ACIT, Alwar V. M/S VIJAY SOLVEX LTD., Alwar

ITA 377/JPR/2012

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6222 (ITAT-JAIPUR)
• Duration Of Justice: 5 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-04-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 18-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VARINDER MEHTA
• Assessee Lawyers: P C PARWAL CA DHK
• Keywords: Depreciation; Transfer pricing; International transaction; Earning of tax free income; Deemed dividend
• Section: 14A; 92

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOT; IKY JKWO] U;KF;D LNL; ,OA JH FOE FLAG ;K NO ] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM AND SHRI VIKRAM SING H YADAV, AM VK;DJ VIHY LA-@ ITA NO. 377/JP/2012 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2007-08. THE ACIT, CIRCLE-2, ALWAR. CUKE VS. M/S. VIJAY SOLVEX LIMITED, S.D. MARG, ALWAR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AAACV 6864 A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT CROSS OBJECTION NO. 45/JP/2012 (ARISING OUT OF ITA NO. 377/JP/2012) FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2007-08. M/S. VIJAY SOLVEX LIMITED, S.D. MARG, ALWAR CUKE VS. THE ACIT, CIRCLE-2, ALWAR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AAACV 6864 A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY : SHRI VARINDER MEHTA (CIT) FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI PC PARWAL (CA) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 27/03/2018 ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 03/04.2018. VKNS'K@ ORDER PER VIJAY PAL RAO, JM : THIS APPEAL BY THE REVENUE AND CROSS OBJECTION BY T HE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 31.01.2012 OF LD. CIT (A)-I I, JAIPUR FOR THE ASSESSMENT YEAR 2007-08. THE REVENUE AND THE ASSESSEE HAVE RA ISED THE FOLLOWING GROUNDS :- 2 ITA NO. 377(2)/JP/2012 M/S. VIJAY SOLVEX LIMITED, ALWAR. ITA NO. 377/JP/2012 (REVENUE) 1. THAT THE LD. COMMISSIONER OF INCOME-TAX (A) HA S ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN DELETING THE ADDITION OF RS. 2,03,18,975/- ON A/C OF TPO ADJ USTMENT. 2. THAT THE LD. COMMISSIONER OF INCOME-TAX (A) HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN RESTRICTING THE ADDITION/DISALLOWANCE TO RS. 74,132/- OUT OF TO TAL ADDITION OF RS.2,50,312/- ON A/C OF MISC. EXPENSES. 3. THAT THE LD. COMMISSIONER OF INCOME-TAX (A) HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN DELETING THE ADDITION/DISALLOWANCE OF RS. 1,00,000/- ON A/C OF PRINTING AND STATIONERY EXPENSES. 4. THAT THE LD. COMMISSIONER OF INCOME-TAX (A) HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN RESTRICTING THE ADDITION/DISALLOWANCE TO RS. 47,952/- OUT OF TO TAL ADDITION OF RS. 1,00,000/- ON A/C OF REPAIR AND MAINTENANCE EXP ENSES. 5. THAT THE LD. COMMISSIONER OF INCOME-TAX (A) HAS ERRED IN LAW AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN DELET ING THE ADDITION/DISALLOWANCE OF RS. 2,50,000/- ON A/C OF C ONSUMABLE STORES AND CHEMICAL EXPENSES. 6. THAT THE LD. COMMISSIONER OF INCOME-TAX (A) HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN DELETING THE ADDITION/DISALLOWANCE OF RS. 20,000/- ON A/C OF PACKING MATERIAL EXPENSES. 7. THAT THE LD. COMMISSIONER OF INCOME-TAX (A) HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN DELETING THE ADDITION/DISALLOWANCE OF RS. 5,00,000/- ON A/C OF PACKING MATERIAL EXPENSES. 8. THAT THE LD. COMMISSIONER OF INCOME-TAX (A) HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN DELETING THE ADDITION/DISALLOWANCE OF RS. 1,42,906/- ON A/C OF FOREIGN TRAVELING EXPENSES. 9. THAT THE LD. COMMISSIONER OF INCOME-TAX (A) HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN DELETING THE ADDITION/DISALLOWANCE OF RS. 27,53,062/- ON A/C OF DISALLOWANCE U/S 14A READ WITH RULE 8D. 3 ITA NO. 377(2)/JP/2012 M/S. VIJAY SOLVEX LIMITED, ALWAR. 10. THAT THE LD. COMMISSIONER OF INCOME-TAX (A) HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN DELETING THE ADDITION/DISALLOWANCE OF RS. 2,08,35,153/- ON A /C OF DEEMED DIVIDEND U/S 2(22)(E). 11. THAT THE DEPARTMENT RESERVE ITS RIGHT TO ALTER, MODIFY, DELETE OR AMEND ALL OR ANY OF THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING OF APPEAL. C.O. NO. 45/JP/2012 (ASSESSEE) 1. THAT THE LEARNED ASSESSING OFFICER HAS ERRED I N LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE MAKING A DI SALLOWANCE OF RUPEES 100000.00 OUT OF REPAIR AND MAINTENANCE A ND HONBLE COMMISSIONER OF INCOME TAX (APPEALS), ALWAR HAS ERRED IN SUSTAINING A SUM OF RUPEES 47952.00 OUT OF THE S AME. 2. THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE MAKING A DI SALLOWANCE OF RUPEES 250312.00 OUT OF OTHER EXPENSES AND HONB LE COMMISSIONER OF INCOME TAX (APPEALS), ALWAR HAS ERR ED IN SUSTAINING A SUM OF RUPEES 74132.00 OUT OF THE SAME . 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADI NG AND MANUFACTURING OF EDIBLE OIL, VEGETABLE GHEE AND BY-PRODUCTS. IT IS ALSO ENGAGED IN MANUFACTURING OF CERAMIC ARTICLES AND CROCKERY AND GENERATION OF WIN D POWER. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS ENTERED INTO INTERN ATIONAL TRANSACTIONS. ACCORDINGLY, THE AO MADE REFERENCE TO TPO FOR DETERMINATION OF A RMS LENGTH PRICE UNDER SECTION 92CA(3) OF THE INCOME TAX ACT. THE INTERNATIONAL T RANSACTIONS ENTERED INTO BY THE ASSESSEE ARE REPRODUCED BY THE TPO IN PARA 3 AS UND ER :- 4 ITA NO. 377(2)/JP/2012 M/S. VIJAY SOLVEX LIMITED, ALWAR. DESCRIPTION OF TRANSACTION AE METHOD APPLIED A.Y. 2007 - 08. 1 PURCHASE OF BAKERY SHORTENING FOR TRADING DATA FOODS SRI LANKA RPM RS.18,42,23,773/ - 2 SALE OF CERAMIC (CROCKERY) ITEMS DATA HOUSEWARES UK PROFIT SPLIT RS. 3,48,81,897/ - 3 INTEREST RECEIVED @ 9% P.A. ON GBP 65,000/- LENT IN JANUARY 2007 DATE HOUSEWARES UK CUP GBP 1335.62 (RS. 1.12 LAC) OUT OF THESE THREE INTERNATIONAL TRANSACTIONS ENTER ED INTO BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES, THE TPO ACCEPTED SALE OF CE RAMIC (CROCKERY) ITEMS AT ARMS LENGTH. THE TPO HAS TAKEN UP EXERCISING OF DETERMI NING THE ARMS LENGTH PRICE IN RESPECT OF OTHER TWO TRANSACTIONS WHICH WE WILL DEA L WITH ONE BY ONE AS UNDER : PURCHASE OF BAKERY SHORTENING FOR TRADING 3. THE ASSESSEE HAS PURCHASED BAKERY SHORTENING FRO M ITS ASSOCIATED ENTERPRISES, NAMELY, DATA FOODS, SRI LANKA OF RS. 1 8,42,23,773/-. TO BENCHMARK ITS INTERNATIONAL TRANSACTION, THE ASSESSEE APPLIED RES ALE PRICE METHOD (RPM) AS MOST APPROPRIATE METHOD (MAM) AND CLAIMED THAT ITS INTER NATIONAL TRANSACTION IS AT ARMS LENGTH. THE TPO DID NOT ACCEPT THE TP ANALYSIS OF THE ASSESSEE AS WELL AS THE MOST APPROPRIATE METHOD (MAM) APPLIED BY THE ASSESSEE. T HE TPO WAS OF THE VIEW THAT TRANSACTION NET MARGIN METHOD (TNMM) IS THE MOST AP PROPRIATE METHOD IN THE CASE OF THE ASSESSEE AND ACCORDINGLY THE TPO HAS UNDERTA KEN THE EXERCISE TO DETERMINE THE ARMS LENGTH PRICE BY SELECTING 11 COMPARABLE C OMPANIES. IT IS PERTINENT TO NOTE THAT IN THE SHOW CAUSE NOTICE, THE TPO PROPOSED TO SELECT 7 COMPARABLE COMPANIES. 