Ch. Devi Lal Coop. Sugar Mills Ltd., Sonepat V. ACIT, Sonepat

ITA 3130/DEL/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81889 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-10-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 14-08-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 23-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASHIMA NEB
• Keywords: Depreciation; Principle of natural justice; Revenue expenditure; Capital expenditure
• Section: 43B; 142(1); 37(1); 12; 28; 11; 139

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `B NEW DELHI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER I.T.A.NO. 3130/DEL/2010 ASSESSMENT YEAR : 2007-08 DEVI LAL COOP. SUGAR MILLS LTD., VS ACI T, VILLAGE AHULANA TEH. GOHANA SO NEPAT CIRCLE, DISTT., SONEPAT. SONEPAT. (PAN: AAATC3088Q) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI MANOJ KUMAR RESPONDENT BY : MISS ASHIMA NEB, SR.D R O R D E R PER CHANDRA MOHAN GARG, JUDICIAL MEMBER THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAI NST THE ORDER OF CIT(A), ROHTAK DATED 06.05.2010 IN APPEAL NO.322/ SPT/09-10 FOR AY 2007- 08. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN THI S APPEAL:- GROUND NO. 1 THAT THE LEARNED CIT(A) ERRED IN LAW AND IN FACT IN ENHANCING DISALLOWANCE MADE BY THE A.O. AT RS. 16,26,000/- TO RS. 19,58,785/- I.E. BY RS. 3,32,785/- UNDER THE HEAD ' REPAIRS & MAINTENANCE' OF NON-FACTORY BUILDING OF THE APPELLA NT WITHOUT GIVING ANY PRIOR NOTICE TO THE APPELLANT TO THAT EF FECT ON WRONG AND UNTENABLE GROUNDS. 2 THAT THE LD. CIT(A) ERRED IN LAW AND IN FACT IN CONFIRMING THE DISALLOWANCE OF RS.16,26,OOO/- UNDER THE HEAD 'REPAIR AND MAINTENANCE' AS NON-FACTORY BUILDING ON WRONG AND UNTENABLE GROUNDS. HE FURTHER ERRED IN HOLDING THAT THE AMOUNT HAS BEEN SPENT FOR BRINGING A NEW ASSET INTO EXISTENCE I.E. THE ROOF OF THE GODOWN OR FOR IMPROVING THE EX ISTING ASSETS THAT IS GODOWN AND FURTHER ERRED IN HOLDING THAT IT IS CAPITAL EXPENDITURE AND NOT ALLOWABLE AS DEDUCTION ON ACCOU NT OF REPAIR AND MAINTENANCE. AS A MATTER OF FACT AND LAW, THE ENTIRE EXPENDITURE SPENT BY THE APPELLANT IS ON ACCOUNT OF REPAIR AND MAINTE NANCE OF NON-FACTORY BUILDING AMOUNTING TO RS. 19,58,785/-AN D IS ALLOWABLE AS A REVENUE EXPENDITURE. GROUND NO. 2 THAT THE LD. CIT(A) ERRED IN LAW AND IN FACT IN CONFIRMING THE DISALLOWING AND ADDING BACK AN AMOUN T OF RS. 1,42,97,973/- MADE BY A.O. OUT OF INTEREST ACCOUNT PAYABLE TO HARYANA GOVT. U/S 43(B) OF THE I.TAX ACT. THAT THE LD.CIT(A) ADMITTED THAT THE APPELLANT'S CA SE APPARENTLY DOES NOT