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

ITA 313/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89269 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 2 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-04-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 04-02-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MK SINGH
• Keywords: Depreciation; Additional evidence
• Section: 143(3); 37(1); 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD .., , BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ./ I.T.A. NO.313/AHD/2011 ( / ASSESSMENT YEAR : 2007-08) THE ITO WARD-4(1) AHMEDABAD / VS. GRACE CASTING PVT.LTD. 5-6, LIBERTY COMPLEX 1 ST FLOOR, OPP.XAVIERS LADIES HOSTEL AHMEDABAD ./ ./ PAN/GIR NO. : AAACG 5597 K ( # / APPELLANT ) .. ( $% # / RESPONDENT ) #& / APPELLANT BY : SHRI M.K. SINGH, SR.DR $% #'& / RESPONDENT BY : MS.URVASHI SHODHAN ()'* / DATE OF HEARING 23/03/2015 +,-.'* / DATE OF PRONOUNCEMENT 10/04/2015 / O R D E R PER BENCH : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-VIII, AHMEDA BAD (CIT(A) IN SHORT) DATED 01/11/2010 PERTAINING TO ASSESSMEN T YEAR (AY) 2007-08. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL:- 1. THE LD.CIT(A)-VIII, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.27,46,569/- MADE BY THE AO ON ITA NO.313/AHD/ 2011 ITO VS. GRACE CASTINGS P.LTD. ASST.YEAR 2007-08 - 2 - ACCOUNT OF DISALLOWANCE OF COMMISSION PAYMENT TO M/ S.NAKODA ENTERPRISES, WITHOUT PROPERLY APPRECIATING THE FACT S OF THE CASE AND THE MATERIAL BROUGHT ON RECORD BY THE AO. 1.2. IN DOING SO, THE LD.CIT(A) HAS ERRED IN LAW AN D ON FACTS IN NOT APPRECIATING THAT THE ORDER OF THE LD.CIT(A) FOR AS ST.YEAR 2006-07 HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND THE MAT TER IS SUBJUDICE BEFORE THE HONBLE TRIBUNAL. 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELE TING THE ADDITION OF RS.18,00,00/- MADE BY THE AO ON ACCOUNT OF DISAL LOWANCE OF LEASE RENT OF DG SET, WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD BY THE AO. 2.2. IN DOING SO, THE LD.CIT(A) HAS ERRED IN LAW AN D ON FACTS IN NOT APPRECIATING THAT THE ORDER OF THE LD.CIT(A) FOR AS ST.YEAR 2006-07 HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND THE MAT TER IS SUB- JUDICE BEFORE THE HONBLE TRIBUNAL. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFF ICER. 2. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE AS SESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143( 3) OF THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VIDE ORDER DATED 30/12/2009, THEREBY THE ASSESSING OFFICER (AO IN SHORT) MADE DISALLOWANCE OF COMMISSION PAYMENT OF RS.27,46,569/ - AND DISALLOWANCE OF RENT ON DG SET OF RS.18 LACS. AGAINST THIS, THE ASSESSEE FILED AN APPEAL BEFORE THE LD.CIT(A), WHO AFTER CONSIDERING THE SUB MISSIONS OF THE ASSESSEE ALLOWED THE EXPENDITURE IN RESPECT OF THE COMMISSION PAID TO SMT.ROOPAM