPELLATE OR REVISIONAL AUTHORITY BEYOND THE PRESCR IBED PERIOD OF LIMITATION IS REQUIRED TO SHOW SUFFICIENT CAUSE WHICH WOULD INCLU DE SHOWING THAT THE PETITIONER/APPELLANT WAS EITHER BONA FIDE PURSUING HIS REMEDIES OR WAS PREVENTED BY SUFFICIENT CAUSE FROM PURSUING HIS REMEDIES. WHE THER SUFFICIENT CAUSE IS MADE OUT OR NOT IS ALWAYS A QUESTION OF FACT DEPENDING U PON THE FACTS AND CIRCUMSTANCES OF EACH CASE AND HAS TO BE ESTABLISHE D ON RECORD. AN APPLICATION SEEKING CONDONATION OF DELAY HAS ALSO TO ESTABLISH THAT THERE WAS NO NEGLIGENCE OR INACTION OR WANT OF BONA FIDES AND THAT THE RIGH T GRANTED UNDER LAW TO CHALLENGE THE ORDER WAS NOT ABANDONED. IT CANNOT BE OVERLOOKE D THAT ON EXPIRY OF THE PERIOD OF LIMITATION PRESCRIBED FOR SEEKING LEGAL R EMEDY, A CORRESPONDING RIGHT ACCRUES IN FAVOUR OF THE OTHER PARTY AND THE SAME S HOULD NOT BE LIGHTLY INTERFERED WITH. ITA NO.2410/DEL./2004 ITA NO.2105/DEL./2007 ITA NO.1781/DEL./2009 25 16.6. HON'BLE MADHYA PRADESH HIGH COURT IN THE C ASE OF NIHALKARAN V. CWT [1989] 175 ITR 14 HAS HELD AS UNDER: 'THE BURDEN IS ON THE PARTY CLAIMING CONDONATION OF DELAY TO PLACE BEFORE THE COURT, IN CLEAR AND EXPLICIT TERMS, ALL FACTS ON WH ICH THE PARTY RELIES, SO THAT THE COURT CAN COME TO THE CONCLUSION THAT IT IS NOT A C ASE OF WANT OF DILIGENCE OR INACTION ON THE PART OF THE APPLICANT. IN THE INSTA NT CASE, THE APPLICANT HAS FAILED TO PLACE ON RECORD ALL THESE FACTS. INACTION OR WAN T OF DILIGENCE ON THE PART OF THE APPLICANT WOULD NOT ENTITLE THE APPLICANT TO THE BE NEFIT OF THE PROVISIONS OF SECTION 5 OF THE LIMITATION ACT. IN OUR OPINION, THEREFORE, THE APPLICANT HAS FAILED TO MAKE OUT A CASE THAT THERE WAS SUFFICIENT CAUSE FOR DELA Y IN FILING THE APPLICATION UNDER SECTION 27(3) OF THE ACT. THE APPLICATION FOR CONDO NATION OF DELAY IS, ACCORDINGLY, REJECTED. AS THE APPLICATION UNDER SECTION 27(3) OF THE ACT IS BARRED BY LIMITATION, IT DESERVES TO BE REJECTED ON THIS GROUND ALONE.' 16.7. IN MADHU DADHA VS THE ASSISTANT COMMISSION ER, HONBLE MADRAS HIGH COURT IN THEIR DECISION DATED 23.6.2009 IN TC(A). NO. 421 OF 2009 WHILE REFERRING TO THE AFORESAID DECISION OF THE HONBLE APEX COURT IN P.K. RAMACHANDRAN V. STATE OF KERALA , OBSERVED THAT 14. AT THIS JUNCTURE, WE HAVE TO BE GUIDE D BY THE JUDGMENT REPORTED IN [1990] 1 LLN 457 IN THE CASE OF T.N.M. BANK LTD. V. APP. AUTY., SHOPS ACT. IN THAT PARTICULAR CASE, THE DIVISION BENCH OF THIS COURT HAS HELD THAT, '.................. WE ARE OF THE VIEW THAT THE QUE STION OF LIMITATION IS NOT MERELY A TECHNICAL CONSIDERATION. RULES OF LIMITATION ARE BA SED ON PRINCIPLES OF SOUND POLICY AND PRINCIPLES OF EQUITY. IS A LITIGANT LIAB LE TO HAVE A DAMOCLES' SWORD HANGING OVER HIS HEAD INDEFINITELY FOR A PERIOD TO BE DETERMINED AT THE WHIMS AND FANCIES OF THE OPPONENT?' IN THAT DECISION, THIS COURT HAS HELD THAT THE D ELAY OF 285 DAYS IN PREFERRING THE APPEAL COULD NOT BE CONDONED. IT WAS HELD THAT THE CONDONATION OF DELAY WAS NOT JUSTIFIED ON FACTS AND EVIDENCE OF THE CASE. AS RIG HTLY POINTED OUT THAT THE RULES OF LIMITATION ARE BASED ON PRINCIPLES OF SOUND PUBL IC POLICY AND PRINCIPLES OF