5 ITA NO. 377(2)/JP/2012 M/S. VIJAY SOLVEX LIMITED, ALWAR. HOWEVER, IN THE FINAL DETERMINATION OF ARMS LENGTH PRICE, THE TPO CONSIDERED 11 COMPARABLE COMPANIES HAVING MEAN MARGIN AT 4.07% AS UNDER :- ANNUAL (MARCH07 ENDING) RS. IN CRORES COMPANY NAME OPLNC OP COST OP PROFIT OPM ON SALES (%) BHASKAR EXXOILS LTD. 448.29 431.32 16.97 3.79 FOODS, FATS & FERTILISERS LTD. 305.84 285.5 20.34 6.73 GOKUL REFOILS & SOLVENT LTD. 1565.2 1514.28 50.92 3.26 K.S. OILS LTD 1070.95 981.31 89.64 8.37 KANPUR EDIBLES PVT. LTD. 370.51 365.76 4.75 1.28 NATIONAL PROTEIN & SOLVENT LTD. 122.03 117.96 4.07 3.34 RAJ AGRO MILLS LTD. 82.5 79.46 3.04 3.71 SHARDA SOLVENT LTD. 425.05 416.18 8.87 2.09 SHIV AGREVO LTD. 116.1 112.55 3.55. 3.06 SYNCO INDUSTRIES 31.7 29.97 1.73 5.46 WADALA COMMODITIES LTD. 15.29 14.72 0.57 3.73 MEAN OF 11 4.07% ACCORDINGLY THE TPO PROPOSED AN ADJUSTMENT UNDER SE CTION 92CA(3) OF RS. 2,00,63,046/-. ON APPEAL, THE LD. CIT (A) HAS DELE TED THE ADJUSTMENT ON ACCOUNT OF TRANSFER PRICING BY ACCEPTING THE TRANSACTION OF TH E ASSESSEE IN RESPECT OF PURCHASES OF BAKERY SHORTENING FROM ITS AE. THE LD. CIT (A) HAS ALSO CONSIDERED THE MARGIN OF THE ASSESSEE AND THE MEAN MARGIN AS COMPUTED BY THE TPO AND FOUND THAT NO ADJUSTMENT IS CALLED FOR AS THE DIFFERENCE IS LESS THAN THE TOLERANCE RANGE AS PER SECOND PROVISO TO SECTION 92C(2) OF THE ACT. 3.1. WE HAVE HEARD THE LD. D/R AS WELL AS THE LD. A /R AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD. D/R HAS SUBMITTED THAT THE ASSESSEE HAS APPLIED RESALE PRICE METHOD (RPM) AS MOST APPROPRIATE METHOD WHERE AS IT IS NOT THE CASE OF THE ASSESSEE BEING A DISTRIBUTOR OR AGENT. THE RESALE P RICE METHOD IS NOT APPLICABLE IN 6 ITA NO. 377(2)/JP/2012 M/S. VIJAY SOLVEX LIMITED, ALWAR. THE CASE OF THE ASSESSEE AND, THEREFORE, THE AO IS JUSTIFIED IN APPLYING THE TNMM METHOD AS MOST APPROPRIATE FOR DETERMINATION OF ARM S LENGTH PRICE. HE HAS FURTHER CONTENDED THAT THE ASSESSEE HAS NOT BROUGHT ON RECO RD ANY COMPARABLE ENTITIES AS AGAINST THE COMPARABLE CASES SELECTED BY THE TPO. HE HAS RELIED UPON THE ORDERS OF THE TPO/AO. 3.2. ON THE OTHER HAND, THE LD. A/R OF THE ASSESSEE HAS SUBMITTED THAT SINCE ASSESSEE IS DOING THE TRADING IN THE BAKERY SHORTEN ING WITHOUT ANY VALUE ADDITION AND, THEREFORE, THE RESALE PRICE METHOD WOULD BE TH E MOST APPROPRIATE METHOD FOR DETERMINATION OF ARMS LENGTH PRICE. HE HAS FURTHE R CONTENDED THAT THE ASSESSEE HAS ALSO BROUGHT ON RECORD THE COMPARABLE PRICE OF THE SAME PRODUCT AS THE AE OF THE ASSESSEE HAS SOLD THE SAME PRODUCT TO THE UNRELATED PARTIES AT A HIGHER RATE AND, THEREFORE, WHEN THERE IS A COMPARABLE UNCONTROLLED PRICE THEN NO ADJUSTMENT IS CALLED FOR IN THE CASE OF THE ASSESSEE. HE HAS FUR THER SUBMITTED THAT EVEN OTHERWISE THE ARMS LENGTH PRICE DETERMINED BY THE TPO BY TAK ING THE MEAN MARGIN AT 4.07% IS WITHIN THE RANGE OF (+)(-) 5% OF THE ASSESSEES MARGIN AND ACCORDINGLY IN VIEW OF THE SECOND PROVISO TO SECTION 92C(2) NO ADJUSTMENT CAN BE MADE ON ACCOUNT OF INTERNATIONAL TRANSACTION PRICE OF BAKERY SHORTENIN G. 4. HAVING CONSIDERED THE RIVAL SUBMISSIONS AND CARE FUL PERUSAL OF RECORD, WE NOTE THAT THE ASSESSEES OPERATIVE MARGIN FROM THE TRADING OF BAKERY SHORTENING IS AT 1.63% WHEREAS THE TPO WHILE DETERMINING THE ARMS L ENGTH PRICE BY APPLYING THE TNMM AS MOST APPROPRIATE METHOD AND OP/TOTAL COST ( TC) AS PLI HAS ARRIVED AT MEAN MARGIN OF 4.07%. THEREFORE, THE PRICE OF INTE RNATIONAL TRANSACTION UNDERTAKEN BY THE ASSESSEE IS WITHIN THE TOLERANCE RANGE OF (+ )(-) 5% OF THE ARMS LENGTH PRICE DETERMINED BY THE TPO. ACCORDINGLY, AS PER THE SEC OND PROVISO TO SECTION 92C(2) 7 ITA NO. 377(2)/JP/2012 M/S. VIJAY SOLVEX LIMITED, ALWAR. THE PRICE OF INTERNATIONAL TRANSACTION IN RESPECT O F PURCHASE OF BAKERY SHORTENING WILL BE DETERMINED AT ARMS LENGTH PRICE AND CONSEQUENTL Y NO ADJUSTMENT IS CALLED FOR ON THIS ACCOUNT. HENCE IN VIEW OF THE FACT THAT THE PR ICE OF INTERNATIONAL TRANSACTION IS WITHIN THE TOLERANCE RANGE AS PROVIDED UNDER THE SE COND PROVISO TO SECTION 92C(2), WE DO NOT GO INTO THE ISSUE OF MOST APPROPRIATE MET HOD APPLIED BY THE ASSESSEE AS WELL AS BY THE TPO. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF LD. CIT (A) QUA THIS ISSUE. 5. INTEREST RECEIVED FROM AE, NAMELY, DATA HOUSEWARES LTD., UK. THE TPO NOTED THAT THE ASSESSEE HAS ADVANCED A LOAN AMO UNTING TO GBP 65000 TO ITS ASSOCIATED ENTERPRISES M/S. DATA HOUSEWARES, UK AT INTEREST RATE OF 9% PER ANNUM. THE ASSESSEE HAS BENCHMARKED ITS INTERNATIONAL TRAN SACTION BY APPLYING COMPARABLE UNCONTROLLED PRICE (CUP) AS A MOST APPROPRIATE METH OD FOR DETERMINATION OF ARMS LENGTH INTEREST FROM AE. THE TPO APPLIED 13% AS AR MS LENGTH INTEREST TO BE CHARGED FROM AE AND ACCORDINGLY MADE AN ADDITION/AD JUSTMENT OF RS. 2,02,800/- ON THIS ACCOUNT. ON APPEAL, THE LD. CIT (A) HAS DELET ED THE ADJUSTMENT MADE BY THE TPO/AO. 6. WE HAVE HEARD THE LD. D/R AS WELL AS THE LD. A/R AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE THAT THE A SSESSEE HAS ADVANCED A LOAN IN FOREIGN CURRENCY TO ITS AE AND CHARGED INTEREST @ 1 0%. WE FIND THAT THE ISSUE OF CHARGING INTEREST FROM AE IN RESPECT OF THE MONEY A DVANCED IN FOREIGN CURRENCY, THE ARMS LENGTH INTEREST IS TO BE CONSIDERED BY TAKING THE LIBOR INSTEAD OF PLR. THE LD. CIT (A) HAS CONSIDERED THIS ISSUE IN PARA 4.1 AS U NDER :- 8 ITA NO. 377(2)/JP/2012 M/S. VIJAY SOLVEX LIMITED, ALWAR. 4.1 I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE APPEL LANT . THE APPELLANT HAD ADVANCED THE LOAN TO ASSOCIATE EN TERPRISE (AE) NAMELY M/S DATA HOUSEWARE (P) LIMITED UK @ 10%. HO WEVER THE TPO HAD ERRONEOUSLY HELD THAT IT WAS ADVANCED AT TH E RATE OF 8%. THE PROVISIONS OF SECTION 92 OF THE INCOME-TAX ACT WHIC H DEALT WITH THE COMPUTATION OF INCOME FROM INTERNATIONAL TRANSACTIO N HAVING REGARD TO THE ARMS LENGTH PRICE HAD NO APPLICABILITY IN THE CASE IN VIEW OF THE PROVISIONS OF SECTION 92(3) OF THE INCOME-TAX ACT S INCE THE DETERMINATION OF ARMS LENGTH PRICE IN THE APPELLAN TS CASE AND COMPUTATION OF INCOME THEREOF HAD THE EFFECT OF RED UCING THE INCOME CHARGEABLE TO TAX. THE RELEVANT PROVISION OF THE S TATUTE HAD LAID DOWN THE BOUNDARIES FOR DETERMINING THE ARMS LENGTH PRI CE UNDER COMPARABLE UNCONTROLLED PRICE (CUP) METHOD. THE POW ER TO DETERMINE THE ARMS LENGTH PRICE UNDER COMPARABLE UNCONTROLLE D PRICE (CUP) METHOD WAS NOT UNABRIDGED. THE TPO HAD REFERRED TO THE DECISION OF INCOME-TAX APPELLATE TRIBUNAL, BENCH-DELHI IN THE C ASE OF PEROT SYSTEMS TSI (INDIA) LIMITED VS DCIT (37 SOT 358) IT AT, (DELHI) HOWEVER IT WAS CLEARLY DISTINGUAISHABLE AS THE CHA RGING OF INTEREST FOR INTRA GROUND LOANS HAD BEEN UPHELD IN THE SAID CASE, WHEREAS, THIS WAS NOT THE ISSUE HERE. THE