FALL UNDER ANY OF THE CLAUSES M ENTIONED U/S 43(B) OF THE I.TAX ACT. UNDER THE FACT AND CIRCUMSTANCES MATTER ABOVE THE AMOUNT OF RS. 1,42,97,973/- PAYABLE TO HARYANA GOVT . CAN NOT BE DISALLOWED U/S 43(B) DESERVE TO BE DELETED. GROUND NO. 3 THAT THE LD CIT(A) ERRED IN LAW AND IN FACT IN CONF IRMING THE DISALLOWANCE AND IN ADDING BACK A SUM OF RS. 3, 00,000/- MADE BY AO TO THE INCOME OF THE APPELLANT WRONGLY A PPLYING PROVISION OF SECTION 43B TO THE SAME. 3. BRIEFLY STATED THE FACTS GIVING RISE TO THIS APP EAL ARE THAT THE CASE WAS PICKED UP FOR COMPULSORY SCRUTINY AND NOTICES U/S 1 43(2) AND 142(1) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT) ALONG WITH DETAILED QUESTIONNAIRE WERE ISSUED TO THE ASSESSEE. THE AO NOTICED THAT T HE ASSESSEE DEBITED RS. 23,21,314/- UNDER THE HEAD OF REPAIR AND MAINTENANC E TO THE PROFIT AND LOSS 3 ACCOUNT WHICH WAS VERY HIGH AS COMPARED TO LAST YEA R FIGURE OF RS. 6,95,345/-. THE AO OBSERVED THAT NO JUSTIFICATION HAS BEEN GIVE N BY THE ASSESSEE IN RESPECT OF INCREASE IN THESE EXPENSES AND NO BILLS AND VOUC HERS REGARDING THESE EXPENSES HAVE BEEN PRODUCED AND THE AO DISALLOWED A N AMOUNT OF RS. 16,26,000/- OUT OF THESE EXPENSES AND ADDED THE SAM E TO THE INCOME OF THE ASSESSEE. DURING THE FIRST APPELLATE PROCEEDINGS, THE CIT(A) ADJUDICATED THE ISSUE AND ENHANCED THE DISALLOWANCE TO RS. 19,58,78 5/- BUT THE CIT(A) ALLOWED ADMISSIBLE DEPRECIATION THEREON. 4. THE AO ALSO NOTICED THAT THE ASSESSEE HAS SHOWN INTEREST PAYMENT TO THE BANK AND OTHER FINANCIAL INSTITUTIONS AT RS.4,98,20 ,072/- AND THE LIABILITY OF INTEREST DURING THE YEAR UNDER CONSIDERATION HAS BE EN INCREASED AMOUNTING TO RS. 1,43,95,657/- WHICH ARE MAINLY IN RESPECT OF LO ANS TAKEN FROM BANKS AND FINANCIAL INSTITUTIONS. THE AO HELD THAT UNDER THE PROVISIONS OF SECTION 43B OF THE ACT, THE LIABILITY SHOULD BE DISCHARGED BEFORE THE DUE DATE OF FILING OF THE RETURN AND THE AO ALLOWED PART PAYMENT OF INTEREST OF RS.98,584/- MADE DURING THE YEAR TO SBI AND THE BALANCE LIABILITY OF INTERE ST OF RS.1,42,97,073/- WHICH HAS BEEN DEBITED TO THE PROFIT & LOSS ACCOUNT AND S HOWN AS PAYABLE IN THE BALANCE SHEET WAS DISALLOWED U/S 43B OF THE ACT. 5. THE AO ALSO NOTICED THAT THE ASSESSEE HAS MADE AUDIT FEES PROVISION OF RS. 3 LAKH IN THE LIABILITY SIDE OF BALANCE SHEET BUT THE AO CONCLUDED THAT SINCE THE ASSESSEE HAD NOT DISCHARGED T HIS LIABILITY BEFORE THE DUE DATE OF FILING THE RETURN , HENCE, 4 THE SAME WAS DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. THE AO ALSO NOTICED THAT THE ASSESSEE HAS MADE THE PAYMENT OF OLD LIABILITY OF AUDIT FEES OF RS. 3 LAKH DURING THE YEAR UNDER CONSIDERAT ION BUT THE AO ALSO DISALLOWED THE CREDIT OF THE SAME BY HOLDING THAT T HE ASSESSEE DID NOT ADD BACK THE SAME AMOUNT IN THE INCOME OF THE EARLIER YEARS. 6. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT(A) WHICH WAS ALSO DISALLOWED BY ENHANCING THE ASSESSMENT AS STATED ABOVE. NOW, THE EMPTY HANDED ASSESSEE IS BEFORE THIS TRIBUNAL WITH THE GROUNDS AS REPRODUCED HEREINABOVE. GROUND NO.1 7. APROPOS GROUND NO.1, WE HAVE HEARD ARGUMENTS OF BOTH THE SIDES AND CAREFULLY PERUSED THE RELEVANT MATERIAL PLACED ON R ECORD. LD. AR HAS DRAWN OUR ATTENTION TOWARDS PAPER BOOK PAGE NO. 76 TO 84 AND SUBMITTED THAT THE ASSESSEE SUBMITTED ALL THE DETAILS PERTAINING TO TH E IMPUGNED CLAIM MADE BY THE ASSESSEE TOWARDS REPAIR AND MAINTENANCE BUT THE SAM E WAS NOT CONSIDERED. THE AR FURTHER CONTENDED THAT THE CIT(A) ERRED IN LAW A ND ON FACT IN ENHANCING DISALLOWANCE MADE BY THE A.O. AT RS. 3,32,785/- UND ER THE HEAD 'REPAIRS & MAINTENANCE' OF NON-FACTORY BUILDING OF THE APPELLA NT WITHOUT GIVING ANY PRIOR NOTICE TO THE ASSESSEE TO THAT EFFECT ON UNSUSTAIN ABLE AND UNJUSTIFIED GROUNDS. THE AR ALSO CONTENDED THAT THE CIT(A) ERRED IN LAW AND ON FACT IN CONFIRMING THE DISALLOWANCE OF RS.16,26,000/- BY HOLDING THAT THE AMOUNT HAS BEEN SPENT 5 FOR BRINGING A NEW ASSET INTO EXISTENCE I.E. THE RO OF OF THE GODOWN OR FOR IMPROVING THE EXISTING ASSETS THAT IS GODOWN AND FU RTHER ERRED IN HOLDING THAT IT IS A CAPITAL EXPENDITURE AND NOT ALLOWABLE AS DEDUC TION ON ACCOUNT OF REPAIR AND MAINTENANCE. THE AR VEHEMENTLY CONTENDED THAT AS A MATTER OF FACT AND LAW, THE ENTIRE EXPENDITURE WAS INCURRED BY THE ASSESSEE ON ACCOUNT OF REPAIR AND MAINTENANCE OF NON-FACTORY BUILDING WHICH IS ALLOWA BLE AS A REVENUE EXPENDITURE UNDER THE PROVISIONS OF THE ACT. 8. THE AR HAS ALSO DRAWN OUR ATTENTION TOWARDS APPE LLANTS SUBMISSIONS AVAILABLE ON PAGE NO. 4 TO 10 AND SUBMITTED THAT TH E ASSESSEE OWNS A NON- FACTORY BUILDING IN THE FORM OF GODOWN NO. 1, 2 AND 3 FOR STORING SUGAR INTO IT. THE BUILDING WAS CONSTRUCTED AND CAPITALIZED DURING THE FINANCIAL YEAR 2002-03 AND 2003-04 AND SUBSEQUENTLY IN A STRONG STORM ON 2 5.5.2004, THE ROOF OF GODOWN NO. 1 AND 3 WAS BADLY DAMAGED, HENCE THE ASS ESSEE CONSTRUCTED ROOF THEREON AND INCURRED TOTAL EXPENDITURE OF RS. 19,58 ,735/- ON RECONSTRUCTION OF IT. THE AR ALSO SUBMITTED THAT THE APPROVAL OF THI S EXPENDITURE HAS BEEN GIVEN BY THE HARYANA STATE FEDERATION OF COOPERATIVE SUGA R MILLS LTD. PANCHKULA VIDE ITS LETTER DATED 6.6.2006 AND 15.11.2006. THE ASSESSEE ALSO CLAIMED INSURANCE AGAINST THE SAID DAMAGES CAUSED DUE TO ST ORM ON 25.05.2004 WHICH WAS SANCTIONED AT RS.7,14,479/- AND CREDITED TO THE REPAIR AND MAINTENANCE ACCOUNT (PAPER BOOK PAGE NO. 84). 