EQUITY. THOUGH THERE IS NO PRESUMPTION THAT THE DEL AY IS OCCASIONED DELIBERATELY OR ON ACCOUNT OF CULPABLE NEGLIGENCE, IF THE ADMITT ED FACTS IN THAT CASE ARE TAKEN NOTE OF, THERE IS NO DOUBT THAT THE DELAY ON THE PA RT OF THE APPELLANT IS DELIBERATE AND THE APPELLANT IS CLEARLY GUILTY OF CULPABLE NEG LIGENCE. SUCH NEGLIGENT ATTITUDE OF THE APPELLANT WAS NOT TAKEN CARE TO PRESERVE THE RIGHT OF APPEAL AND HAVING BEEN SLEPT OVER FOR MORE THAN 558 DAYS AND NOT EXPL AINED THE DELAY WITHOUT ANY REASONABLE DOUBT, THE APPELLANT CANNOT AVAIL SYMPAT HY OR DISCRETION OF THIS COURT. 16.8 IN VIEW OF THE AFORESAID OBSERVATIONS, HONBL E HIGH COURT CONCLUDED THAT THE DISCRETION HAVING BEEN RIGHTLY REFUSED BY THE T RIBUNAL, THERE WAS NO SUFFICIENT ITA NO.2410/DEL./2004 ITA NO.2105/DEL./2007 ITA NO.1781/DEL./2009 26 REASON OR CAUSE TO INTERFERE WITH THE ORDER PASSED BY THE TRIBUNAL. IN THIS CASE, THE ASSESSEE FAILED TO EXPLAIN THE SUFFICIENT CAUSE OR REASON BY GIVING NECESSARY DETAILS AS TO HOW THE DELAY OF 778 DAYS FROM MARCH 2007 TO THE DATE OF FILING THE APPEAL HAD OCCURRED. HONBLE HIGH COURT IN THE AF ORESAID CASE QUOTED THE FOLLOWING FINDINGS OF THE ITAT . FROM THE FACTS IT SEEMS THAT THE ASSEESSEE WA S NEGLIGENT BY NOT TAKING THE NECESSARY STEP FOR FILING THE APPEAL WITHIN TH E TIME PRESCRIBED BY THE STATUTE AND THEREBY FROM THE CONDUCT OF THE ASSESSEE, IT SE EMS THAT THE ASSESSEE TAKES THE CONDONATION OF DELAY PROVISION AS GRANTED. IT I S WELL SETTLED LAW THAT THE COURT HELPS THE VIGILANT AND NOT INDOLENT. WE ARE THEREFO RE OF THE VIEW THAT THE ASSEESEE HAS NOT MADE OUT SUFFICIENT CAUSE FOR COND ONING THE DELAY IN THE PRESENT APPEAL. THE CAUSE SHOWN BY THE ASSESSEE IS MUCH LESS THAN THE SUFFICIENT CAUSE AS TO WHY THE APPEAL WAS NOT FILED WITHIN THE LIMITATION PERIOD AND EVEN AFTER THE EXPIRY OF LIMITATION PERIOD. SIN CE THE ASSESSEE HAS NOT GIVEN ANY DETAILS AS TO WHAT STEP SHE TOOK FOR FILING THE APPEAL WITHIN THE LIMITATION PERIOD OR AS EARLY AS POSSIBLE THEREFORE, THE EXPLA NATION FOR DELAY OF 558 DAYS APPEARS TO BE TOO INSUFFICIENT, UNSATISFACTORY AND UNREASONABLE FOR CONDONING THE INORDINATE DELAY. FROM THE AFFIDAVIT IT REFLECTS TH AT AVERMENTS ARE QUITE VAGUE AS NO DATES HAVE BEEN SPECIFIED AS TO WHEN THE PAPERS WERE HANDED FOR DRAFTING AN APPEAL AND ON WHAT OCCASION THE ENQUIRIES WERE MADE FOR PREPARATION AND FILING OF APPEAL. MOREOVER, WHEN THE ASSESSEE NEVER WENT F OR SIGNING THE APPEAL, HOW IT COULD HAVE BEEN FILED AS PRESUMED BY THE ASSESSE E. EVEN THE CONDUCT OF THE ASSESSEE BEFORE THIS TRIBUNAL IS ALSO NOT APPRECIAB LE AS VARIOUS NOTICE WERE SENT TO THE ASSESSEE AND FIRST TIME THE ASSESSEE APPEARE D ON 3.3.2008 WHEN THE APPEAL WAS HEARD. WE THEREFORE DECLINE TO CONDONE T HE DELAY OF 558 DAYS IN FILING THE PRESENT APPEAL. ACCORDINGLY, THE PRAYER FOR CONDONATION OF DELAY IS REJECTED.' 