MARDIA (NAKODA ENTERPRISES) AND EXPENDIT URE RELATED TO LEASE RENT ON DG SET. AGGRIEVED BY THE ORDER OF TH E LD.CIT(A), NOW THE REVENUE IS IN APPEAL BEFORE US. ITA NO.313/AHD/ 2011 ITO VS. GRACE CASTINGS P.LTD. ASST.YEAR 2007-08 - 3 - 3. AT THE OUTSET, LD.SR.DR SUBMITTED THAT THE IDENT ICAL ISSUES HAVE BEEN DECIDED BY THE COORDINATE BENCH IN ASSESSEES OWN CASE (ITAT C BENCH AHMEDABAD) IN ITA NO.261/AHD/2010-REVENUES A PPEAL FOR AY 2006-07, VIDE ORDER DATED 12/10/2012. HE DREW OUR ATTENTION TOWARDS PARA-6 OF THE TRIBUNALS ORDER AND SUBMITTED THAT T HE LD.CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION BY FOLLOWING EAR LIER YEAR ORDER. 4. ON THE CONTRARY, LD.COUNSEL FOR THE ASSESSEE DID NOT CONTROVERT THE FACT THAT IN EARLIER YEAR, THE IDENTICAL ISSUE CAME UP FOR HEARING BEFORE THIS TRIBUNAL. HOWEVER, LD.COUNSEL FOR THE ASSESSEE SUB MITTED THAT THIS TRIBUNAL HAD MADE OBSERVATION IN PARA-6 OF THE ORDE R IN ITA NO.261/AHD/2010 PERTAINING TO AY 2006-07. LD.COUNS EL FOR THE ASSESSEE SUBMITTED THAT ALL DETAILS ARE AVAILABLE ON RECORD THAT GOES TO DEMONSTRATE THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAK ING THE ADDITION. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IN RESPECT OF GROUND NOS.1 & 1.2 ARE AGAINST THE D ELETION OF DISALLOWANCE OF RS.27,46,569/- MADE ON ACCOUNT OF COMMISSION PAY MENT TO M/S.NAKODA ENTERPRISES. WE FIND THAT THE LD.CIT(A) HAS DECIDED THIS ISSUE FOLLOWING HIS PREDECESSORS ORDER PASSED IN A Y 2006-07 BY HOLDING AS UNDER:- 2.3. I HAVE CAREFULLY CONSIDERED THE FINDINGS OF T HE A.O. AND SUBMISSIONS OF THE APPELLANT AND OTHER MATERIAL AVA ILABLE ON RECORD. ITA NO.313/AHD/ 2011 ITO VS. GRACE CASTINGS P.LTD. ASST.YEAR 2007-08 - 4 - GRACE CASTING PVT.LTD. IS A COMPANY INCORPORATED UN DER THE COMPANIES ACT WITH THE MAIN OBJECT TO MANUFACTURE A ND TRADE IN THE AREA OF METAL PRODUCTS. DURING THE RELEVANT PREVIO US YEAR THE APPELLANT WAS ENGAGED IN MANUFACTURING INGOTS AND BARS AND FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME OF RS.26,81,770/-. T HE A.O FINALIZED THE ASSESSMENT U/S. 143(3) ON A TOTAL INCOME OF RS.72,2 8,340/- BY MAKING TOTAL ADDITIONS OF RS.4546,569/-. THE A.O. HAS MADE DISALLOWANCE OF RS.27,46,569/- ON ACCOUNT OF PAYMENT OF COMMISSION TO NAKODA ENTERPRISES, WHOSE PROPRIETOR IS SMT. ROOPAM MARDIA . IT IS OBSERVED THAT IN THE ASSESSMENT YEAR 2006-07 ALSO THE APPELLANT PAID COMMISSION TO THE TUNE OF RS. 24,30, 078/- TO M/S. NAKODA ENTERPRISES AND THE SAME WAS DISALLOWED BY T HE A.O. MY PREDECESSOR LD. CIT(A) VIDE ORDER NO. CIT(A)-VIII/I TO/4(1)/209/08-09 DTD. 29.9.2009 DELETED THE ADDITION ON IDENTICAL FA CTS GIVING THE FOLLOWING FINDINGS:- 'I HAVE CONSIDERED THE FACTS AND THE SUBMISSIONS OF THE LD. A.R. CAREFULLY. THERE IS NO DISPUTE ABOUT THE FACT THAT THE APPELLANT HAS PAID COMMISSION TO THE TUNE OF RS.24,30,078/- T O M/S. NAKODA ENTERPRISE A PROPRIETARY OF SMT. ROOPAM MARD