ASSESSEE HAD NOT DISPUTED THE CHARGING OF INTEREST ON INTRA-GROUP LOANS. IN THE CITED CASE, THE LOAN WAS ADVANCED INTEREST FREE TO ASSOCIATE ENTERP RISE (AE), WHEREAS IN THE PRESENT CASE, THE APPELLANT COMPANY (TESTED CASE) HAD CHARGED THE INTEREST ON THE LOAN ADVANCED TO ASSOCIATE ENTE RPRISE (AE). THE ARGUMENT OF THE TPO IN THE CITED CASE WAS THAT ONE OF THE AES WAS SITUATED IN A TAX HAVEN AND NON CHARGING OF THE INT EREST BY THE ASSESSEE FROM THE AES, HAD RESULTED IN HIGHER INCOM E IN THE HANDS OF THE AES AND THE INCOME OF THE ASSESSEE IN INIDA HAD REDUCED BY THE CORRESPONDING AMOUNT. THUS IT HAD BROUGHT DOWN THE OVERALL TAX INCIDENCE OF THE GROUP BY SHIFTING PROFIT FROM INDI AN JURISDICTION TO BERMUDA WHICH WAS A TAX HAVEN COUNTRY WITH ZERO RAT E OF TAX ON CORPORATE PROFIT WHEREAS THE APPELLANTS ASSOCIATE ENTERPRISE (AE) M/S DATE HOUSEWARE (P) LTD., U.K. WAS BASED IN UK, WHIC H WAS NOT A TAX HEAVEN COUNTRY, THEREFORE THE FACTS OF THE RELIED U PON CASE MATERIALLY DIFFERED FROM THE CASE IN HAND. THE TPO HAD STATED THAT SINCE THE TESTED PARTY WAS A TAX PAYER, THE PREVALENT INTERES T THAT COULD HAVE EARNED BY THE TAX PAYER BY ADVANCING A LOAN TO AN U NRELATED PARTY IN INDIA WITH THE SAME WEAK FINANCIAL HEALTH AS THAT O F THE AE WOULD HAVE RESULTED IN ARMS LENGTH INTEREST. THE TRANSACTION IN THE PRESENT CASE WAS BETWEEN THE ASSESSEE LOCATED IN THE TWO NATIONS . I.E. IT WAS AN INTERNATIONAL TRANSACTION WHEREAS WHILE PROPOSING T O APPLY THE ARMS LENGTH PRICE @ 14% THE TPO HAD CONSIDERED THE DOMES TIC TRANSACTIONS. SO THE INTEREST RATE THAT WOULD HAVE BEEN CHARGED IN SIMILAR CIRCUMSTANCES OR THE INTEREST RATE THAT THE TAX PAYER COULD HAVE GOT BY LENDING SUCH MONEY TO PRIVATE PERSONS IN IND IA OR INTEREST RATE THE COMPANY COULD HAVE GOT FROM INDEPENDENT THIRD P ART IN INDIA BY LENDING SUCH SURPLUS MONEY UNDER COMPARABLE CIRCUMS TANCES I.E. 9 ITA NO. 377(2)/JP/2012 M/S. VIJAY SOLVEX LIMITED, ALWAR. WITHOUT ANY SECURITY AND MARGIN MONEY WAS UNDER COM PARABLE CIRCUMSTANCES I.E. WITHOUT ANY SECURITY AND MARGIN MONEY WAS CONSIDERED BY THE TPO. IT WAS HELD BY TPO THAT RAT E OF INTEREST OF 14% WOULD BE THE ARMS LENGTH PRICE AND IT WAS ACCO RDINGLY APPLIED. HOWEVER THE ABOVE BASIS AND GROUND WERE AGAINST THE EXPLICIT PROVISIONS OF RULE 3 OF THE INCOME TAX RULES. THE TRANSACTION INVOLVED IN THE CASE WAS AN INTERNATIONAL TRANSACTION WHEREA S THE TPO HAD REFERRED TO THE CIRCUMSTANCES OF DOMESTIC TRANSACTI ON, THEREFORE THE SAME COULD NOT BE APPLIED UNDER THE GIVEN CIRCUMSTA NCES. THE ASSESSEE COMPANY HAD LENT THE MONEY TO ASSOCIATE EN TERPRISE (AE) WHICH WAS LOCATED IN UK, THEREFORE THE RATE OF INTE REST OBTAINED IN THE UK HAD TO BE CONSIDERED FOR THE PURPOSE OF COMPARIN G THE RATE ON COMPARABLE UNCONTROLLED PRICE (CUP) METHOD BASIS SI NCE THE RATE OF INTEREST PREVAILING IN THE UK MARKET GOVERNED THE S ITUATION AND WAS IN CONFORMITY WITH RULE 2 AND 3 OF THE INCOME TAX RULE S. THE APPLICATION OF LIBOR RATE OF INTEREST WAS UPHELD BY HONBLE DEL HI TRIBUNAL IN THE CASE OF PEROT SYSTEMS TSI (INDIA) LIMITED VS. DCIT (37 SOT 358). THE LIBOR RATE DURING THE RELEVANT PERIOD WAS 4.31% TO 5.77 % IN THE FY 2006-07. THE TPO IN THIS CASE HAD APPLIED THE MONT HLY LIBOR (LONDON INTERNATIONAL BANK OFFICIAL RATE) DOWNLOADE D FROM THE BRITISH BANKERS ASSOCIATION WEBSITE. DURING THE FINANCIAL Y EAR 2001-02 LIBOR FOR US DOLLAR LOAN WAS 2.39%. ON THAT LIBOR, THE AS SESSING OFFICER ADDED AVERAGE BASIS POINT CHARGED BY OTHER COMPANIE S AND FOR THIS PURPOSE HE TOOK RATE FOR 5 COMPANIES. THE ARITHMETI C MEAN CAME TO 1.64%. ACCORDINGLY, ASSESSING OFFICER COMPUTED THE ARM'S LENGTH RATE TO BE LIBOR + 1.64% USING CUP METHOD. HOWEVER THE A PPLICATION OF THE LIBOR RATES IN THE CASE OF LOANS AND ADVANCES T O ASSOCIATE ENTERPRISE (AE) LOCATED OUTSIDE THE GEOGRAPHICAL BO UNDARIES OF INDIA WAS UPHELD BY JUDICIAL AUTHORITIES. THE LIBOR RATE DURING THE RELEVANT PERIOD RANGED FROM 5.20% TO 5.44% AND AFTER ADDING THERETO 1.64% AVERAGE BASIS POINT AS UPHELD BY INCOME-TAX APPELLA TE TRIBUNAL, BENCH-DELHI, THE EFFECTIVE ARM'S LENGTH RATE OF INT EREST WORKED OUT TO 6.84% TO 7.08% AS AGAINST THAT THE APPELLANT COMPAN Y HAD CHARGED THE INTEREST @ 10%. IN THE PRESENT CASE, THE RATE O F INTEREST ON THE BORROWING FROM SBBJ WAS 8.75% AT THE RELEVANT POINT OF TIME I.E. AT THE TIME OF GIVING OF LOAN, AS AGAINST THAT THE APP ELLANT HAD CHARGED THE RATE OF INTEREST @ 10% ON THE AMOUNT LENT THE A SSOCIATE ENTERPRISE (AE) MUCH HIGHER THAN THE COMPARABLE UNCONTROLLED P RICE (CUP) RATE. THE RATE OF INTEREST CHARGED FROM THE ASSOCIATE ENT ERPRISE (AE) WAS MENTIONED ERRONEOUSLY AS 9%, WHEREAS IT WAS 10%, WH ICH WAS VERIFIABLE FROM THE CREDIT NOTE SENT BY THE M/S DAT A HOUSEWARE P LTD. U.K. ASSOCIATE ENTERPRISE (AE) DATED 31.03.2007. FU RTHER THE ASSOCIATE ENTERPRISE (AE) HAD UTILIZED THE LOAN IN ITS STOCK AND DEBTORS, WHICH WAS APPARENT FROM THE BALANCE SHEET OF THE ASSOCIAT E ENTERPRISE (AE). THE ASSESSEE HAD NOT INCURRED ANY BROKERAGE OR PROC ESSING FEES IN ADVANCING THE LOAN TO THE ASSOCIATE ENTERPRISE (AE) .THE APPELLANT COMPANY HAD NOT GIVEN ANY LOAN OR ADVANCES TO DATA FOODS (P) 10 ITA NO. 377(2)/JP/2012 M/S. VIJAY SOLVEX LIMITED, ALWAR. LIMITED., SRI LANKA DURING THE FINANCIAL YEAR 2006- 07. ACCORDINGLY THE ADJUSTMENT MADE ON ACCOUNT OF LOAN GIVEN TO M/S DAT A HOUSEWARE (P) LTD., U.K. WAS NOT JUSTIFIED. FURTHER THE APPELLANT WAS A SECURED CREDITOR AS IT HAD SOLD GOODS TO THE CONCERNED AE A LSO. THE POSITION OF THE APPELLANT COMPANY WAS THAT OF A UNPAID SELLER S INCE THE AE OWED TO IT AN AMOUNT COMPRISING OF LOAN AS WELL AS AMOUN T FOR GOODS PURCHASED. THEREFORE THE TPO HAD ERRONEOUSLY HELD T HAT THE POSITION OF THE APPELLANT WAS THAT OF A UNSECURED CREDITOR/L OANEE. I ACCORDINGLY DIRECT THE AO TO DELETE THE ADDITION OF RS 2,55,929 /-MADE ON ACCOUNT OF ADJUSTMENTS MADE BY THE TPO. THIS GROUND OF APPE AL IS ALLOWED. THUS IT IS CLEAR THAT THE LD. CIT (A) HAS FOLLOWED THE DECISION OF THIS TRIBUNAL ON THIS ISSUE AND ACCORDINGLY WE DO NOT FIND ANY ERROR OR I LLEGALITY IN THE ORDER OF LD. CIT (A) QUA THIS ISSUE. 7. GROUND NO. 2 IS REGARDING DISALLOWANCE MADE BY THE AO ON ACCOUN T OF MISCELLANEOUS EXPENSES OF RS. 2,50,312/- WHICH WAS RESTRICTED BY THE LD. CIT (A) TO RS. 74,132/-. 7.1. THE AO NOTED THAT ASSESSEE HAS DEBITED A SUM O F RS. 25,03,119/- UNDER THE HEAD MISCELLANEOUS EXPENSES. THE AO ASKED THE ASSE SSEE TO FURNISH THE DETAILS OF MISCELLANEOUS EXPENSES ALONG WITH VOUCHERS FOR VERI FICATION INDICATING THE PURPOSE AND BUSINESS EXIGENCY. AFTER GOING THROUGH THE DET AILS, THE AO NOTED THAT THE EXPENSES ARE NOT FULLY VOUCHED AND BOOKED THROUGH S ELF MADE VOUCHERS. ACCORDINGLY, THE AO MADE A DISALLOWANCE OF 10% OF T HE MISCELLANEOUS EXPENSES AMOUNTING TO RS. 2,50,312/-. ON APPEAL, THE LD. CI T (A) NOTED THAT THE ASSESSEE HAS INCURRED AN EXPENDITURE OF RS. 20,93,568/- FOR TEA, REFRESHMENTS, COLD DRINKS AND SWEETS TO EMPLOYEES AND CUSTOMERS AND FBT HAS BEEN PAID ON THE PORTION RELATING TO EMPLOYEES. FURTHER, THE LD. CIT (A) NOTED THAT THE MISCELLANEOUS EXPENSES ALSO INCLUDED LICENCE AND INSPECTION FEES OF RS. 2,28,68 0/- AND SUBSCRIPTION FEE OF RS. 11 ITA NO. 377(2)/JP/2012 M/S. VIJAY SOLVEX LIMITED, ALWAR. 