6 9. REPLYING TO THE ABOVE, LD. DR SUPPORTED THE ORDE RS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE AUTHORITIES BELOW RIGH TLY NOTICED THAT THE IMPUGNED EXPENDITURE INCURRED BY THE ASSESSEE WAS C APITAL IN NATURE WHICH CANNOT BE ALLOWED AS REVENUE EXPENDITURE AND THE CI T(A) RIGHTLY HELD THE SAME AS CAPITAL EXPENDITURE. 10. ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS A ND PERUSAL OF THE ASSESSMENT ORDER, WE OBSERVE THAT AT PAGE NO. 2 OF THE ASSESSMENT ORDER, THE AO HAD OBSERVED THAT THE ASSESSEE DID NOT FURNISH A NY JUSTIFICATION OF THESE EXPENSES WHEREAS THE TURNOVER OF THE ASSESSEE HAD D ECREASED IN COMPARISON TO THE LAST YEAR. THE AR DURING ARGUMENTS BEFORE US S UBMITTED THAT THERE WAS A SUBSTANTIAL DAMAGE TO THE FACTORY AND NON-FACTORY B UILDING OF THE ASSESSEE DUE TO STORM, THEREFORE, REGULAR WORK OF THE COMPANY WA S OBSTRUCTED FOR A LONG TIME, THEREFORE, THERE WAS A DECREASE IN THE TURNOV ER OF THE ASSESSEE IN COMPARISON TO THE PREVIOUS YEAR AND THE CAUSE WAS B EYOND THE CONTROL OF THE ASSESSEE. 11. FROM THE IMPUGNED ORDER, WE ALSO OBSERVED THAT THE CIT(A) ENHANCED THE DISALLOWANCE BY RS.3,32,785/- BY HOLDING THAT A N AMOUNT OF RS.19,58,735/- SHOWN UNDER THE REPAIR AND MAINTENANCE WAS ACTUALLY PERTAINING TO PURCHASE OF ACC SHEETS FOR MAKING A ROOF OF THE GODOWN AND THE AMOUNT HAS BEEN SPENT FOR BRINGING A NEW ASSET INTO EXISTENCE I.E. ROOF O F THE GODOWN OR FOR IMPROVING THE EXISTING ASSET I.E. GODOWN, THEREFORE, THE SAME WAS EXPENDITURE CAPITAL IN 7 NATURE WHICH IS NOT ALLOWABLE AS REPAIR AND MAINTEN ANCE. FROM A PERUSAL OF THE RELEVANT PART OF THE IMPUGNED ORDER, WE OBSERVE THA T THE CIT(A) HAS NOT AFFORDED DUE OPPORTUNITY OF HEARING FOR THE ASSESSE E PRIOR TO ENHANCING ASSESSMENT ON THIS ISSUE WHICH IS A CLEAR VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE AND PROVISIONS OF THE ACT. 12. IN VIEW OF FOREGOING DISCUSSION, WE ARE INCLINE D TO HOLD THAT AS PER FACTUAL MATRIX AS STATED BY THE ASSESSEE, THERE WAS A SUBSTANTIAL DAMAGE TO THE NON-FACTORY BUILDING I.E. GODOWNS OF THE ASSESSEE W HICH WERE CONSTRUCTED DURING EARLIER FINANCIAL YEARS AND ASSESSEE HAD TO INCUR SUBSTANTIAL AMOUNT FOR REPAIR AND MAINTENANCE OF ROOF OF THESE GODOWNS. N EITHER THE AO NOR THE CIT(A) HAVE DOUBTED THE QUANTUM OF THE EXPENDITURE SO INCURRED BY THE ASSESSEE AND THE AUTHORITIES BELOW