IA. THE A. O. HAS DISALLOWED THE AMOUNT HOLDING THAT SMT. M ARDIA HAS NOT RENDERED HER SERVICES DIRECTLY TO THE APPELLANT . HE HAS ALSO OBSERVED THAT THE CONTRIBUTION OF SHRI RAJIV MARDIA IN THE BUSINESS OF SMT. MARDIA SHALL NOT BE TAKEN ANY COGN IZANCE OF. HE HAS ALSO OBSERVED THAT THE OTHER EMPLOYEES OF NA KODA ENTERPRISE HAD PLAYED MINIMUM ROLE IN ITS BUSINESS. HE HAS HELD THAT UNDER THESE CIRCUMSTANCES THE PAYMENT OF COMMI SSION WAS NOT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSIN ESS. 6.5 THE A.O, HOWEVER, BY ARRIVING AT THIS CONCLUSIO N HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO SUPPORT SUCH FIND INGS. ON THE CONTRARY, IT IS FOUND THAT SMT. ROOPAM MARDIA IN HE R STATEMENT RECORDED AT THE TIME OF SURVEY AND SUBSEQUENTLY HAS ELABORATELY DISCUSSED HER BUSINESS CONNECTIONS WITH THE APPELLA NT AND THE SERVICES RENDERED BY HER PROPRIETARY CONCERN FOR EA RNING THE COMMISSION FROM THE APPELLANT UNDER REFERENCE. THE A.O HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO PROVE THAT THE CL AIMS MADE BY ITA NO.313/AHD/ 2011 ITO VS. GRACE CASTINGS P.LTD. ASST.YEAR 2007-08 - 5 - MRS. MARDIA WAS FALSE AND UNSUBSTANTIATED. IT IS SE EN THAT THE APPELLANT HAS ALSO FILED COPIES OF SOME PURCHASING PARTIES WHO HAVE CONFIRMED THAT THEY MADE PURCHASES FROM THE AP PELLANT THROUGH NAKODA ENTERPRISES. THESE EVIDENCES HAVE AL SO NOT BEEN CONTROVERTED BY THE A. O IN THE ASSESSMENT ORDER. 6.6 THE APPELLANT HAS MADE ITS ENTIRE SALES THROUGH NAKODA ENTERPRISE AND HAS PAID COMMISSION AT THE RATE OF 1 00 PER METRIC TONNE, THE A.O WITHOUT APPRECIATING THE FACTS CORRE CTLY HAS ALLEGED THAT THE APPELLANT HAS PAID RS. 50 PER M. T TO OTHER COMMISSION AGENTS. IN FACT THE APPELLANT HAS PAID C OMMISSION @ RS. 50 PER M. T TO THE PARTIES FROM WHOM IT HAS MAD E PURCHASES DURING THE RELEVANT PERIOD. THEREFORE UNDER THESE C IRCUMSTANCES I DO NOT FIND ANY REASON TO DISALLOW THE COMMISSION PAID BY THE APPELLANT TO MS NAKODA ENTERPRISE. IN THIS REGARD R ELIANCE IS PLACED ON THE DECISION OF HON 'BLE ITAT DELHI IN TH E CASE OF ACIT V/S ASSOCIATED STRIPS (P) LTD. 1 SOT 338 (DEL) WHERE IN THE HON'BLE TRIBUNAL HAS HELD THAT ' ONCE IT HAD BEEN H ELD THAT THE COMMISSION WAS PAID AGAINST SERVICES RENDERED BY TH E RESPECTIVE COMMISSION AGENT THEN WITHOUT ASSIGNING ANY REASON, DISALLOWANCE OF COMMISSION WAS NOT JUSTIFIED - REND ERING OF SERVICES BY COMMISSION AGENT NOT BEING IN DISPUTE P AYMENT OF COMMISSION THROUGH ACCOUNT PAYEE CHEQUES AGAINST BI LLS RAISED COULD NOT BE DISALLOWED EVEN PARTLY '. MY PREDECESSOR LD. CIT(A) HAS DISCUSSED THE ISSUE I N DETAIL AND AFTER GIVING LOGICAL FINDINGS ON THE IMPUGNED ISSUE HAS DELETED THE ADDITION IN THE PREVIOUS ASSESSMENT YEAR. THE A.O. HAS NOT BROUGHT ANY ADDITIONAL EVIDENCE ON RECORD TO SUBSTANTIATE THE A DDITIONS. IN VIEW OF THE FACTS MENTIONED ABOVE, THERE IS NO REASON TO IN TERFERE IN THE FINDINGS GIVEN BY MY PREDECESSOR