1,32,110/-. THE LD. CIT(A) HAS CONSIDERED THE FAC T THAT OUT OF THE TOTAL EXPENSES OF RS. 25,03,119/-, AN AMOUNT OF RS. 7,41,322/- HAS BE EN PAID IN CASH AND REMAINING WAS PAID THROUGH ACCOUNT PAYEE CHEQUE. ACCORDINGLY , THE LD. CIT (A) RESTRICTED THE DISALLOWANCE TO THE EXTENT OF 10% ONLY IN RESPECT O F EXPENDITURE INCURRED IN CASH. THUS THE ASSESSEE IS ALSO AGGRIEVED BY THE IMPUGNED ORDER OF THE LD. CIT (A) AND RAISED GROUND NO. 2 AGAINST THE DISALLOWANCE SUSTAI NED BY THE LD. CIT (A). 7.2. WE HAVE HEARD THE LD. D/R AS WELL AS THE LD. A /R AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD. D/R HAS SUBMITTED THAT THE AO HAS CLEARLY MADE OUT THE CASE THAT THE ASSESSEE HAS NOT FULLY VOUCHED THE EX PENSES AND SUPPORTED BY SELF MADE VOUCHERS AND, THEREFORE, THE AO WAS JUSTIFIED IN MAKING THE DISALLOWANCE OF 10% OF THE EXPENSES. HE HAS RELIED UPON THE ORDER O F THE AO. 7.3. ON THE OTHER HAND, THE A/R OF THE ASSESSEE HAS SUBMITTED THAT WHEN THE ASSESSEE HAS DULY EXPLAINED THE NATURE OF EXPENSES WHICH HAVE BEEN INCURRED FULLY AND FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSE E, THEN SUSTAINING THE DISALLOWANCE TO THE EXTENT OF 10% OF THE EXPENSES I NCURRED IN CASH IS NOT JUSTIFIED. 8. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD, WE NOTE THAT THE LD. CIT (A) HAS CONSIDERED THIS ISSUE IN PARA 5.1 AS UNDER :- 5.1 I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE APPEL LANT . DURING THE COURSE OF APPELLATE PROCEEDINGS, THE COU NSEL OF APPELLANT HAS BROUGHT TO MY ATTENTION THAT MISC. EXPENSES INC LUDED PAYMENTS OF RS 20,93,568/- MADE FOR TEA, REFRESHMENTS, COLD DRI NKS AND SWEETS TO EMPLOYEES AND CUSTOMERS AND FBT HAD BEEN PAID ON TH E PORTION RELATING TO EMPLOYEES. IT IS EVIDENT THAT THE AO WA S UNDER ERRONEOUS BELIEF THAT THE ENTIRE AMOUNT HAD BEEN INCURRED ON THE CUSTOMERS. MOREOVER IT ALSO INCLUDED LICENCE AND INSPECTION FE ES OF RS 2,28,680/-, SUBSCRIPTION FEES OF RS. 1,32,110/-, ELECTRICITY CH ARGES OF RS. 92,190/-, ANNUAL LISTING FEES OF RS 14,590/- AND BOOKS AND PE RIODICALS. FURTHER THESE EXPENSES WERE FULLY VOUCHED AND THE AO HAD NO T CITED ANY 12 ITA NO. 377(2)/JP/2012 M/S. VIJAY SOLVEX LIMITED, ALWAR. SPECIFIC INSTANCE WHERE THE EXPENDITURE WAS UNVOUCH ED. ON GOING THROUGH THE LEDGER ACCOUNT, IT IS SEEN THAT OUT OF TOTAL EXPENSES OF RS 25,03,119/-, AN AMOUNT OF RS 7,41,322/- HAD BEEN PA ID IN CASH AND REMAINING AMOUNT OF RS. 17,61,797/- HAD BEEN PAID T HROUGH ACCOUNT PAYEE CHEQUES. IN VIEW OF THE ABOVE FACTS, THE DISA LLOWANCE OF RS 2,50,312/- MADE BY THE AO WAS ON THE HIGHER SIDE. I T IS AN UNDISPUTED FACT THAT SMALL TIME VENDORS DO NOT ISSUE PROPER BI LLS/MEMOS AND IN SUCH CASES, THE PAYMENTS ARE MADE THROUGH INTERNAL VOUCHERS. THE APPELLANT CANNOT BE PENALIZED SO HEAVILY FOR SUCH A FAILURE. CONSIDERING THE FACTS OF THE PRESENT CASE, I AM OF THE OPINION THAT DISALLOWANCE TO THE EXTENT OF 10% OUT OF EXPENSES OF RS 7,41,322/- INCURRED IN CASH, WOULD MEET THE ENDS OF JUSTICE. I THEREFORE DIRECT THE AO TO RESTRICT THE ADDITION ON THIS ACCOUNT TO RS 74,132/- INSTEAD OF RS 2,50,312/- MADE BY HER THIS GROUND OF APPEAL IS PARTLY ALLOWED. IT IS CLEAR THAT OUT OF EXPENDITURE OF RS. 25,03,11 9/-, THE ASSESSEE HAS PAID FBT IN RESPECT OF THE EXPENDITURE INCURRED FOR TEA, REFRES HMENTS, COLD DRINKS, SWEETS TO THE EMPLOYEES AND CUSTOMERS TOTAL AMOUNTING TO RS. 20,9 3,568/-. FURTHER, THE REMAINING EXPENDITURE WAS INCURRED ON ACCOUNT OF LI CENCE AND INSPECTION FEES, SUBSCRIPTION FEE, ELECTRICITY CHARGES, ANNUAL LISTI NG FEES, BOOKS & PERIODICALS. THEREFORE, THOUGH THE ASSESSEE HAS INCURRED THE EXP ENDITURE IN CASH TO THE EXTENT OF RS. 7,41,322/-, HOWEVER, MAJORITY OF THE SAID AMOUN T OF RS. 7,41,322/- HAS BEEN INCURRED FOR TEA, REFRESHMENTS, COLD DRINKS AND SWE ETS TO THE EMPLOYEES AND CUSTOMERS. SO FAR AS THE EXPENDITURE INCURRED TOWA RDS FRINGE BENEFITS TO EMPLOYEES, THE ASSESSEE HAS ALREADY PAID THE FBT AND ACCORDING LY BY CONSIDERING THIS FACT, WE RESTRICT THE DISALLOWANCE OF THE EXPENDITURE INCURR ED IN CASH TO 5% INSTEAD OF 10% SUSTAINED BY LD. CIT (A). IN THE RESULT, GROUND NO. 2 OF THE REVENUES APPEAL IS DISMISSED AND GROUND NO. 2 OF THE CROSS OBJECTION I S PARTLY ALLOWED. 9. GROUND NO. 3 IS REGARDING DISALLOWANCE MADE ON ACCOUNT OF PRINT ING AND STATIONARY EXPENSES WHICH WAS DELETED BY LD. CIT (A ). 13 ITA NO. 377(2)/JP/2012 M/S. VIJAY SOLVEX LIMITED, ALWAR. 9.1. THE AO NOTED THAT THE ASSESSEE HAS DEBITED A S UM OF RS. 8,99,252/- UNDER THE HEAD PRINTING & STATIONARY EXPENSES. SINCE ALL THE EXPENSES WERE NOT SUPPORTED BY BILLS AND SOME OF THEM ARE SELF MADE VOUCHERS, T HEREFORE, THE AO HAD MADE AN ADHOC DISALLOWANCE OF RS. 1,00,000/- ON THIS ACCOUN T. ON APPEAL, THE LD. CIT (A) DELETED THE DISALLOWANCE MADE BY THE AO. 9.2. WE HAVE HEARD THE LD. D/R AS WELL AS THE LD. A /R AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD. CIT (A) HAS DEALT WITH THIS ISSUE IN PARA 5.2 AS UNDER :- 5.2 ON GOING THROUGH THE LEDGER ACCOUNT OF PRINTI NG AND STATIONERY EXPENSES, IT IS SEEN THAT OUT OF TOTAL EXPENSES OF RS 8,99,252/-, A MEAGER AMOUNT OF RS 34,670/- ONLY WAS PAID IN CASH. THE MAJORITY OF THE EXPENDITURE WAS SETTLED THROUGH ACCOUNT PAYEE C HEQUES. IT WAS NOT THE CASE OF THE AO THAT THE EXPENSES WERE UNREA SONABLE OR EXCESSIVE LOOKING TO THE TURNOVER OF THE APPELLANT COMPANY. THE APPELLANT HAD MAINTAINED COMPLETE BILLS/SUPPORTING FOR THE PRINTING & STATIONERY EXPENSES OF RS 8,99,252/-. THE EXPENDITU RE WAS INCURRED OUT OF BUSINESS EXPEDIENCY AND THE AO HAD FAILED TO POINT OUT ANY DISCREPANCY IN THE VOUCHERS MAINTAINED BY THE APPEL LANT. THE DISALLOWANCE HAD BEEN MADE IN A ROUTINE MANNER AND WAS THEREFORE NOT SUSTAINABLE. I THEREFORE DIRECT THE AO TO DELET E THE ADDITION OF RS 1,00,000/- ON ACCOUNT OF PRINTING & STATIONERY EXPE NSES MADE BY HER. THIS GROUND OF APPEAL IS ALLOWED. THE LD. CIT (A) HAS DELETED THE DISALLOWANCE BY CON SIDERING THE FACT THAT THE ASSESSEE HAS MAINTAINED COMPLETE BILLS/SUPPORTING V OUCHERS FOR THE EXPENDITURE INCURRED ON ACCOUNT OF PRINTING AND STATIONARY. FU RTHER, THE EXPENDITURE WAS INCURRED OUT OF BUSINESS EXPEDIENCY AND IN THE ABSE NCE OF ANY DISCREPANCY IN THE VOUCHERS MAINTAINED BY THE ASSESSEE, THE DISALLOWAN CE IS UNCALLED FOR. WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF LD. CI T (A) IN DELETING THE DISALLOWANCE MADE BY THE AO. 14 ITA NO. 377(2)/JP/2012 M/S. VIJAY SOLVEX LIMITED, ALWAR. 