HAVE ALSO NOT CO NSIDERED THE FACT THAT THE ASSESSEE ADJUSTED THE AMOUNT OF CLAIM WHICH WAS REC EIVED FROM THE INSURANCE COMPANY AS COMPENSATION FOR THE DAMAGES CAUSED DUE TO STORM. UNDER THESE CIRCUMSTANCES, WE ARE INCLINED TO HOLD THAT SUCH KI ND OF EXPENDITURE INCURRED TOWARDS MAJOR REPAIR AND MAINTENANCE TO RESTORE THE PROPER FUNCTIONING AND USEABILITY OF THE NON-FACTORY BUILDING OF THE ASSES SEE COMPANY CANNOT BE HELD AS CAPITAL EXPENDITURE BECAUSE WE ARE UNABLE TO SEE ANY FACT BROUGHT OUT BY THE AUTHORITIES BELOW TO SUPPORT THIS CONTENTION OF THE DEPARTMENT THAT EITHER THE CAPACITY WAS INCREASED OR ANY NEW ASSET CAME INTO E XISTENCE AS A RESULT OF EXPENDITURE SO INCURRED BY THE ASSESSEE. 8 13. UNDER THESE CIRCUMSTANCES, WE ARE OF THE CONSID ERED VIEW THAT THE EXPLANATION, DETAILS, BILLS AND VOUCHERS OF THE ASS ESSEE AND ADJUSTMENT OF INSURANCE CLAIM REQUIRE EXAMINATION AND VERIFICATIO N AT THE END OF THE AO FOR PROPER QUANTIFICATION OF THE REVENUE EXPENDITURE ON THE BASIS OF RELEVANT PRINCIPLES FOR ALLOWABILITY OF THE CLAIM OF THE ASS ESSEE AS DISCUSSED ABOVE. THEREFORE, ORDERS OF THE AUTHORITIES BELOW ARE SET ASIDE AND GROUND NO. 1 OF THE ASSESSEE IS RESTORED TO THE FILE OF AO FOR A FRESH ADJUDICATION AFTER AFFORDING DUE OPPORTUNITY OF HEARING FOR THE ASSESSEE AND WITHOUT BEING PREJUDICED BY THE OBSERVATION AND CLAIM OF THE ASSESSMENT ORDER AND T HE IMPUGNED ORDER. ACCORDINGLY, GROUND NO. 1 OF THE ASSESSEE IS DEEMED TO BE ALLOWED FOR STATISTICAL PURPOSES. GROUND NO. 2 14. APROPOS GROUND NO.2, WE HAVE HEARD ARGUMENTS OF BOTH THE SIDES AND CAREFULLY PERUSED THE RELEVANT MATERIAL PLACED BEFO RE US, INTER ALIA, PROVISION OF SECTION 43B OF THE ACT. LD. AR SUBMITTED THAT THE CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE MADE BY THE AO OUT OF INTEREST PAYABLE TO HARYANA GOVERNMENT BY INVOKING THE PROVISIONS OF SE CTION 43B OF THE ACT. THE AR ALSO POINTED OUT THAT THE CIT(A) ADMITTED TH AT THE ASSESSEES CASE APPARENTLY DOES NOT FALL UNDER ANY OF THE CLAUSES M ENTIONED UNDER SECTION 43B OF THE ACT AND UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, THE IMPUGNED AMOUNT PAYABLE TO HARYANA GOVERNMENT CANNOT BE DISA LLOWED U/S 43B OF THE 9 ACT. THE AR HAS DRAWN OUR ATTENTION TOWARDS PARA N O. 4 OF THE IMPUGNED ORDER AND SUBMITTED THAT IN SPITE OF THE FACT THAT THE CI T(A) AGREED TO THE CONTENTION OF THE ASSESSEE, THE FIRST APPELLATE AUTHORITY UPHE LD THE CONTENTION WITHOUT ANY BASIS. 