LD. CIT(A) AS REFERRED ABOV E. THEREFORE, IN THESE CIRCUMSTANCES, I DO NOT FIND ANY REASON TO DI SALLOW THE COMMISSION PAID BY THE APPELLANT TO M/S. NAKODA ENT ERPRISES AND THEREFORE, ADDITION MADE BY THE A.O. IS DELETED. AS SUCH THE APPELLANT GETS RELIEF OF RS.21,46,569/-. ITA NO.313/AHD/ 2011 ITO VS. GRACE CASTINGS P.LTD. ASST.YEAR 2007-08 - 6 - 5.1. THE REVENUE HAD FILED AN APPEAL AGAINST THE OR DER OF LD.CIT(A) IN AY 2006-07 IN ITA NO.261/AHD/2010, WHEREIN IDENTICA LGROUND RAISED BY THE REVENUE WAS ALLOWED FOR STATISTICAL PURPOSES BY RESTORING THE ISSUE BACK TO THE FILE OF AO FOR DECISION AFRESH. THE FA CTS ARE IDENTICAL IN THIS YEAR AS WELL AND THE LD.CIT(A) HAS FOLLOWED THE ORD ER OF HIS PREDECESSOR WHICH HAS BEEN SET ASIDE BY THE COORDINATE BENCH. THE COORDINATE BENCH IN ITA NO.261/AHD/2010 PERTAINING TO AY 2006- 07 HAS OBSERVED AS UNDER:- 6.. . IN THIS REGARD, CERTAIN POINTS ARE REQUIR ED TO BE ESTABLISHED BY THE ASSESSEE WHO IS CLAIMING THE GENUINENESS OF THE COMMISSION PAYMENT:- (I) THAT THE AMOUNT IN QUESTION HAS ACTUALLY BEEN EXPENDED. (II) THAT THE MODE OF PAYMENT AND THE DATES OF PAY MENT ARE TO BE PRECISELY INFORMED. (III) THAT THE BASIS OF PAYMENT WHETHER ON DAILY B ASIS, MONTHLY BASIS OR YEARLY BASIS AND THE CALCULATION OF COMMISSION O N EACH CLAIMED TRANSACTION IS TO BE PLACED ON RECORD. (IV) THAT WHETHER THE PAYMENT WAS MADE ON THE BASI S OF CREDIT NOTES OR BILLS RAISED BY THE COMMISSION AGENT OR THAT W HAT WAS THE BASIS OF SATISFACTION BEFORE MAKING OF PAYMENT. (V) THAT THE ASSESSEE IS REQUIRED TO ESTABLISH THA T AH AGENT HAS BEEN APPOINTED TO LOOK AFTER THE SALES IF NOT PERSONALLY DOING THE MARKETING. (VI) THAT THE ASSESSEE IS TO ESTABLISH THE EXISTEN CE OF COMMISSION AGENCY BETWEEN THE TWO PARTIES, I.E. THE PRINCIPAL AND THE AGENT. (VII) THAT THE ASSESSEE IS TO ESTABLISH THE PRINCIP LE AND AGENT RELATIONSHIP AND FOR THAT ALL THE INGREDIENTS AS PR ESCRIBED UNDER THE LAW HAS TO BE ESTABLISHED. (VIII) THAT THE AGENT IS REQUIRED TO BE PRODUCED, S O THAT HE CAN ESTABLISH WHAT EFFORTS HE HAS MADE AND HOW THE EFFO RTS WERE ITA NO.313/AHD/ 2011 ITO VS. GRACE CASTINGS P.LTD. ASST.YEAR 2007-08 - 7 - FRUITFUL AND WHAT CORRESPONDENCE IN THIS REGARD WAS MADE BETWEEN THE PRINCIPLE AND THE PARTIES. (IX) THAT THE LAW IS VERY CLEAR THAT ALTHOUGH THE PAYMENT OF COMMISSION MIGHT HAVE BEEN MADE THROUGH BANKING CHA NNEL OR COULD BE IN ACCORDANCE WITH AN AGREEMENT BUT STILL IT IS OPEN TO THE REVENUE DEPARTMENT TO DECIDE THE DEDUCTIBILITY AND THE GENUINENESS OF THE EXPENDITURE. (X) THAT THE GENUINENESS OF THE EXISTENCE OF THE SELLING AGENCY IS REQUIRED TO BE ESTABLISHED AND NOT TO BE BASED UPON A MAKE- BELIEF DOCUMENT. THE HON'BLE COURTS HAVE THEREFORE HELD THAT MERE EXISTENCE OF AGREEMENT DO NOT BIND THE ITO TO ALLOW SUCH DEDUCTION OF PAYMENT OF COMMISSION. (XI) THAT THE ASSESSEE IS DEFINITELY UNDER OBLIGATI ON TO ESTABLISH THE NECESSITY