10. GROUND NO. 4 IS REGARDING DISALLOWANCE MADE OF RS. 1,00,000/- O N ACCOUNT OF REPAIR AND MAINTENANCE EXPENSES WHICH WAS RESTRI CTED TO RS. 47,952/- BY LD. CIT (A). THE ASSESSEE HAS ALSO RAISED AN OBJECTION IN THE CROSS OBJECTION ON THIS ISSUE. 11. WE HAVE HEARD THE LD. D/R AS WELL AS THE LD. A/ R AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE AO HAS MADE AN ADHOC DISAL LOWANCE OF RS. 1,00,000/- OUT OF THE TOTAL EXPENDITURE OF RS. 23,41,631/- UNDER T HE HEAD REPAIR AND MAINTENANCE EXPENSES FOR WANT OF SUPPORTING BILLS AND DUE TO SE LF MADE VOUCHERS. ON APPEAL, THE LD. CIT (A) NOTED THAT ONLY A SUM OF RS. 4,79,5 26/- OUT OF TOTAL EXPENDITURE OF RS. 23,41,631/- WAS INCURRED IN CASH. THUS THE LD. CIT (A) HAS RESTRICTED THE DISALLOWANCE AT 10% OF THE AMOUNT WHICH WAS INCURRE D IN CASH. RELEVANT FINDING OF THE LD. CIT (A) IS IN 5.3 AS UNDER :- 5.3 THE AO HAD ALSO DISALLOWED AN AMOUNT OF RS 1,0 0,000/- OUT OF REPAIRS & MAINTENANCE EXPENSES ON THE GROUND THAT T HE EXPENSES WERE PAID IN CASH THROUGH SELF MADE VOUCHERS. ON GOING T HROUGH THE LEDGER ACCOUNT OF REPAIRS & MAINTENANCE EXPENSES, IT IS SE EN THAT OUT OF TOTAL EXPENSES OF RS 23,41,631/-, AN AMOUNT OF RS 4,79,52 6/- WAS PAID IN CASH ONLY. THE MAJORITY OF EXPENDITURE WAS PAID THR OUGH ACCOUNT PAYEE CHEQUES. IT WAS NOT THE CASE OF THE AO THAT T HE EXPENSES WERE UNREASONABLE OR EXCESSIVE LOOKING TO THE TURNOVER O F THE APPELLANT COMPANY. THE APPELLANT HAD MAINTAINED COMPLETE BILL S/SUPPORTING FOR THE REPAIRS & MAINTENANCE EXPENSES OF RS 23,41,631/ -. FURTHER THE PAYMENTS WERE MADE TO THE LABOUR/CIVIL/ELECTRICAL C ONTRACTORS AFTER DEDUCTING TDS. THE EXPENDITURE WAS INCURRED OUT OF BUSINESS EXPEDIENCY AND THE AO HAD FAILED TO POINT OUT ANY D ISCREPANCY IN THE VOUCHERS MAINTAINED BY THE APPELLANT. IN VIEW OF TH E ABOVE FACTS, THE DISALLOWANCE OF RS 1,00,000/- MADE BY THE AO WAS ON THE HIGHER SIDE. IT IS AN UNDISPUTED FACT THAT SMALL TIME LABOURERS OR CONTRACTORS INVOLVED IN PETTY REPAIRS DO NOT ISSUE PROPER BILLS /MEMOS AND IN SUCH CASES, THE PAYMENTS ARE MADE THROUGH INTERNAL VOUCH ERS. CONSIDERING THE FACTS OF THE PRESENT CASE, I AM OF THE OPINION THAT DISALLOWANCE TO THE EXTENT OF 10% OF RS 4,79,526/- WOULD MEET THE E NDS OF JUSTICE. I THEREFORE DIRECT THE AO TO RESTRICT THE ADDITION ON THIS ACCOUNT TO RS 47,952/- INSTEAD OF RS 1,00,000/- MADE BY HER. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 15 ITA NO. 377(2)/JP/2012 M/S. VIJAY SOLVEX LIMITED, ALWAR. THUS WHEN THE ASSESSEE HAS INCURRED THE EXPENDITURE TO THE EXTENT OF RS. 4,79,526/- IN CASH AND ONLY SELF MADE VOUCHERS ARE PRODUCED BY THE ASSESSEE, THEN THE DISALLOWANCE MADE BY LD. CIT (A) RESTRICTING THE E XPENDITURE INCURRED IN CASH IS JUST AND PROPER. HENCE WE DO NOT FIND ANY REASON TO INTE RFERE WITH THE FINDING OF THE LD. CIT (A) ON THIS ISSUE. GROUND NO. 4 OF THE REVENUE S APPEAL AND GROUND NO. 1 OF THE CROSS OBJECTION ARE DISMISSED. 12. GROUND NO. 5 OF THE REVENUES APPEAL IS REGARDING AN ADDITION/D ISALLOWANCE MADE BY THE AO ON ACCOUNT OF CONSUMABLE STORES AND CHEMICAL EXPENSES WHICH WAS DELETED BY LD. CIT (A). 13. THE AO NOTED THAT CERTAIN VOUCHERS FOR WHICH NO SUPPORTING BILLS WERE AVAILABLE IN RESPECT OF THE EXPENDITURE INCURRED ON CHEMICALS AND CONSUMABLE STORES. THUS DUE TO THE IMPROPER VOUCHERS/ SELF MADE VOUCHE RS, THE AO HAS MADE AN ADHOC DISALLOWANCE OF RS. 2,50,000/- OUT OF THE TOTAL EXP ENDITURE OF RS. 4,09,18,214/-. ON APPEAL, THE LD. CIT (A) HAS DELETED THE DISALLOWANC E MADE BY THE AO IN PARA 5.4 AS UNDER :- 5.4 ON GOING THROUGH THE LEDGER ACCOUNT OF CHEMICA L & CONSUMABLE STORES EXPENSES, IT IS SEEN THAT OUT OF TOTAL EXPEN SES OF RS 4,09,18,214/-, A MEAGER AMOUNT OF RS 27,477/- WAS I NCURRED IN CASK WHEREAS THE AO HAD MADE THE DISALLOWANCE OF RS 2,50 ,000/- ON THE GROUND OF SELF MADE VOUCHERS AND PAYMENTS BEING MAD E IN CASH. IT IS SEEN THAT ALMOST THE ENTIRE EXPENDITURE OF RS 4,08, 90,737/- WAS SETTLED THROUGH ACCOUNT PAYEE CHEQUES. IT WAS NOT THE CASE OF THE AO THAT THE EXPENSES WERE UNREASONABLE OR EXCESSIVE LO OKING TO THE TURNOVER OF THE APPELLANT COMPANY. THE APPELLANT H AD MAINTAINED COMPLETE BILL/SUPPORTING FOR THE CHEMICAL & CONSUMA BLES STORES EXPENSE OF RS. 4,09,18,214/-. THE EXPENDITURE WAS INCURRED OUT OF BUSINESS EXPEDIENCY AND THE AO HAD FAILED TO POINT OUT ANY DISCREPANCY IN THE VOUCHERS MAINTAINED BY THE APPEL LANT. THE AO HAD NOT CONDUCTED ANY INQUIRIES FROM THE SUPPLIERS OF C HEMICALS & CONSUMABLES AND THE DISALLOWANCE WAS MADE IN A ROUT INE MANNER. 16 ITA NO. 377(2)/JP/2012 M/S. VIJAY SOLVEX LIMITED, ALWAR. THE ADDITION HAD THEREFORE NO LEGS TO STAND. I THE REFORE DIRECT THE AO TO DELETE THE ADDITION OF RS. 2,50,000/- ON ACCOUNT OF CHEMICAL & CONSUMABLE STORES EXPENSES MADE BY HER. THIS GROUN D OF APPEAL IS ALLOWED. 14. WE HAVE HEARD THE LD. D/R AS WELL AS THE LD. A/ R AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. IT IS CLEAR FROM THE FINDING O F THE LD. CIT (A) REPRODUCED ABOVE THAT THE ASSESSEE HAS MAINTAINED COMPLETE BILLS/SUP PORTING VOUCHERS FOR THE EXPENSES INCURRED ON ACCOUNT OF CHEMICALS AND CONSU MABLE STORES. THE AO HAS NOT CONDUCTED ANY ENQUIRY OR FOUND OUT ANY DISCREPANCY IN THE VOUCHERS. THUS THE ADHOC DISALLOWANCE MADE BY THE AO WAS RIGHTLY DELET ED BY LD. CIT (A) AND, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDING O F LD. CIT (A) QUA THIS ISSUE. 15. GROUND NO. 6 IS REGARDING THE DISALLOWANCE MADE ON ACCOUNT OF D EPRECIATION ON WIND MILL WHICH WAS DELETED BY THE LD. CIT (A). 16. WE HAVE HEARD THE LD. D/R AS WELL AS THE LD. A/ R AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE AO HAS MADE A DISALLOWANCE OF RS. 20,000/- OUT OF THE TOTAL DEPRECIATION CLAIMED ON WIND MILL ON THE GROUND THA T THE HIGHER RATE OF DEPRECIATION IS NOT AVAILABLE ON FOUNDATION AND BUILDING OF WIND MILL INSTALLATION. ACCORDINGLY, THE AO ALLOWED ONLY 10% IN RESPECT OF THE FOUNDATION AN D BUILDING OF WIND MILL. THE LD. CIT (A) HAS DECIDED THIS ISSUE IN PARA 5.5 AS UNDER :- 5.5 THE AO HAD ALSO MADE THE DISALLOWANCE OF RS. 2 0,000/- OUT OF THE TOTAL DEPRECIATION CLAIMED ON THE WIND MILL ON THE GROUND THAT DEPRECIATION ALLOWABLE ON FOUNDATION AND BUILDING W AS 10%. HOWEVER, THIS ISSUE IS COVERED BY THE DECISION OF MY PREDECE SSOR AND HONBLE ITAT, JAIPUR, IN THE EARLIER YEARS. THEREFORE, THE DISALLOWANCE OF RS. 20,000/- IS DELETED IN THIS YEAR ALSO BY FOLLOWING THE ORDER OF ITAT, JAIPUR FOR THE ASSESSMENT YEAR 2004-05 IN ORDER NO. 386/JP/2011 17 ITA NO. 377(2)/JP/2012 M/S. VIJAY SOLVEX LIMITED, ALWAR. DATED 14.10.2011 WHEREIN THE SIMILAR DISALLOWANCE W AS DELETED. THIS GROUND OF APPEAL IS ALLOWED. THUS IT IS CLEAR THAT THIS ISSUE IS COVERED BY THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-05. HENCE WE DO NOT FIND ANY MERIT OR SUBSTANCE IN THIS GROUND OF THE REVENUES APPEAL. A CCORDINGLY THE SAME IS DISMISSED. 