15. REPLYING TO THE ABOVE, LD. DR SUPPORTED THE ORD ERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ONUS WAS ON THE ASSESS EE TO SHOW THAT THE PROVISIONS SO MADE BY THE ASSESSEE DO NOT FALL UNDE R THE PROVISIONS OF SECTION 43B OF THE ACT AND THE CIT(A) WAS RIGHT IN UPHOLDIN G THE ADDITION KEEPING IN VIEW THE OBJECT OF INSERTION OF SECTION 43B OF THE ACT TO ENSURE THE RETURN OF GOVERNMENT DUES. 16. AT THE OUTSET, WE FIND IT APPROPRIATE TO REPROD UCE THE RELEVANT PROVISIONS OF SECTION 43B(D) OF THE ACT WHICH READS AS UNDER:- 43B (A) XXXXXXXX (B) XXXXXXXXXX (C) XXXXXXXXXX (D) (D) 5 ANY SUM PAYABLE BY THE ASSESSEE AS INTEREST ON ANY LOAN OR BORROWING FROM ANY PUBLIC FINANCIAL INSTITUTION 6 OR A STATE FINANCIAL CORPORATION OR A STATE INDUSTRIAL INVESTM ENT CORPORATION], IN ACCORDANCE WITH THE TERMS AND COND ITIONS OF THE AGREEMENT GOVERNING SUCH LOAN OR BORROWING,] (E) XXXXXXXXXXXXX (F) XXXXXXXXXXXXX SHALL BE ALLOWED (IRRESPECTIVE OF THE PREVIOUS YEA R IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED BY THE ASSES SEE ACCORDING 10 TO THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY H IM) ONLY IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 OF T HAT PREVIOUS YEAR IN WHICH SUCH SUM IS ACTUALLY PAID BY HIM: PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SH ALL APPLY IN RELATION TO ANY SUM REFERRED TO IN CLAUSE (A) 8 OR CLAUSE (C)] 9 OR CLAUSE (D)] WHICH IS ACTUALLY PAID BY THE ASSESSEE ON OR BEFORE THE DUE DATE APPLICABLE IN HIS CASE FOR FURNISHING THE RETURN OF INCOME UNDER SUB- SECTION (1) OF SECTION 139 IN RES PECT OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SU M WAS INCURRED AS AFORESAID AND THE EVIDENCE OF SUCH PAYMENT IS FU RNISHED BY THE ASSESSEE ALONG WITH SUCH RETURN:] 17. FROM BARE READING OF THE IMPUGNED ORDER, WE OBS ERVE THAT THE CIT(A) UPHELD THE ADDITION WITH FOLLOWING OBSERVATIONS AND CONCLUSION:- 4. GROUND OF APPEAL NO. 2 PERTAINS TO DISALLOWANC E OF RS.1,42,97,973/- U/S 43B OF THE IT ACT. THE AO HAS DISCUSSED THE ISSUE IN PARA 3 OF THE ASSESSMENT ORDER AND HAS DISALLOWED THE AMOUNT BECAUSE THE SAME IS 'PAYABLE'. AS PER THE APPELLANT THIS IS NOT A STATUTORY LIABIL ITY COMING UNDER SECTION 43B OF THE IT ACT. IT HAS BEE N SUBMITTED THAT THE MILL HAS TAKEN LOAN FROM HARYANA GOVT. FOR MAKING THE CANE PAYMENT OF SUGAR CANE GROWERS IN DIFFERENT FIN ANCIAL YEARS AND ON THE LOAN, INTEREST OF RS. 1,42,97,973/ - HAS BEEN CLAIMED BECAUSE IT HAS ACCRUED TO THE GOVT. IT HAS ALSO BEEN SUBMITTED THAT THE SANCTION OF THE LOAN IN THE FORM OF FINANCIAL ASSISTANCE WAS APPROVED VIDE ORDER DATED 18.2.2003 ACCORDING TO WHICH THE LOAN WAS TO BE REPAID ALONG WITH INTER EST @ 11.5% WITHIN A PERIOD