FOR INCURRING OF- EXPENDITURE, BECAUSE AN EXPENDITURE SHOULD NOT BE A GRATUITOUS PAYMENT TO NEAR-ONES. (XII) THAT THE ALLOWABILITY OF EXPENDITURE DEPENDS UPON THE FACT THAT IT OUGHT TO BE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. (XIII) THAT THE RENDERING OF SERVICES BY THE AGENT AND THE EXACT WORK DONE FOR PROCURING THE BUSINESS IS THE PRIMARY EVID ENCE TO BE PLACED ON RECORD TO ESTABLISH THAT THE EXPENDITUR E WAS EXCLUSIVELY FOR THE BUSINESS. 6.1. THESE ARE THE FEW POINTS WHICH ARE REQUIRED TO BE EXAMINED BY THE REVENUE DEPARTMENT WHILE INVESTIGATING THE GENUINENESS OF THE TRANSACTION. WE WANT TO CLARIFY THAT THE POINT S REFERRED HEREINABOVE ARE NOT EXHAUSTIVE BUT MERELY SUGGESTIVE DEPENDING UPON CASE TO CASE, THEREFORE THE DEPARTMENT IS AT LIBERTY TO INVESTIGA TE THOROUGHLY AS PER LAW TO EXAMINE THE CORRECTNESS OF THE CLAIM. WE H AVE ALSO NOTED THAT THE ASSESSING OFFICER IN THE PRESENT CASE HAS START ED THE PROCEEDINGS BY NOTING THE FACT THAT THE GENUINENESS OF THE COMMISS ION WAS DOUBTED BECAUSE THE SAID LADY HAPPENED TO BE AN INTERESTED PARTY AS DEFINED U/S.40A(2)(B). THE PURPOSE OF MENTIONING OF THIS PROVISION WAS PLACED ON RECORD THAT THE SAID LADY IS NOT AN OUTSIDER BUT HAVING SUBSTANTIAL INTEREST IN THE ASSESSEE-COMPANY AS ALSO IN A COMMA NDING POSITION BY HOLDING MAJORITY SHARES TO INFLUENCE THE BUSINESS D ECISIONS OF THE ASSESSEE-COMPANY. FINALLY WHEN THE GENUINEN ESS COULD NOT BE ITA NO.313/AHD/ 2011 ITO VS. GRACE CASTINGS P.LTD. ASST.YEAR 2007-08 - 8 - CONCLUSIVELY ESTABLISHED, THEN THE PROVISIONS OF SE CTION 37 WAS INVOKED AND RIGHTLY SO. 5.2. THEREFORE, THIS GROUND OF REVENUES APPEAL IS ALSO RESTORED TO THE FILE OF AO TO DECIDE IT AFRESH IN THE LIGHT OF THE DIRECTION GIVEN BY THE COORDINATE BENCH IN ITA NO.261/AHD/2010(SUPRA). TH US, GROUND NOS.1 & 1.2 OF REVENUES APPEAL ARE ALLOWED FOR STATISTIC AL PURPOSES. 6. GROUND NOS.2 & 2.2 ARE INTER-CONNECTED. THE LD.S R.DR SUBMITTED THAT THE IDENTICAL ISSUE WAS ALSO RAISED FOR ADJUDI CATION IN THE AY 2006- 07, WHEREIN ALSO THE HONBLE TRIBUNAL HAS RESTORED THE GROUND TO AO FOR DECISION AFRESH. THIS FACT IS NOT CONTROVERTED BY LD.COUNSEL FOR THE ASSESSEE. 6.1. WE FIND THAT THE LD.CIT(A) HAD FOLLOWED THE DECISION OF HIS PREDECESSOR PASSED IN AY 2006-07 AND DECIDED THIS I SSUE BY HOLDING AS UNDER:- 3.3 I HAVE CONSIDERED THE FINDINGS OF THE A.O., SU BMISSION OF THE APPELLANT AND OTHER MATERIALS AVAILABLE ON RECORD. HERE AGAIN, THE IDENTICAL ADDITION WAS MADE BY THE A.O. IN THE PREC EDING YEAR AND THE SAME WAS DELETED BY MY PREDECESSOR LD CIT(A) VIDE O RDER NO. CIT(A)- VIII/ITO 4(1) /209/ 08-09 DTD. 29.9.2009 GIVING THE FOLLOWING FINDINGS: '7.5 I HAVE CONSIDERED THE FACTS AND THE SUBMISS IONS OF THE LD. A.R CAREFULLY. THERE IS NO DISPUTE ABOUT THE FACT T HAT THE APPELLANT HAS TAKEN A D.G SET ON LEASE FROM NAKODA ENTERPRISE. THE APPELLANT IS USING THE D.G SET FOR THE PURPOSE OF