17. IN THE INSTANT CASE ALSO, THE ASSEESSEE SEEM S TO BE QUITE NEGLIGENT BY NOT TAKING THE NECESSARY STEPS FOR FILING THE APPEAL W ITHIN THE TIME PRESCRIBED BY THE STATUTE .THE CONDUCT OF THE ASSESSEE REVEALS THAT THE ASSESSEE TAKES THE CONDONATION OF DELAY PROVISION AS GRANTED. THE ASS ESSEE DID NOT CARE TO SUBMIT ANY REQUEST FOR CONDONATION OF DELAY , EVEN WHEN IT WAS BROUGHT SPECIFICALLY TO THEIR NOTICE. IN GRANTING THE INDULGENCE AND CONDON ING THE DELAY, IT MUST BE PROVED BEYOND THE SHADOW OF DOUBT THAT THE ASSESSEE WAS DILIGENT AND WAS NOT GUILTY OF NEGLIGENCE WHATSOEVER. THE SUFFICIENT CAU SE WITHIN THE CONTEMPLATION OF THE LIMITATION PROVISION MUST BE A CAUSE WHICH IS B EYOND THE CONTROL OF THE PARTY ITA NO.2410/DEL./2004 ITA NO.2105/DEL./2007 ITA NO.1781/DEL./2009 27 INVOKING THE AID OF THE PROVISIONS. IN THE CASE OF RAMLAL V. REWA COALFIELDS LTD., AIR 1962 SC 361, THE HON BLE APEX COURT HELD THAT THE CAUSE FOR THE DELAY IN FILING THE APPEAL, WHICH BY DUE CARE AND ATTENTION, COULD HAVE BEEN AVOIDED, CANNOT BE A SUFFICIENT CAUSE WITHIN THE MEANING OF THE LIMITATION PROVISION. THE RULE OF LIMITATION ALSO CONTAINS A RULE OF JUSTICE, ESPECIALLY WHERE A PERSON CHOOSES NOT TO TAKE UP REQUISITE LEGAL REMEDIES FOR AN INORDINATE LENGTH OF TIME AND WITHOUT REASONABLE CAUSE, THE TRIBUNAL SHOULD A PPLY THE RULE OF LIMITATION. SEEKERS OF JUSTICE MUST COME WITH CLEAN HANDS. IN T HE INSTANT CASE, WE DO NOT FIND ANY REASONABLE CAUSE FOR CONDONING THE DELAY. 18.. IN THE LIGHT OF AFORESAID DECISION S, THE BURDEN IS ON THE PARTY CLAIMING CONDONATION OF DELAY TO PLACE BEFORE THE COURT, IN CLEAR AND EXPLICIT TERMS, ALL FACTS ON WHICH THE PARTY RELIES, SO THAT THE COURT CAN COME TO THE CONCLUSION THAT IT IS NOT A CASE OF WANT OF DILIGENCE OR INACTION O N THE PART OF THE ASSESSEE. INACTION OR WANT OF DILIGENCE ON THE PART OF THE AS SESSEE WOULD NOT ENTITLE HIM TO THE BENEFIT OF THE PROVISIONS OF SECTION 253(5) OF THE ACT. IN THE CASE UNDER CONSIDERATION, ADMITTEDLY, THE ASSESSEE HAS NOT SH OWN ANY ACTION OR VIGILANCE FOR A PERIOD OF MORE THAN 778DAYS AFTER THE IMPUGN ED ORDER WAS SERVED UPON . IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE HAS NOT PROVED ANY INACTION OR NEGLIGENCE ON THE PART OF A THIRD PARTY, MUCH LESS HAVE THEY PLEADED ANY ACTION OR VIGILANCE ON THEIR OWN PART. 19. IN VIEW OF THE FOREGOING, ESPECIA LLY WHEN THE ASSESSEE HAS NOT COME WITH CLEAN HANDS BEFORE US AND HAS ALSO FAILE D TO ESTABLISH WITH COGENT AND PROPER EVIDENCE THAT THERE EXISTED SUFFICIENT C AUSE FOR NOT PRESENTING THE APPEAL WITHIN THE STIPULATED PERIOD, DELAY OF 778 DAYS IN FILING APPEAL CAN NOT BE CONDONED. AS THE APPEAL IS BARRED BY LIMITATION, IT DESERVES TO BE REJECTED ON THIS GROUND ALONE. THEREFORE , WE DECLINE TO ADMIT THE A PPEAL. ITA NO.2410/DEL./2004 ITA NO.2105/DEL./2007 ITA NO.1781/DEL./2009 28 20. IN THE RESULT, APPEALS IN ITA NO.2410/DEL./ 2004 AND ITA NO.2105/DEL./2007 ARE ALLOWED WHILE APPEAL IN ITA NO.1781/DEL./2009 IS DISMISSED IN LIMINE. ORDER PRONOUNCED IN OPEN COURT SD/- SD/- (R.P. TOLANI) (A.N. PAHUJA ) JUDICIAL MEMBER ACCOUNTANT MEMBER NS COPY OF THE ORDER FORWARDED TO :- 1. M/S D. PAUL CAPITAL LIMITED, 12/163, 1 ST FLOOR, MALVIYA NAGAR, NEW DELHI. 2. INCOME TAX OFFICER, WARD 10(3), NEW DELHI 3. CIT (APPEALS)-XIII, NEW DELHI 4. THE CIT CONCERNED. 5. THE DR, ITAT,F BENCH, NEW DELHI 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, DELHI