17. GROUND NO. 7 IS REGARDING THE DISALLOWANCE MADE BY THE AO ON AC COUNT OF PACKING MATERIAL EXPENSES WHICH WAS DELETED BY THE LD. CIT (A). 18. THE AO NOTED THAT THE ASSESSEE HAS CLAIMED PACK ING MATERIAL EXPENSES OF RS. 20,04,10,136/-. HOWEVER, THE ASSESSEE HAS PRODUCED PURCHASE VOUCHERS IN MOST OF THE CASES BUT FOR SMALL AMOUNT THE CORRESPONDING BI LLS WERE NOT AVAILABLE. THE AO FURTHER OBSERVED THAT THE QUANTITATIVE RECORD FOR E ACH TYPE OF PACKING MATERIAL FOR EACH CLASS OF GOODS HAVE NOT BEEN MAINTAINED SEPARA TELY. THUS IN THE ABSENCE OF SEPARATE RECORD FOR EACH TYPE OF PACKING MATERIAL A ND CLOSING STOCK QUANTITY IS NOT SEPARATELY VERIFIABLE, THE AO MADE AN ADHOC DISALLO WANCE OF RS. 50,00,000/-. ON APPEAL, THE LD. CIT (A) HAS DELETED THE ADDITION BY CONSIDERING THE QUANTUM OF EXPENDITURE IN COMPARISON TO THE TURNOVER OF THE AS SESSEE FOR THE YEAR UNDER CONSIDERATION AS WELL AS IN THE EARLIER YEARS. 19. WE HAVE HEARD LD. D/R AS WELL AS THE LD. A/R AN D CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD. CIT (A) HAS CONSIDERE D THIS ISSUE IN PARA 5.7 AS UNDER :- 5.7 THE AO HAD ALSO DISALLOWED AN AMOUNT OF RS 50, 00,000/- OUT OF PACKING MATERIAL EXPENSES ON THE GROUND THAT THE AP PELLANT COMPANY DID NOT MAINTAIN THE QUANTITATIVE DETAILS OF PACKIN G MATERIAL. HOWEVER IT WAS AN UNDISPUTED FACT THAT THE APPELLANT HAD MA INTAINED RECORDS FOR QUANTITATIVE DETAILS OF PACKING MATERIAL. FURTHER T HE PERCENTAGE OF PACKING MATERIAL EXPENSES VIS--VIS TURNOVER WAS AT 4.32% IN THE YEAR 18 ITA NO. 377(2)/JP/2012 M/S. VIJAY SOLVEX LIMITED, ALWAR. UNDER REFERENCE. THE SAME WAS LOWER IN COMPARISON T O 4.96% IN AY 2006-07 AND 4.37% IN AY 2005-06. I FURTHER FIND THA T SIMILAR ADDITION ON ACCOUNT OF DISALLOWANCE OUT OF PACKING MATERIAL EXPENSES FOR AY 2005-06 HAD BEEN DELETED BY MY PREDECESSOR AND HON' BLE JAIPUR TRIBUNAL IN ORDER ITA NO 599/JP/2011 DATED 25.02.20 11. THE AO HAS NOT POINTED OUT ANY MATERIAL DISCREPANCY IN THE REC ORDS MAINTAINED BY THE APPELLANT BEFORE MAKING SUCH A HUGE ADDITION OF RS 50,00,000/-. NO INQUIRIES OF ANY SORT WERE MADE FROM THE SUPPLIE RS OF PACKAGING MATERIAL. THE APPELLANT HAD MADE THE PAYMENTS THROU GH BANKING CHANNELS AND COMPLETE BILLS/SUPPORTING WERE AVAILAB LE. IT WAS HELD BY HONOURABLE MUMBAI TRIBUNAL IN THE CASE OF ARTHUR & ANDERSON & CO. VS ADDL. CIT (2010-TIOL-416-ITAT) THAT THE VERY CONCEPT OF TOKEN DISALLOWANCE WAS BAD IN LAW, BECAUSE SUCH A DISALLOWANCE WAS INHERENTLY BASED ON SURMISES AND CONJECTURES AN D DEVOID OF A LEGALLY SUSTAINABLE FOUNDATION. IT WAS A CASE WHERE ONE ACCEPTED ALL THE CONTENTIONS BUT NOT THE CONSEQUENCES FLOWING FR OM ACCEPTING THE SAME. THIS COULD NOT MEET APPROVAL. NO PARTICULAR I NFORMATION HAD BEEN CALLED FOR BY THE AO NOR HAD THE AO POINTED OU T ANY DEFICIENCY IN THE DETAILS FURNISHED BY THE ASSESSEE. THE AO HAD N OT GIVEN ANY JUSTIFIABLE REASONS FOR MAKING ADHOC DISALLOWANCES WITHOUT SOUND BASIS OR REASON. THIS COULD NOT BE PERMITTED. THE CIT(A) HAD ALSO NOT JUDICIOUSLY DEALT WITH THE MATTER. NO DISALLOWANCE COULD BE MADE JUST FOR THE SAKE OF DISALLOWANCE. IN VIEW OF THE LACK O F PROPER APPRECIATION OF THE FACTS AND LACK OF INVESTIGATION AND PROPER R EASONING, THE DISALLOWANCE WAS DELETED. IN THE PRESENT CASE ALSO, IT IS CLEAR THAT THE AO HAD MADE THE IMPUGNED DISALLOWANCE ON CONJECTURE S AND SURMISES. THE ADDITION MADE BY THE AO HAS NO LEGS TO STAND AN D SAME IS ACCORDINGLY DELETED. THIS GROUND OF APPEAL IS ALLOW ED. THUS THE LD. CIT (A) HAS TAKEN NOTE OF THE FACT THA T THE EXPENDITURE FOR THE YEAR UNDER CONSIDERATION IS AT 4.32% OF THE TURNOVER IN COMPARISON TO 4.96% FOR THE ASSESSMENT YEAR 2006-07 AND 4.37% FOR THE ASSESSMEN T YEAR 2005-06. FURTHER, THE ADDITION MADE BY THE AO IN THIS RESPECT FOR THE ASS ESSMENT YEAR 2005-06 WAS DELETED BY THE TRIBUNAL IN ASSESSEES OWN CASE. TH E FACTUAL DETAILS GIVEN BY LD. CIT (A) HAVE NOT BEEN CONTROVERTED BEFORE US. ACCORDIN GLY, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF LD. CIT (A) QUA THIS ISS UE. 19 ITA NO. 377(2)/JP/2012 M/S. VIJAY SOLVEX LIMITED, ALWAR. 20. GROUND NO. 8 IS REGARDING DISALLOWANCE MADE ON FOREIGN TRAVEL E XPENSES DELETED BY LD. CIT (A). 21. THE AO NOTED THAT THE TRAVELING EXPENSES INCURR ED BY THE ASSESSEE ARE IN RESPECT OF THE FOREIGN TOUR OF SHRI V.K. DUTTA, MAN AGING DIRECTOR OF THE ASSESSEE COMPANY AMOUNTING TO RS. 1,42,096/-. FOR WANT OF P URPOSE OF THE VISIT BEING BUSINESS OF THE ASSESSEE, THE AO HAS DISALLOWED THE CLAIM OF TRAVELING EXPENSES. ON APPEAL, THE LD. CIT (A) HAS DELETED THE ADDITION BY CONSIDERING SAME AS THE FOREIGN VISIT WAS UNDERTAKEN BY THE MANAGING DIRECTOR FOR B USINESS PURPOSES. 22. WE HAVE HEARD THE LD. D/R AS WELL AS THE LD. A/ R AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD. CIT (A) HAS CONSIDERED THIS ISSUE IN PARA 5.6 AS UNDER :- 5.6 THE AO HAD ALSO MADE THE ADDITION OF RS. 1,42, 906/- ON ACCOUNT OF DISALLOWANCE OUT OF FOREIGN TRAVELLING EXPENSES. ON PERUSAL OF DETAILS FILED BY THE APPELLANT, IT IS EVIDENT THAT SH. VIJAY KUMAR DATA, MANAGING DIRECTOR HAD NOT UNDERTAKEN ANY TOUR TO LA HORE AS ALLEGED BY THE AO. IN FACT, HE HAD GONE TO LONDON TO PARTI CIPATE IN THE CONFERENCE OF INTERNATIONAL ASSOCIATION OF SEED CRU SHERS. THE APPELLANT WAS ALSO EXPORTING GOODS TO UK. THE PURP OSE OF THE FOREIGN TOUR WAS NOT PERSONAL AS ALLEGED BY THE AO. FURTHE R OUT OF TOTAL EXPENSES OF RS. 1,42,906/-, AN AMOUNT OF RS. 96,369 /- WAS INCURRED ON AIR TRAVELLING, BOARDING & LODGING OF SH. VIJAY KUM AR DATA. THE VISIT TO LONDON WAS FOR THE PURPOSE OF BUSINESS AND THE AO W AS NOT JUSTIFIED IN DISALLOWING THE ENTIRE EXPENSES INCURRED ON VISIT T O LONDON. IT WAS HELD BY HONBLE JAIPUR TRIBUNAL IN THE CASE OF G L GEMS LTD. VS. ACIT (2010-004-ITR-TRIB-525) THAT EVEN IF BILLS AND VOUCHERS FOR FOOD, LODGING AND TRAVEL WERE NOT AVAILABLE WITH TH E ASSESSEE, ONE SHOULD SEE WHETHER THE EXPENDITURE WAS REASONABLE O R NOT. IF THE EXPENDITURE WAS REASONABLE THEN SAME SHOULD NOT BE DOUBTED PARTICULARLY WHEN THE EXPENSES WERE INCURRED FOR BU SINESS PURPOSE. IN VIEW OF ABOVE FACTS, I DIRECT THE AO TO DELETE THE ADDITION OF RS 1,42,906/- MADE BY HER. THIS GROUND OF APPEAL IS AL LOWED. 20 ITA NO. 377(2)/JP/2012 M/S. VIJAY SOLVEX LIMITED, ALWAR. THUS THE DISALLOWANCE MADE BY THE AO WAS DELETED BY THE LD. CIT (A) BY ACCEPTING THE EXPLANATION OF THE ASSESSEE THAT THE FOREIGN TO UR OF MANAGING DIRECTOR WAS NOT PERSONAL BUT WAS FOR ATTENDING THE CONFERENCE OF IN TERNATIONAL ASSOCIATION OF SEED CRUSHERS IN LONDON. THERE IS NO QUARREL ON THE POI NT THAT IF THE FOREIGN TOUR WAS UNDERTAKEN BY THE MD TO ATTEND THE ALLEGED CONFEREN CE THEN THE SAME WILL BE CONSIDERED AS AN EXPENDITURE INCURRED FOR THE PURPO SE OF BUSINESS OF THE ASSESSEE. HOWEVER, THE ASSESSEE HAS NOT PRODUCED THE DETAILS OF THE TIMING OF THE FOREIGN TOUR UNDERTAKEN BY THE MD AND SPECIFIC DATE OF THE JOURN EY AS WELL AS THE TIMING OF THE CONFERENCE OF INTERNATIONAL ASSOCIATION OF SEED CRU SHERS AS CLAIMED BY THE ASSESSEE. THEREFORE, IF THE FOREIGN VISIT OF THE MD IS MATCHI NG WITH THE CONFERENCE DATE THEN THE CLAIM OF THE ASSESSEE CANNOT BE DOUBTED. HENCE WE DIRECT THE AO TO VERIFY THIS FACT AND THEN CONSIDER THIS ISSUE IN THE LIGHT OF A BOVE OBSERVATION. 