OF 5 YEARS IN ANNUAL EQUAL INSTALME NTS ALONG WITH INTEREST. AS PER THE APPELLANT THE LOAN HAS BE EN GIVEN BY REGISTRAR CO-OP SOCIETIES HARYANA WHICH IS NEITHER A SCHEDULED BANK NOR ANY FINANCIAL INSTITUTION. THE ISSUE INVOLVED AND THE SUBMISSIONS MADE BY THE APPELLANT HAVE BEEN CONSIDERED. SECTION 43B PERTAIN S TO STATUTORY LIABILITIES WHICH ARE ALLOWABLE ONLY ON A CTUAL PAYMENT BASIS AND ON THE AMOUNTS OF INTERESTS ETC. WHICH TH E APPELLANT' SHOULD PAY TO FINANCIAL INSTITUTION ETC. ON THE LOA NS GIVEN TO IT. THE PURPOSE OF THE SECTION IS TO ENSURE PAYMENT OF DUES TO THE GOVT. AND THE FINANCIAL INSTITUTIONS ETC. THE APPEL LANT'S CASE, APPARENTLY DOES NOT FALL UNDER ANY OF THE CLAUSES M ENTIONED U/S 11 43B OF THE IT ACT; HOWEVER KEEPING IN VIEW THE OBJE CT OF INSERTING THIS SECTION I.E. TO ENSURE THE RETURN OF GOVT. DUES, AND THE TERMS & CONDITIONS OF THE ORDER DATED 18.2.2003 GIVING THE LOAN, THE CLAIM OF THE ASSESSEE DOES NOT APPEAR TO BE ADMISSIBLE SINCE IT HAS NOT PAID THE LOAN INSTALLMENTS ALONG W ITH INTEREST DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR; RATHER IT HAS BEEN SUBMITTED DURING APPEAL PROCEEDINGS THA T NO INSTALLMENT OF LOAN OR INTEREST WAS PAID BY THE APP ELLANT AND THE ENTIRE LOAN WAS CONVERTED INTO EQUITY CAPITAL OF TH E APPELLANT KEEPING IN VIEW THE FINANCIAL STATUS OF THE APPELLA NT. IN VIEW OF THE AFORESAID, KEEPING THE OBJECTS/PURPOSE OF SECTI ON 43B OF THE IT ACT THE DISALLOWANCE MADE BY THE AO IS CONFIRMED AND THE GROUND OF APPEAL IS DISMISSED. 18. FROM THE OPERATIVE PART OF THE IMPUGNED ORDER, WE CLEARLY OBSERVE THAT THE CIT(A) HAS NOTED THAT THE ASSESSEES CASE APPAR ENTLY DOES NOT FALL UNDER ANY OF THE CLAUSES MENTIONED U/S 43B OF THE ACT WHICH I S NOT A PROPER AND JUDICIOUS APPROACH. KEEPING IN VIEW THE PROVISIONS OF SECTIO N 43B OF THE ACT AND PROVISO ATTACHED TO THAT, IT IS VERY CLEAR THAT THE MAIN IN TENTION OF THE LEGISLATURE IS THAT DEDUCTION OTHERWISE IS ALLOWABLE UNDER THE PROVISIO NS OF THE ACT IN RESPECT OF THE SUM PAID AND SHALL BE ALLOWED ONLY IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 OF THE ACT OF THAT PREVIOUS YEAR IN WHIC H SUCH THE SUM WAS ACTUALLY PAID. BUT THE PROVISO CLARIFIES THAT NOTHING CONTA INED IN THIS SECTION SHALL APPLY IN RELATION TO ANY SUM REFERRED TO IN CLAUSE (A) OR CLAUSE (C) OR CLAUSE (D) WHICH IS ACTUALLY PAID BY THE ASSESSEE ON OR BEFORE THE D UE DATE APPLICABLE IN HIS CASE FOR FURNISHING THE RETURN OF INCOME UNDER SUB- SECT ION (1) OF SECTION 139 OF THE ACT. ON THE BASIS OF FOREGOING DISCUSSION, WE ARE OF THE VIEW THAT THE AUTHORITIES BELOW HAVE NOT ADJUDICATED THE ISSUE AS PER LETTER AND SPIRIT OF THE 12 PROVISIONS OF SECTION 43B OF THE ACT. THE AO OUGHT TO HAVE VERIFIED AND EXAMINED THE CLAIM OF THE ASSESSEE MAINLY ON TWO CO UNTS: I) WHETHER THE CLAIMED SUM WAS ACTUALLY PAID AND; II) THE AMOUNT W AS ACTUALLY PAID BY THE ASSESSEE ON OR BEFORE THE DUE DATE APPLICABLE IN IT S CASE FOR FURNISHING THE RETURN U/S 139(1) OF THE ACT. THUS, WE FIND IT JUST AND P ROPER TO RESTORE THE ISSUE TO THE FILE OF AO FOR PROPER VERIFICATION AND EXAMINATION OF THE CLAIM OF THE ASSESSEE IN THE LIGHT OF PROVISIONS OF SECTION 43B OF THE AC T. ACCORDINGLY, ORDERS OF THE AUTHORITIES BELOW ON THE ISSUE ARE SET ASIDE AND TH E ISSUE IS RESTORED TO THE FILE OF AO FOR A FRESH ADJUDICATION AS PER DIRECTIONS AS ST ATED ABOVE AFTER AFFORDING DUE OPPORTUNITY OF HEARING FOR THE ASSESSEE. 19. IN THE RESULT, GROUND NO. 2 OF THE ASSESSEE IS ALSO DEEMED TO BE ALLOWED FOR STATISTICAL PURPOSES. GROUND NO.3 20. APROPOS GROUND NO.3, LD. AR SUBMITTED THAT THE ASSESSEE ACTUALLY PAID AUDIT FEES OF RS.3 LAKH TO THE AUDITOR WHICH IS AN ALLOWABLE EXPENDITURE AS PER PROVISIONS OF THE ACT AND THE SAME CANNOT BE DISALL OWED MERELY ON THE BASIS THAT THE ASSESSEE DID NOT DISCHARGE HIS LIABILITY B EFORE DUE DATE OF FILING OF RETURN. THE AR ALSO CONTENDED THAT IF THERE WAS AN Y OLD LIABILITY AGAINST THE ASSESSEE DUE TO FINANCIAL CONSTRAINT WITH REGARD TO AUDIT FEES AND THE SAME WAS PAID IN SUBSEQUENT YEAR, THEN THIS ALSO CANNOT BE A BASIS FOR MAKING DISALLOWANCE. REPLYING TO THE ABOVE, LD. DR FAIRLY ACCEPTED THAT THE ASSESSEE 13 ACTUALLY PAID AN AMOUNT OF RS.3 LAKH TOWARDS AUDITO RS FEES AND THE AO HAS NOT RAISED ANY DOUBT ABOUT THE GENUINENESS OF THIS PAYM ENT. 21. ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS, WE ARE OF THE VIEW THAT THE AUDITORS FEES IS A NECESSARY BUSINESS EXPENDIT URE WHICH IS ALLOWABLE U/S 37(1) OF THE ACT AND ADDITIONS MADE IN THIS REGARD ARE NOT SUSTAINABLE AND WE SET ASIDE THE SAME BY DIRECTING THE AO TO ALLOW THE EXP ENDITURE INCURRED BY THE ASSESSEE TOWARDS PAYMENT OF AUDITORS FEES. ACCORDI NGLY, GROUND NO. 3 OF THE ASSESSEE IS ALLOWED. 22. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED ON GROUND NO. 3 AND DEEMED TO BE PARTLY ALLOWED FOR STATISTICAL PUR POSES ON GROUND NO. 1 & 2. ORDER PRONOUNCED IN THE OPEN COURT ON 20.10.2014. SD/- SD/- (G.D. AGRAWAL) (CHANDRAMOHAN GARG) VICE PRESIDENT JUDICIAL MEMBER DT. 20TH OCTOBER, 2014 GS COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. C.I.T.(A) 4. C.I.T. 5. DR BY ORDER ASSTT.REGISTRAR 14