ITS BUSINESS. ITA NO.313/AHD/ 2011 ITO VS. GRACE CASTINGS P.LTD. ASST.YEAR 2007-08 - 9 - IT HAS FURNISHED THE LEASE AGREEMENT AND DETAILS WI TH REGARD TO CONSUMPTION OF FUEL AND ELECTRICITY TO JUSTIFY THE HIRING OF D.G SET. THE A.O HAS NOT CONTROVERTED THESE FACTS IN THE ASSESSMENT ORDER. IT IS A WELL SETTLED PROPOSITION OF LAW THA T ONCE THE EXPENSES ARE HELD TO BE INCURRED DURING THE COURSE OF BUSINESS PARTIAL DISALLOWANCE IS NOT PERMISSIBLE. IN THIS REGARD RELIANCE IS PLACED ON THE DECISION OF HON'BLE CALCUTTA HIGH COURT IN THE CASE OF RAVI MARKETING PVT. LTD. V/S CIT 280 ITR 51 9 WHEREIN THE HON'BLE COURT HAS HELD 'THE AUTHORITIES UNDER THE INCOME-TAX ACT CAN EXAM INE THE GENUINENESS OF THE EXPENDITURE AND THE PURPOSE FOR WHICH IT WAS EXPENDED. ONCE IT IS ESTABLISHED THAT THE AMOUN T WAS GENUINELY EXPENDED AND IT WAS EXPENDED FOR A PARTIC ULAR PURPOSE, THE ONLY DISCRETIONS THAT IS LEFT TO THE A UTHORITY UNDER THE ACT IS TO APPLY THE LAW ON THE BASIS OF SUCH ES TABLISHED FACT OR FINDING. IF THE PURPOSE FOR WHICH IT IS EXP ENDED IS ELIGIBLE FOR DEDUCTION UNDER A PARTICULAR HEAD, NO DISCRETION IS LEFT TO THE AUTHORITY EITHER TO SURMISE THE QUAN TUM THAT OUGHT TO HAVE BEEN SPENT OR TO SURMISE OR PRESUME T HE PURPOSE DIFFERENTLY AND CONVERT THE SAME TO SOME OT HER HEAD.' 7.6 THEREFORE, IN VIEW OF THE ABOVE, THE DISAL LOWANCE MADE BY THE ABOVE CANNOT BE SUSTAINED. HENCE, THE DISALLOWA NCE OF RS.18,00,000/- IS HEREBY DELETED'. THE LD. A.R. PUT UP ALL THE FACTS ON RECORD TO JUST IFY THE PAYMENT OF LEASE RENT ON D.G. SET. HE ALSO BROUGHT ON RECOR D THAT IN WHAT MANNER THE USE OF D.G. SET HAS BEEN HELPFUL IN INCR EASING THE TURNOVER AND PROFITABILITY OF THE APPELLATE COMPANY. HE EMPH ASIZED WITH VARIOUS FACTS AND EVIDENCES THAT D.G. SET WAS TAKEN ON LEAS E FOR THE PURPOSE OF BUSINESS AND THE PAYMENT OF LEASE RENT IS SUPPORTED BY THE LEASE AGREEMENT ETC. HE ALSO JUSTIFIED THAT THE LEASE REN T HAS BEEN FIXED ON ARM'S LENGTH. THE A.O. HAS NOT BROUGHT ANY EXTRA EV IDENCE ON RECORD TO SUBSTANTIATE THE ADDITION. IN VIEW OF THE ABOVE FAC TS, THERE IS NO REASON TO DEVIATE FROM THE FINDINGS GIVEN BY MY PREDECESSO R LD. CIT(A) IN THE ITA NO.313/AHD/ 2011 ITO VS. GRACE CASTINGS P.LTD. ASST.YEAR 2007-08 - 10 - PREVIOUS YEAR ON THE IMPUGNED ISSUE. THEREFORE, THE DISALLOWANCE MADE BY THE A.O. IS DELETED. AS SUCH THE APPELLANT GETS RELIEF OF RS. 18 LAKHS. 6.2. THE ISSUE TRAVELLED UPTO THE STAGE OF THE ITAT C BENCH AHMEDABAD AND THE TRIBUNAL IN ITA NO.261/AHD/2010 F OR AY 2006-07 VIDE ORDER DATED 12/10/2012 WAS PLEASED TO RESTORE THIS ISSUE AS WELL TO THE FILE OF THE AO BY OBSERVING AS UNDER:- 8. GROUND NO.2 READS AS UNDER:- THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETIN G THE DISALLOWANCE OF RENT ON DG SET AMOUNTING TO RS.18,00,000/-. 