23. GROUND NO. 9 IS REGARDING DISALLOWANCE MADE UNDER SECTION 14 RE AD WITH RULE 8D WHICH WAS DELETED BY LD. CIT (A). 24. THE AO NOTED THAT THE ASSESSEE HAS EARNED EXEMP TED DIVIDEND INCOME OF RS.2,16,045/-. ACCORDINGLY, THE AO INVOKED THE PRO VISIONS OF SECTION 14A AND MADE THE DISALLOWANCE AS PER THE FORMULA PROVIDED UNDER RULE 8D OF THE IT RULES. ON APPEAL, THE LD. CIT (A) DELETED THE DISALLOWANCE MA DE BY THE AO. 25. WE HAVE HEARD THE LD. D/R AS WELL AS THE LD. A/ R AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE THAT RULE 8D IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION AS IT IS APPLICABLE FOR THE ASS ESSMENT YEAR 2008-09 AS HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT 328 ITR 81 (BOMBAY) AS WELL AS BY HONBLE SUPREME C OURT IN THE CASE OF CIT VS. WALFORT SHARE & STOCK BROKERS PVT. LTD. 326 ITR 001 (SC). FURTHER, THE LD. A/R HAS 21 ITA NO. 377(2)/JP/2012 M/S. VIJAY SOLVEX LIMITED, ALWAR. SUBMITTED THAT THE DISALLOWANCE MADE BY THE AO FOR THE ASSESSMENT YEAR 2006-07 AS WELL AS FOR THE ASSESSMENT YEAR 2010-11 HAS BEEN DELETED BY THIS TRIBUNAL WHICH HAS BEEN CONFIRMED BY THE HONBLE JURISDICTIONAL HI GH COURT. THE LD. A/R HAS ALSO REFERRED TO THE DETAILS OF AVAILABILITY OF ASSESSEE S OWN INTEREST FREE FUNDS FOR INVESTMENT AND FURTHER CONTENDED THAT THE PROFIT OF THE ASSESSEE DURING THE YEAR IS MORE THAN THE INVESTMENT MADE DURING THE YEAR AND, THEREFORE, NO DISALLOWANCE IS CALLED FOR ON ACCOUNT OF INTEREST EXPENDITURE UNDER SECTION 14A. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATER IAL ON RECORD, WE NOTE THAT THE LD. CIT (A) HAS CONSIDERED THIS ISSUE IN PARA 6.1 AND 6 .2 AS UNDER :- 6.1 I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE APPEL LANT . THE APPELLANT HAS FILED A STATEMENT SHOWING THE ANN UAL INCREASE IN THE INTEREST FREE FUNDS AND INVESTMENT IN THE SHARES, I NCOME THEREOF BOTH WERE TAXABLE AND NON-TAXABLE AND A STATEMENT SHOWIN G THE ANNUAL INCREASE IN THE INTEREST BEARING FUNDS IN THE FORM OF SECURED AND UNSECURED LOANS AND WORKING CAPITAL LIMITS AND THEI R INVESTMENT IN THE CURRENT ASSETS TO EVIDENCE THE FACT THAT THE INVEST MENT IN THE SHARES HAD COME FROM THE NON-INTEREST BEARING FUNDS ON YEA R TO YEAR BASIS FROM FY 1998-99 TO FY 2006-07. IN FY 2000-01, THE A PPELLANT COMPANY HAD MADE INVESTMENTS OF RS 179.1 LAKHS IN SHARES OU T OF OPENING RESERVE AND SURPLUS OF RS 2143.29 LAKHS AND INTERES T FREE FUNDS OF RS 143.33 LAKHS. IN FY 2003-04, THE APPELLANT COMPANY HAD MADE INVESTMENTS OF RS 412.02 LAKHS IN SHARES OUT OF OPE NING RESERVE AND SURPLUS OF RS 3281.59 LAKHS AND INTEREST FREE FUNDS OF RS 423.01 LAKHS. IN FY 2005-06, THE APPELLANT COMPANY HAD MADE INVES TMENTS OF RS 218.47 LAKHS IN SHARES OUT OF OPENING RESERVE AND S URPLUS OF RS 3979.39 LAKHS AND INTEREST FREE FUNDS OF RS 245.3 L AKHS. SIMILARLY IN FY 2006-07, THE APPELLANT COMPANY HAD MADE INVESTMENTS OF RS 268.24 LAKHS IN SHARES OUT OF OPENING RESERVE AND SURPLUS OF RS 4213.43 LAKHS AND INTEREST FREE FUNDS OF RS 688.76 LAKHS. ON THE OTHER HAND, THE UNSECURED LOANS AND WORKING CAPITAL LOANS STOOD INV ESTED IN THE STOCK AND CURRENT DEBTORS. 6.2 IT WAS HELD BY HON'BLE SUPREME COURT IN THE CASE OF CIT VS WALFORT SHARES & STOCK BROKERS PVT LTD (326 ITR 1) THAT FOR ATTRACTING SECTION 14A, THERE HAS TO BE A PROXIMATE CAUSE FOR DISALLOWANCE WHICH IS ITS RELATIONSHIP WITH THE TAX EXEMPT INCOME. THE 22 ITA NO. 377(2)/JP/2012 M/S. VIJAY SOLVEX LIMITED, ALWAR. HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS HERO CYCLES LTD (323 ITR 518) HELD THAT MERELY BECAUSE T HE ASSESSEE HAD INCURRED INTEREST EXPENDITURE ON BORROWED FUNDS, IT WOULD NOT IPSO FACTO INVITE THE DISALLOWANCE U/S 14A UNLESS THERE WAS EVIDENCE TO SHOW THAT SUCH INTEREST BEARING FUNDS HAD BEEN INVE STED IN SHARES WHICH HAD GENERATED DIVIDEND INCOME. HENCE DISALLOW ANCE U/S 14A WAS NOT SUSTAINABLE. IN THE PRESENT CASE, THE INTER EST EXPENSES WERE INCURRED ON WORKING CAPITAL LIMITS AND TERM LOANS T AKEN FROM SBBJ AGAINST HYPOTHECATION OF STOCK, DEBTORS AND PLANT A ND MACHINERY. THE TOTAL WORKING CAPITAL LOAN AND UNSECURED LOANS OUTS TANDING AS ON 31.03.2007 WERE OF RS 5266.48 LAKHS AS AGAINST THAT THE INVESTMENT IN STOCK AND DEBTORS WAS AT RS 10299.84 LAKHS. THUS TH E ENTIRE LOAN WAS UTILIZED FOR THE PURPOSE OF BUSINESS. THE INVESTMEN TS WERE MADE IN SHARES IN THE EARLIER YEARS OUT OF RESERVE & SURPLU S AND OUT OF INTEREST FREE FUNDS. THE APPELLANT WAS HAVING SHARE CAPITAL OF RS 320.19 LAKHS & RESERVE AND SURPLUS OF RS 4902.19 LAKHS WHEREAS T HE INVESTMENT IN SHARES WAS AT RS 1097.34 LAKHS. THUS INTEREST FREE FUNDS OF RS 5222.38 LAKHS AVAILABLE WITH THE APPELLANT COMPANY WERE MUC H MORE THAN THE INVESTMENT OF RS 1097.34 LAKHS IN THE SHARES. UNDER THESE CIRCUMSTANCES, THE AO WAS NOT JUSTIFIED IN MAKING T HE IMPUGNED DISALLOWANCE U/S 14A OF THE I T ACT. I THEREFORE DI RECT THE AO TO DELETE THE ADDITION OF RS 27,53,062/-U/S 14A OF THE I T AC T. THIS GROUND OF APPEAL IS ALLOWED. THUS THE LD. CIT (A) HAS CONSIDERED THE AVAILABILIT Y OF INTEREST FREE FUNDS OF ASSESSEE BEING SHARE CAPITAL, RESERVE AND SURPLUS WHICH IS M UCH MORE THAN THE INVESTMENT IN THE SHARES. FURTHER, WHEN RULE 8D IS NOT APPLICABL E FOR THE YEAR UNDER CONSIDERATION, THE DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPEN SES HAS TO BE MADE ON SOME REASONABLE BASIS. ACCORDINGLY, IN VIEW OF THE ABOV E FACTS AND CIRCUMSTANCES OF THE CASE, WHEN THE ASSESSEE IS HAVING ITS OWN SUFFICIEN T FUNDS THEN NO DISALLOWANCE IS CALLED FOR ON ACCOUNT OF INTEREST EXPENDITURE. AS REGARDS THE DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENSES, WE ARE OF THE V IEW THAT 10% OF THE DIVIDEND INCOME WILL BE A REASONABLE AND PROPER ESTIMATE FOR DISALLOWANCE OF EXPENDITURE ON ACCOUNT OF COMMON INDIRECT ADMINISTRATIVE EXPENSES FOR EARNING THE EXEMPT INCOME UNDER SECTION 14A. HENCE THIS GROUND OF THE REVENUE S APPEAL IS PARTLY ALLOWED. 23 ITA NO. 377(2)/JP/2012 M/S. VIJAY SOLVEX LIMITED, ALWAR. 26. GROUND NO. 10 IS REGARDING AN ADDITION MADE BY THE AO UNDER SECT ION 2(22)(E) OF THE ACT. 27. THE AO HAS NOTED THAT THE ASSESSEE IS HAVING SU BSTANTIAL INTEREST IN THE GROUP COMPANIES FROM WHOM THE ASSESSEE HAS TAKEN LOAN AND ADVANCES. ACCORDINGLY, THE AO HAS INVOKED THE PROVISIONS OF SECTION 2(22)(E) A ND MADE AN ADDITION OF RS. 2,08,35,193/-. ON APPEAL, THE LD. CIT (A) HAS DELE TED THE ADDITION MADE BY THE AO. 28. WE HAVE HEARD THE LD. D/R AS WELL AS THE LD. A/ R AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD. CIT (A) HAS CONSIDERED THIS ISSUE IN PARA 7.1 AS UNDER :- 7.1 I HAVE DULY CONSIDERED THE SUBMISSION OF THE APPELL ANT . I FIND THAT IN THE AY 2006-07, SIMILAR ADDITION OF RS . 10,20,73,725/- MADE ON ACCOUNT OF DEEMED DIVIDEND U/S 2(22)(E) IN THE CASE OF APPELLANT COMPANY WAS DELETED BY HONBLE JAIPUR TRI BUNAL VIDE ITS ORDER ITA NO. 676/JP/2011 DATED 20.01.2012. THE OB SERVATIONS OF THE HONBLE ITAT ON PAGE 41 ARE REPRODUCED AS UNDER: 'AFTER GOING THROUGH THE ORDER OF THE TRIBUNAL AND SUBMISSION OF BOTH THE PARTIES, WE FIND THAT FACTS AND CIRCUMSTAN CES OF THE TRANSACTIONS ARE IDENTICAL TO THE CASE OF M/S DEEPA K VEGPRO PVT. LTD. (SUPRA). IN CASE OF M/S DEEPAK VEGPRO PVT. LTD . ALSO THE ADDITION WAS MADE FOR ASSESSMENT YEAR 2006-07. IN C ASE OF M/S DEEPAK VEGPRO PVT. LTD. WE HAVE ALREADY HELD THAT T HE TRANSACTIONS ARE BUSINESS IN NATURE. THEREFORE A FI NDING HAS ALREADY BEEN GIVEN FOR THE YEAR UNDER CONSIDERATION AS IN THAT CASE ALSO THE ADDITION WAS MADE ON ACCOUNT OF TRANS ACTION WITH THE ASSESSEE IE. M/S VIJAY SOLVEX PVT. LTD. AND OTH ER COMPANY M/S SAURABH AGROTECH. VARIOUS CASE LAWS RELIED UPON BY LD COUNSEL HAVE ALREADY BEEN CONSIDERED BY US WHILE DE CIDING THE APPEAL IN CASE OF M/S DEEPAK VEGPRO PVT. LTD. THE C ASES ON WHICH RELIANCE HAS BEEN PLACED BY LD DR ARE DISTING UISHABLE AS THESE TRANSACTIONS ARE NOT OF LOAN TRANSACTION AND, THEREFORE, THEY ARE NOT APPLICABLE ON THE FACTS OF THE PRESENT CASE. WE HAVE ALREADY HELD THAT TRANSACTIONS ARE OF BUSINESS IN NATURE, THEREFORE, PROVISIONS OF SECTION 2(22)(E) CANNOT BE APPLIED. IN VIEW OF THESE FACTS AND CIRCUMSTANCES AND IN VIEW O F THE DECISION OF TRIBUNAL IN CASE OF SISTER CONCERN FOR THE SAME YEAR IN WHICH WE HAVE HELD THAT TRANSACTIONS ARE BUSINES S IN NATURE, 24 ITA NO. 377(2)/JP/2012 M/S. VIJAY SOLVEX LIMITED, ALWAR. WE UPHOLD THE ORDER OF LD CIT(A). THIS GROUND OF TH E DEPARTMENT ALSO FAILS.' FROM THE PERUSAL OF LEDGER ACCOUNT OF M/S DEEPAK VE GPRO PVT. LTD. AND M/S SAURABH AGROTECH PVT. LTD. IN THE BOOKS OF THE APPELLANT COMPANY, IT IS SEEN THAT THE SAME ARE MUTUAL, OPEN, CURRENT RUNNING ACCOUNTS CONTAINING A LARGE NUMBER OF ENTRIES. AT THE END OF CERTAIN MONTHS, THERE IS DEBIT BALANCE WHEREAS AT THE END OF OTHER MONTHS, THERE IS CREDIT BALANCE. THE VARIOUS TRANSACTIONS ARE ON ACC OUNT OF PURCHASES AND SALES AND BY NO STRETCH OF IMAGINATION, THESE T RANSACTIONS PARTAKE THE CHARACTER OF PAYMENTS BY WAY OF LOANS OR ADVANC ES. THE DEEMING PROVISIONS OF SECTION 2(22)(E) ARE LIMITED TO THE P ARTICULAR PURPOSE FOR WHICH THESE HAVE BEEN ENACTED. THESE CANNOT BE APPL IED TO THE TRANSACTIONS UNDERTAKEN IN THE ORDINARY COURSE OF B USINESS. THE TRANSACTIONS ARE ENTERED OUT OF COMMERCIAL EXPEDIEN CY AND NOT BY WAY OF LOANS OR ADVANCES. SINCE THERE IS NO MATERIAL CH ANGE IN THE FACTS AND CIRCUMSTANCES OF THE YEAR UNDER REFERENCE, I DIRECT THE AO TO DELETE THE ADDITION OF RS 2,08,35,193/- ON ACCOUNT OF DEEM ED DIVIDEND. THIS GROUND OF APPEAL IS ALLOWED. THUS THE LD. CIT (A) HAS DELETED THE ADDITION BY FO LLOWING THE ORDER OF THIS TRIBUNAL FOR THE ASSESSMENT YEAR 2006-07 AND ALSO BY TAKING INTO CONSIDERATION THE FACT THAT THESE AMOUNTS ARE OUTSTANDING DUE TO REGULAR COMMER CIAL TRANSACTIONS BY THE ASSESSEE AND THE SISTER CONCERNS. WE FURTHER NOTE T HAT THE HONBLE JURISDICTIONAL HIGH COURT IN THE ASSESSEES OWN CASE FOR THE ASSES SMENT YEAR 2006-07 HAS CONFIRMED THE ORDER OF THIS TRIBUNAL VIDE JUDGMENT DATED 04.08.2017 IN DBIT APPEAL NO. 169/2012 IN PARA 4 AS UNDER :- 4. ISSUE NO 3 & 4 ARE COVERED IN THELIGHT OF CIRC ULAR DT. 12.6.2017 WHICH WE HAVE REPRODUCED IN TAX APPEAL NO.136/2012 (CIT, ALWAR VS. M/S. DEEPAK VEGPRO PVT LTD.) DECIDED ON 3.8.2017 WH ERE CLAUSE 2 & 3 READS AS UNDER :- 2. THE BOARD HAS OBSERVED THAT SOME COURTS IN THE RECENT PAST HAVE HELD THAT TRADE ADVANCES IN THE NATURE OF COMMERCIAL 25 ITA NO. 377(2)/JP/2012 M/S. VIJAY SOLVEX LIMITED, ALWAR. TRANSACTIONS WOULD NOT FALL WITHIN THE AMBIT OF THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. SUCH VIEWS HAVE ATTAIN ED FINALITY. 2.1. SOME ILLUSTRATIONS/ EXAMPLES OF TRADE ADVANCES / COMMERCIAL TRANSACTIONS HELD TO BE NOT COVERED UNDE R SECTION 2(22)(E) OF THE ACT ARE AS FOLLOWS : I. ADVANCES WERE MADE BY A COMPANY TO A SISTER CONCERN AND ADJUSTED AGAINST THE DUES FOR JOB WORK DONE BY THE SISTER CONCERN. IT WAS HELD THAT AMOUNTS ADVANCED F OR BUSINESS TRANSACTIONS DO NOT FALL WITHIN THE DEFINI TION OF DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. (CIT VS. CREATIVE DYEING & PRINTING PVT. LTD., DELHI HIG H COURT). II. ADVANCE WAS MADE BY A COMPANY TO ITS SHAREHOLDER TO INSTALL PLANT AND MACHINERY AT THE SHAREHOLDERS PR EMISES TO ENABLE HIM TO DO JOB WORK FOR THE COMPANY SO THA T THE COMPANY COULD FULFILL AN EXPORT ORDER. IT WAS HELD THAT AS THE ASSESSEE PROVED BUSINESS EXPEDIENCY, THE ADVANC E WAS NOT COVERED BY SECTION 2(22)(E) OF THE ACT. (CI T VS. AMRIK SINGH, P & H HIGH COURT). III. A FLOATING SECURITY DEPOSIT WAS GIVEN BY A COMPANY TO ITS SISTER CONCERN AGAINST THE USE OF ELECTRICITY GENER ATORS BELONGING TO THE SISTER CONCERN. THE COMPANY UTILIZ ED GAS AVAILABLE TO IT FROM GAIL TO GENERATE ELECTRICITY A ND SUPPLIED IT TO THE SISTER CONCERN AT CONCESSIONAL R ATES. IT WAS HELD THAT THE SECURITY DEPOSIT MADE BY THE COMP ANY TO ITS SISTER CONCERN WAS A BUSINESS TRANSACTION AR ISING IN THE NORMAL COURSE OF BUSINESS BETWEEN TWO CONCERNS AND THE TRANSACTION DID NOT ATTRACT SECTION 2(22)(E) OF THE ACT. (CIT, AGRA VS. ATUL ENGINEERING UDYOG, ALLAHABAD HI GH COURT). 3. IN VIEW OF THE ABOVE IT IS, A SETTLED POSITION T HAT TRADE ADVANCES, WHICH ARE IN THE NATURE OF COMMERCIAL TRA NSACTIONS WOULD NOT FALL WITHIN THE AMBIT OF THE WORD ADVANC E IN SECTION 2(22)(E) OF THE ACT. ACCORDINGLY, HENCEFORTH, APPEA LS MAY NOT BE FILED ON THIS GROUND BY OFFICERS OF THE DEPARTME NT AND THOSE ALREADY FILED, IN COURTS/TRIBUNALS MAY BE WITHDRAWN /NOT PRESSED UPON. 26 ITA NO. 377(2)/JP/2012 M/S. VIJAY SOLVEX LIMITED, ALWAR. IN VIEW OF THE EARLIER ORDER OF THIS TRIBUNAL AS WE LL AS THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE WH EREIN THE TRANSACTIONS OF OUTSTANDING HAVE BEEN CONSIDERED AS COMMERCIAL TRAN SACTIONS BETWEEN THE PARTIES. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT (A) QUA THIS ISSUE. 29. IN THE RESULT, APPEAL OF THE REVENUE AS WELL AS CROSS OBJECTION OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 03/04/20 18. SD/- SD/- ( FOE FLAG ;KNO ) ( FOT; IKY JKWO (VIKRAM SINGH YADAV ) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 03/04/2018. DAS/ VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- THE ACIT, CIRCLE-2, ALWAR. 2. THE RESPONDENT M/S. VIJAY SOLVEX LTD., ALWAR. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 377(2)/JP/2012) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR 27 ITA NO. 377(2)/JP/2012 M/S. VIJAY SOLVEX LIMITED, ALWAR.