8.1. THE AO HAS NOTED AND SHOW CAUSE WAS ISSUED IN RESPECT OF LEASE-RENT PAID TO SMT.ROOPAM AT THE RATE OF RS.3 LACS PER MON TH IN RESPECT OF THE HIRING OF DIESEL GENERATOR. FACTS HAVE REVEALED THAT A GE NERATOR WHICH COSTED RS.96 LACS WAS RENTED OUT BY SMT.ROOPAM TO THE ASSESSEE-C OMPANY IN TERMS OF AN AGREEMENT DATED 25.02.2004. THE ALLEGATION OF THE AO WAS THAT THE GENERATOR WAS TAKEN ON LEASE FROM THE LADY WITH AN INTENTION TO PASS ON AN UNDUE BENEFIT. THE ASSESSEE'S REPLY WAS THAT THE DECISION OF HIRING OF GENERATOR SET WAS A COMMERCIAL DECISION OF THE ASSESSEE-COMPANY. THE LADY HAS INVESTED A HUGE AMOUNT TOWARDS PURCHASE, THEREFORE LEASED OUT THE D.G.SET. THE ASSESSEE-COMPANY HAS CONSUMED SUBSTANTIAL FUEL TO R UN THE D.G.SET, HENCE THE LEASE RENT WAS CLAIMED AS AN ALLOWABLE EXPENDIT URE. THE AO HAS HELD THAT 50% OF THE EXPENDITURE COULD BE MEANT FOR BUSINESS PURPOSES. REST OF THE AMOUNT WAS DISALLOWED BY INVOKING SECTION 37 OF IT ACT. IN THIS CONNECTION, WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERI AL PLACED ON RECORD. OUR ATTENTION WAS DRAWN ON PAGE 142 OF THE COMPILATION CONTAINING THE AGREEMENT EXECUTED IN RESPECT OF THE LEASE OF THE D.G.SET. TH E ASSESSEE'S CONTENTION IS THAT THE AO SHOULD NOT HAVE PARTLY DISALLOWED THE CLAIM BY INVOKING THE PROVISIONS OF SECTION 37(1) OF IT ACT. IT IS TRUE T HAT THE AO HAS INVOKED THE PROVISIONS OF SECTION 37(1) OF IT ACT WHILE DISALLO WING 50% OF THE CLAIM. WE HAVE NOTED THAT THE LEASE RENT AT RS.3 LACS P.M. WA S PAID. THE INVESTMENT TOWARDS PURCHASE OF DG SET WAS RS.96 LACS. DUE TO T HIS REASON, THE ASSESSING OFFICER HAD WORKED OUT THAT THE RETURN ON THE SAID INVESTMENT WAS MORE THAN 3%. ACCORDING TO. ASSESSING OFFICER, EVEN THE RETUR N ON THE SAID INVESTMENT WAS HIGHER BECAUSE THE ASSESSEE-LADY SHOULD HAVE CL AIMED THE DEPRECIATION ON DG SET. IN SUCH A SITUATION, WHEN A HIGH LEASE-R ENT IS BEING PAID BY THE ITA NO.313/AHD/ 2011 ITO VS. GRACE CASTINGS P.LTD. ASST.YEAR 2007-08 - 11 - ASSESSEE-COMPANY TO AN INTERESTED PARTY, THEN THE F AIRNESS OF THE TRANSACTION SHOULD BE PROPERLY PLACED ON RECORD BY THE ASSESSEE . THE ASSESSEE-COMPANY WAS THUS REQUIRED TO PLACE ON RECORD THE BUSINESS N EED OF THE DG SET. THE ONUS IS ON THE ASSESSEE TO ESTABLISH THAT THE SERVI CES OF DG SET WERE IMMINENTLY REQUIRED TO RUN THE BUSINESS. MEANING TH EREBY THE ASSESSEE HAS TO DEMONSTRATE THE BUSINESS NECESSITY FOR HIRING OF TH E DG SET. THEREFORE, IT WAS EXPECTED THAT THE ASSESSEE SHOULD PLACE ON RECO RD CERTAIN EVIDENCES, SUCH AS, THE FREQUENCY OF ELECTRICITY FAILURE CAUSING BU SINESS HARDSHIP, THUS COMPELLING THE ASSESSEE-COMPANY TO HIRE THE GENERAT OR SET. THE REQUIREMENT OF THE GENERATOR SET CAN BE PROVED BY PLACING SUCH TYPE OF OTHER EVIDENCES BY THE ASSESSEE. IN A SITUATION, WHEN THE REVENUE DEPA RTMENT IS ALLEGING A COLOURABLE DEVICE OF DIVERSION OF FUNDS, THEN A DUT Y IS CASTED UPON THE ASSESSEE TO CLEAR THE SMOKE-SCREEN AND TO DEMONSTRA TE THE TRANSPARENCY OF THE TRANSACTION. BASICALLY, IN THIS CASE THE DOUBT WAS BASED UPON THE FACT THAT A HIGH RENT; AS PER ASSESSING OFFICER WAS PAID BY THE COMPANY TO AN INTERESTED PERSON. ON ONE HAND, THE ASSESSEE HAS INFORMED THE ASSESSING OFFICER THAT THE PROFITS WERE GOING HIGH AND THE TURNOVER HAD AL SO GONE UPTO RS.66 CRORES BUT ON THE OTHER HAND, THE ASSESSEE-COMPANY HAS NOT DEMONSTRATED THAT WHY THE GENERATOR SET WAS NOT PURCHASED BY THE ASSESSEE -COMPANY OF ITS OWN HAVING DUAL BENEFIT, I.E. SAVING OF LEASE-RENT AND ALSO THE BENEFIT OF DEDUCTION OF DEPRECIATION. AS FAR AS THE 50% DISALLOWANCE IS CONCERNED, THE ACTION OF THE ASSESSING OFFICER CAN BE SAID TO BE DULY COVERE D BY THE SECTION 37 OF THE I.T.ACT. HE WAS NOT REQUIRED TO INVOKE THE PROVISI ONS OF SECTION 40A(2) AS OBJECTED BY ID.AR. SECTION 37 EXPLICITLY SAYS THA T AN EXPENDITURE HAS TO BE WHOLLY FOR THE PURPOSE OF THE BUSINESS. IF AN EXP ENDITURE IS NOT WHOLLY FOR THE PURPOSE OF THE BUSINESS, BUT PARTLY FOR THE PUR POSE OF THE BUSINESS, THEN ONLY THAT PART IS ALLOWABLE. THE WORDS 'WHOLLY AND EXCLUSIVELY', THUS REFER TO THE MOTIVE AND THE OBJECT BEHIND THE EXPENDITURE. THE OBJECT HAS TO BE EXCLUSIVELY AS ALSO SOLELY FOR RUNNING OF THE BUSIN ESS. THE EXPENDITURE HAS TO BE INCURRED IN REALITY AND THERE SHALL BE OSTENSIB LE REASON FOR INCURRING OF THE EXPENDITURE. THE ASSESSING OFFICER HAS THOUGHT IT P ROPER TO DECIDE THE PERCENTAGE OF DISALLOWANCE ON THE BASIS OF THE EXPE CTED ANNUAL RETURN ON SUCH INVESTMENT. WE, HOWEVER, CLARIFY THAT IN NO CIRCUMS TANCE THE DISALLOWANCE AS MADE BY THE ASSESSING OFFICER SHOULD BE ENHANCED WH ILE WE ARE RESTORING THIS GROUND BACK TO THE STAGE OF THE ASSESSING OFFICER W ITH THE DIRECTION THAT THE ASSESSEE SHALL PLACE ON RECORD THE BASIC REQUIREMEN T OF BUSINESS NECESSITY FOR TAKING ON HIRE THE IMPUGNED DG SET. WITH THESE REMA RKS THIS GROUND IS RESTORED BACK TO THE FILE OF ASSESSING OFFICER FOR DE NOVO DECISION. ITA NO.313/AHD/ 2011 ITO VS. GRACE CASTINGS P.LTD. ASST.YEAR 2007-08 - 12 - 6.3. THEREFORE, FOR THIS YEAR ALSO, THIS ISSUE IS A LSO RESTORED TO THE FILE OF AO FOR DECISION AFRESH. THE AO IS HEREBY DIRECTED TO DECIDE THIS ISSUE IN THE LIGHT OF THE DIRECTION BY THE COORDINATE BENCH IN ITA NO.261/AHD/2010(SUPRA). THUS, GROUND NOS.2 & 2.2 O F REVENUES APPEAL ARE ALLOWED FOR STATISTICAL PURPOSES. 7. GROUND NOS.3 & 4 ARE GENERAL IN NATURE WHICH REQ UIRE NO INDEPENDENT ADJUDICATION. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON FRIDAY, THE 10 TH DAY OF APRIL, 2015 AT AHMEDABAD. SD/- SD/- ( .. ) ( ) ( N.S. SAINI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 10/ 04 /2015 2*..,(.../ T.C. NAIR, SR. PS !'#$%&' &$ / COPY OF THE ORDER FORWARDED TO : 1. # / THE APPELLANT 2. $% # / THE RESPONDENT. 3. 345 6 / CONCERNED CIT 4. 6 ( ) / THE CIT(A)-VIII, AHMEDABAD 5. 7(8$45 , *45. , 3 / DR, ITAT, AHMEDABAD 6. 8:;<) / GUARD FILE. ! / BY ORDER, %7$ //TRUE COP// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD