Appeal Details
Counselvise Citation
[2020] 110 COUNSELVISE.COM (IT) 8010 (ITAT-CUTTACK)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
2 year(s) 10 month(s) 17 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
26-08-2020
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
DB
Assessment Year
2012-2013
Appeal Filed On
09-10-2017
Judgement Text
P A G E 1 | 68 IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE SHRI CHANDRA MOHAN GARG , JUDICIAL MEMBER AND LAXMI PRASAD SAHU, ACCOUNTANT MEMBER ITA NO S . 389 & 390 /CTK/201 7 ASSESSMENT YEAR S : 2012 - 2013 & 2013 - 14 ACIT, ROURKELA CIRCLE, ROURKELA VS. SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA PAN/GIR NO. ACCPP 6164 E (APPELLANT ) .. ( RESPONDENT ) ITA NOS.393 & 394/CTK/2017 ASSESSMENT YEARS : 2012 - 2013 & 2013 - 14 SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA VS. ACIT, ROURKELA CIRCLE, ROURKELA PAN/GIR NO.ACCPP 6164 E (APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY : SHRI S. C.BHADRA , CA REVENUE BY : SHRI M.K.GAUTAM,, CIT DR DATE OF HEARING : 20 / 0 7 / 20 20 DATE OF PRONOUNCEMENT : 26 / 0 8 /20 20 O R D E R PER C.M.GARG,JM TH ESE ARE CROSS APPEAL S FILED BY THE REVENUE AND ASSESSEE AGAINST THE SEPARATE ORDER S OF THE CIT(A), SAMBALPUR DATED 3.7.2017 FOR THE ASSESSMENT YEAR S 2012 - 13 & 2013 - 14 . SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 2 | 68 2. SINCE THE ISSUES IN BOTH THE CROSS APPEALS ARE COMMON AND IDENTICAL, THEREFORE THEY ARE CLUBBED TOGETHER AND ARE BEING DISPOSED OF BY THIS SINGLE ORDER FOR THE SAKE OF CONVENIENCE. 3. FIRST, WE TAKE UP FOR OUR ADJUDICATION THE APPEALS FILED BY THE REVENUE. 4. GROUNDS RAISED IN A.Y,. 2012 - 2013 READ AS UNDER: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) IS JUSTIFIED IN DELETING THE ADDI TION MADE BY ASSESSING OFFICER TOWARDS 'DISALLOWANCE OF COMMISSION' TO THE TUNE OF RS.3,92,80,961/ - . 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) IS JUSTIFIED IN DELETING THE ADDITION MADE BY ASSESSING OFFICER UNDER THE HEAD 'DISALLOWANCE OF PUNITIVE CHARGES' TO THE TUNE OF RS.34,25,485/ - . 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) IS JUSTIFIED IN DELETING THE ADDITION MADE BY ASSESSING OFFICER UNDER THE HEAD 'DISALLOWANCE OF INT EREST' TO THE TUNE OF RS.37,17,885/ - UTILISED FOR GIVING INTEREST - FREE LOANS. 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) IS JUSTIFIED IN DELETING THE ADDITION MADE BY ASSESSING OFFICER UNDER THE HEAD 'DISALLOWANCE OF PERIPHERAL DEVELOPMENT CHARGES' TO THE TUNE OF RS.3,99,28,438/ - . 5. GROUNDS RAISED IN A.Y,. 2013 - 14 READ AS UNDER: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) IS JUSTIFIED IN DELETING THE ADDITION MADE BY ASSESSING OFFICER TOWARDS 'DISALLOWANCE OF DONATION TO THE TUNE OF RS.1,75,00,000/ - . SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 3 | 68 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) IS JUSTIFIED IN DELETING THE ADDITION MADE BY ASSESSING OFFICER UNDER THE HEAD ' DISALLOWANCE OF COMMISSION' TO THE TUNE OF RS.85,59,687/ - . 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) IS JUSTIFIED IN DELETING THE ADDITION MADE BY ASSESSING OFFICER UNDER THE HEAD 'DISALLOWANCE OF INTEREST' TO THE TUNE OF RS.2,14,37,021/ - UTILISED FOR GIVING INTEREST - FREE LOANS. 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) IS JUSTIFIED IN DELETING THE ADDITION MADE BY ASSESSING OFFICER UNDER THE HEAD 'DISALLOWANCE OF PERIPHERAL DEVELOPMENT CHARGES' TO THE TUNE OF RS.1,85,46,330/ - . 6. GROUND NO.1 OF APPEAL FOR THE ASSESSMENT YEAR 2012 - 13 AND GROUND NO.2 OF APPEAL FOR THE ASSESSMENT YEAR 2013 - 14 IS COMMON EXCEPT VARIANCE OF QUANTUM OF ADDITION MADE BY THE AO. HENCE, WE TAKE INTO CONSIDERATION THE GROUND NO.1 OF APPEAL FOR THE ASSESSMENT YEAR 2012 - 13. 7. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER OBSERVED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS CLAIMED COMMISSION EXPENSES OF RS .3,92,80,961/ - . THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO FURNISH DETAILS OF PERSONS TO WHOM THE COMMISSION WAS PAID. IN REPLY, ASSESSEE FURNISHED THE LIST OF PERSONS TO WHOM COMMISSION WAS PAID. ACCORDINGLY, NOTICES WERE SENT BY THE AO TO THESE PER SONS TO VERIFY THE GENUINENESS OF COMMISSION PAYMENT. THE ASSESSING OFFICER MADE CORRESPONDENCE WITH THE COMMISSION AGENTS AND REQUIRED THEM TO FURNISH NAME AND ADDRESS OF BUYERS FOR WHOM THEY HAVE EXECUTED COMMISSIONING WORK ALONGWITH NATURE OF SERVICES R ENDERED AND THE BASIS OF CLAIM OF SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 4 | 68 COMMISSION. SOME OF THE PERSONS REPLIED TO HAVE BEEN RECEIVED THE COMMISSION AND SOME OF THE PERSONS DID NOT RESPOND TO THE QUERY OF THE AO. THE AO ALSO ISSUED LETTERS TO THE BUYER FROM WHO TRANSACTIONS WERE MADE AND CO MMISSION WAS PAID TO COMMISSION AGENTS. THE BUYERS HAVE ALSO DENIED TO HAVE INVOLVED ANY AGENTS IN THE TRANSACTIONS. FROM THE ABOVE THE AO WAS OF THE OPINION THAT THE ASSESSEE HAS NOT MADE ANY COMMISSION EXPENSES TO ARRANGE BUYERS FOR SALE OF IRON ORES. THEREFORE, THE AO DISALLOWED THE SAME AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 8 . ON APPEAL BEFORE THE CIT(A), THE ASSESSEE SUBMITTED AS UNDER: THE ENTIRE AMOUNT OF COMMISSION EXPENSES OF RS.3,92,80,961/ - HAS BEEN DISALLOWED BY THE LEARNED AO. THE ASSESSE E RUNS BUSINESS OF MINING AND POWER GENERATION. IN HER MINING BUSINESS SHE ENGAGES AGENTS TO MONITOR ORDERS FROM BUYERS AND TO OVERSEE SMOOTH EXECUTION THEREOF, IN ORDER TO AVOID HASSLES. THE WHOLE PROCESS OF EXECUTING SUPPLY INVOLVES PLANNING OF DISPATCHES TO VARIOUS LOCATIONS, KEEPING TRACK OF VARIOUS MODES OF TRANSPORT, PROPER RECEIPT AT THE BUYERS' SITE, ACCEPTANCE OF MATERIALS AS PER SPECIFICATIONS ETC. AS SUCH THE AGENTS PROVIDE THEIR SERVICES AND ARE PAID COMMISSION AT PRE - DETERMINED RATE . AFTER BEING SATISFIED WITH THE SERVICE RENDERED, THE ASSESSE E PAYS THEM, AFTER DEDUCTING INCOME TAX AT SOURCE. SOME OF THE AGENTS ARE ALSO REGISTERED UNDER THE PROVISIONS OF SERVICE TAX AND CHARGE ACCORDINGLY. ALL OF THE AGENTS ARE INCOME TAX ASSESSES. ALL DETAILS IN RESPECT OF THE AGENTS WERE PROVIDED BY THE ASSESSE E DURING THE ASSESSMENT STAGE WHICH WERE FULLY VERIFIABLE. HOWEVER, THE ENTIRE AMOUNT OF EXPENDITURE WAS DISALLOWED ON THE GROUND THAT SOME OF THE BUYERS DENIED THE INVOLVEMENT OF AGENTS. AS SUBMITTED, IT WAS THE ASSESSE E WHO ENGAGED THE AGENTS AND NOT THE BUYERS. IT WAS THE ASSESSE E , WHO PAID THE AGENTS AND NOT THE BUYERS. AS SUCH, IT IS HUMBLY SUBMITTED THAT THE BUYERS DIDN'T HAVE ANY STAKE IN THE ASSESSE'S BUSINESS POLICIES AND THEIR SUBMIS SION THAT NO AGENTS WERE INVOLVED HARDLY GIVES ANY SCOPE TO DISBELIEVE THE EXPENDITURE GENUINELY INCURRED BY THE ASSESSE E . SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 5 | 68 THE LEARNED AO ALSO OBSERVED THAT SOME OF THE AGENTS WERE HUFS AND HUFS ARE NOT PHYSICAL ENTITIES TO ACT AS COMMISSION AGENTS. IT IS HUMBLY SUBMITTED THAT THE ASSESSE E ENGAGED INDIVIDUALS AND COMPANIES AS AGENTS. SOME OF THE INDIVIDUALS SUBMITTED BILLS AS HUFS. THE ASSESSE E HAS NO BUSINESS TO ENQUIRE ABOUT THE STATUS OF THE PERSON CONCERNED AND AS FAR AS THE PERSON CONCERNED HAD REN DERED SERVICE, IT HARDLY MATTERS, IF HE ACTED ON BEHALF OF HIS HUF. IT IS FURTHER SUBMITTED THAT IF COMPANIES CAN RENDER SERVICE AS AGENTS, HUFS TOO CAN DO THAT. 9 . THE LD CIT(A) DELETED THE DISALLOWANCE MADE BY THE AO, INTER ALIA, OBSERVING AS UNDER: 2.2 I HAVE CONSIDERED THE MATTER CAREFULLY WITH REFERENCE TO THE FACTS ON RECORD. THE AO HAS DISALLOWED THE COMMISSION PAYMENTS OF RS.3,92,80,961/ - MAINLY ON THE GROUNDS THAT THE BUYERS HAVE DENIED THE INVOLVEMENT OF ANY AGENTS IN THE TRANSACTIONS IN QUESTION AND SOME OF THE COMMISSION AGENTS ARE HUFS WHO CANNOT RENDER SERVICES AS COMMISSION AGENTS NOT BEING INDIVIDUALS. THE ASSESSEE'S CONTENTION IS THAT THE COMMISSION AGENTS WERE ENGAGED BY HER TO FACILITATE TRANSACTIONS WITH THE BUYER S INCLUDING REALIZATION OF SALE PROCEEDS AND THAT IS THE REASON WHY THE BUYERS ARE NOT AWARE OF THE COMMISSION AGENTS. MOREOVER, THE COMMISSION AGENTS HAVE NOT BEEN PAID BY THE BUYERS BUT BY THE ASSESSEE HERSELF. ON THE FACTS OF THE CASE, THE CONTENTION OF THE ASSESSEE APPEARS TO BE CORRECT. IT IS NOT THAT COMMISSION PAYMENTS HAVE BEEN MADE FOR THE FIRST TIME DURING THE CURRENT PREVIOUS YEARS. COMMISSION PAYMENTS HAVE BEEN MADE IN EARLIER YEARS ALSO AND NO EYEBROWS HAVE BEEN RAISED IN THE ASSESSMENT. ALL TH E COMMISSION AGENTS ARE FOUND TO BE ASSESSED TO TAX AND FROM THE COMMISSION PAYMENTS TAX HAS BEEN DULY DEDUCTED AT SOURCE U/S,194H. IN THE CIRCUMSTANCES, THEREFORE, TO TREAT THE COMMISSION PAYMENTS AS BOGUS ON FLIMSY GROUNDS IS NOT AT ALL WARRANTED. IT IS A FACT THAT THE COMMISSION AGENTS HAVE BEEN PAID COMMISSION BY THE ASSESSEE FOR SERVICES RENDERED AND THE AO HAS NOT BROUGHT ANY EVIDENCE ON RECORD TO SHOW THAT THEY HAVE NOT RENDERED ANY SERVICE. SO FAR AS PAYMENTS TO COMMISSION AGENTS WHOSE STATUS IS SHO WN AS HUF ARE CONCERNED, IT IS PLEADED THAT THE ASSESSEE CANNOT QUESTION THE STATUS OF THE COMMISSION AGENTS ESPECIALLY WHEN BILLS WERE RAISED FOR THE SERVICES RENDERED AS PER UNDERSTANDING. I TEND TO AGREE WITH THE CONTENTION OF THE ASSESSEE IN THIS REGAR D. ONLY BECAUSE THE PAYMENTS OF COMMISSION HAVE BEEN MADE TO HUFS, THE SAME CANNOT BE CONSIDERED TO BE NOT GENUINE SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 6 | 68 UNLESS IT IS PROVED THAT THE COMMISSION PAYMENT HAS BEEN MADE WITHOUT RENDERING ANY SERVICES. MOREOVER, IT IS FOR THE AO TO FIND OUT WHETHER THE COMMISSION RECEIPTS COULD BE ACCEPTED AS INCOME OF THE HUFS OR ITS KARTA/MEMBER AND TAKE APPROPRIATE ACTION IN THE HANDS OF THE HUFS. THE ASSESSEE CANNOT BE PENALIZED BY WAY OF DISALLOWANCE OF COMMISSION PAYMENT IF THE PAYMENT HAS BEEN MADE FOR SERVICE S ACTUALLY RENDERED. THE AO HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO SHOW THAT THE COMMISSION PAYMENT IN QUESTION IS BOGUS OR IS A PLOY ADOPTED BY THE ASSESSEE TO REDUCE THE TAXABLE PROFIT. 2.3 THE AO IN THE ASSESSMENT ORDER HAS GIVEN A LIST OF COMMISS ION AGENTS, LETTERS ISSUED TO WHOM HAVE NOT BEEN REPLIED. SINCE ALL THE RELEVANT DETAILS RELATIN G TO COMMISSION PAYMENTS WERE GIVEN BY THE ASSESSEE, THE ONUS CAST ON THE ASSESSEE APPEARS TO HAVE BEEN FULLY DISCHARGED. THEREAFTER, IT WAS FOR THE AO TO COMPEL THE COMMISSION AGENTS TO REPLY TO HIS LETTERS BY RESORTING TO VARIOUS PENAL PROVISIONS OF THE ACT. THE ASSESSEE CANNOT BE MADE TO SUFFER FOR THE FAILURE ON THE PART OF THE COMMISSION AGENTS TO REPLY TO THE AO'S LETTERS. MOREOVER, THE ASSESSEE COULD HAVE BEEN ASKED TO PRODUCE CONFIRMATIONS FROM THEM. IN ANY CASE, 3 MAJOR COMMISSION AGENTS HAVE CONFIRMED ABOUT RECEIPT OF COMMISSION PAYMENTS AND TOTAL COMMISSION PAYMENTS INVOLVED IN THOSE CONFIRMATIONS COM ES TO RS.3,22,31,516/ - AS AGAINST THE TOTAL COMMISSION PAYMENTS OF RS.3,92,80,961/ - . 2.4 IT IS ALSO FOUND THAT IN CASES OF COMMISSION PAYMENTS, TDS WAS DEDUCTED AS PER LAW AND DEPOSITED INTO THE GOVERNMENT ACCOUNT. SERVICE TA> ALSO DULY PAID WHEREVER REQUIRED ON THE COMMISSIO N PAYMENTS. THE ASSESSEE - ALSO FILED BEFORE THE AO COPIES OF THE INCOME - TAX RETURNS BEING FILED BY TH E COMMISSION AGENTS FROM YEAR TO YEAR. IT IS ALSO NOT THE CASE OF THE ASSESSEE THAT SOME COMMISSION PAYMENTS HAVE BEEN MADE FOR THE FIRST TIME DURING THE R ELEVANT PREVIOUS YEAR. COMMISSION IS FOUND TO HAVE BEEN PAID IN EARLIER YEARS ALSO. 10. THE LD CIT(A) ALSO REFERRED TO THE DECISION OF CIT(A) - 2 FOR THE ASSESSMENT YEAR 2010 - 2011 IN ASSESSEES OWN CASE ORDER DATED 28.1.2015, WHEREIN, SIMILAR DISALLOWANCE WAS MADE BY THE AO DELETED BY THE CIT(A). 11. LD CIT DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER. HE SUBMITTED THAT IT IS NOT CLEAR FROM THE REPLY OF THE ASSESSEE AS WELL AS THE SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 7 | 68 ORDER OF THE LD CIT(A) THAT WHAT KIND OF SERVICES HAVE RENDERED BY THE COMMISSION AGENTS. HE SUBMITTED THAT WHEN THE BUY ERS HAVE SPECIFICALLY DENIED TO HAVE ENGAGED BY THE ASSESSEE ANY MIDDLE PERSONS FOR BUYING THE IRON ORE, THEN HOW CAN IT POSSIBLE THAT COMMISSIONS HAVE BEEN PAID TO THEM. LD CIT DR RELIED UPON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: I) SURESH KUMAR G. HUND IA VS ACIT, 53 TAXMANN.COM 29 (BOM) II) SCHNEIDER ELECTRIC INDIA LTD VS CIT, 171 TAXMAN 177 (DELHI) III) PRINTER HOUSE PVT LTD VS DCIT(2017) 86 TAXMANN.COM 45 (DELHI TRIB) 12. REPLYING TO ABOVE, LD A.R. SUPPORTED THE ORDER OF THE LD CIT(A) AND ALSO REL IED ON THE DECISION OF THIS BENCH IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2010 - 11 ORDER DATED 31.8.2017 AND ALSO THE DECISION IN THE CASE OF TARINI MINERALS PVT LTD. IN ITA NO.341/CTK/2017 ORDER DATED 4.9.2019, ON IDENTICAL FACTS A WHEREIN, THE ADDITION MADE BY THE AO AND DELETED BY THE CIT(A) HAS BEEN UPHELD BY THE TRIBUNAL . LD A.R. SUBMITTED THAT THE JUDGMENTS RELIED UPON BY LD CIT DR ARE DISTINGUISHABLE ON FACTS, HENCE, HAVE NO APPLICATION IN THE CASE OF THE ASSESSEE. THEREFOR E, HE URGED THAT THE FINDING OF LD FIRST APPELLATE AUTHORITY DELEI T NG THE ADDITION RECORDED BY THE LD CIT(A) BE UPHELD FOR BOTH THE ASSESSMENT YEARS. 13. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE RECORD PLACED BEFORE THE TRIBUNAL, INTER ALIA, DECIS IONS OF THE TRIBUNAL RELIED UPON BY LD SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 8 | 68 COUNSEL FOR THE ASSESSE E AND ORDER OF THIS BENCH DATED 31.8.2017 IN ITA NO.142/CTK/2015 FOR A.Y. 20 10 - 11 IN ASSESSEES OWN CASE/APPEAL FILED BY THE REVENUE. 14. ON VIGILANT PERUSAL OF DECISION OF HONBLE HIGH COURT OF BOMBAY IN THE CASE OF SURESH KUMAR G. HUNDIA (SUPRA ) , WE FIND THAT IN THIS CASE THE TRIBUNAL RECORDED FINDING THAT THE ASSESSEE WHO WAS IN THE BUSINESS OF IMPORT & EXPORT OF BULLION, CLAIMED DEDUCTIO N OF COMMISSION PAID THE HBL ON THE GROUND THAT SERVICES OF DIRECTOR OF HBL WERE USED FOR PURCHASING BULLION. HOWEVER, ON ENQUIRIES MADE BY THE TRIBUNAL, ASSESSEE STATED THAT NO SUCH COMMISSION WAS PAID IN EARLIER OR SUBSEQUENT YEAR TO HBL AND THE ASSESS EE COULD HAVE PROCURED/IMPORTED BULLION WITHOUT ASSISTANCE OF ANY AGENT. THE ASSESSEE COULD NOT PRODUCE DIRECTOR OF HB L AND THERE WAS NO SUPPORTIVE EVIDENCE. KEEPING IN VIEW ABOVE FACTS AND CIRCUMSTANCES, WHEN, WE EVALUATED FACTS AND CIRCUMSTANCES, OF TH E PRESENT CASE, THEN WE FIND THAT THE ASSESSEE IS CONTINUOUSLY CLEARING PAYMENT OF COMMISSION NOT ONLY DURING PRESENT ASSESSMENT YEAR BUT ALSO DURING EARLIER AND SUBSEQUENT ASSESSMENT YEARS. IN THE PRESENT CASE, COMMISSION WAS PAID BY THE ASSESSEE, WHO IS A SELLER, DIRECTLY TO THE AGENTS FOR FACILITATING DIFFERENT SERVICES IN THE PROCESS OF TRANSFER OF MATERIALS TO VARIOUS DESTINATIONS OF BUYERS/PURCHASERS. THE LD CIT DR COULD NOT CONTROVERT THE FACT THAT IN THE LINE OF BUSINESS OF PRESENT ASSESSEE, AGEN T IS NOT VISITING TO BUYERS AND SOME TIMES KNOWN PERSON OF THE COMPANY AS THE BUYER IS NOT PAYING ANY SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 9 | 68 COMMISSION TO SUCH AGENTS. IN THE CASE IN HAND, WE ARE IN AGREEMENT WITH THE CONTENTION OF LD A.R. THAT THE SERVICES OF SUCH AGENTS WERE NOT UTILISED FOR PURCHASING OF ANY MATERIAL BUT THE SAME WAS USED FOR FACILITATING THE SUPPLY CHAIN TO REACH THE MATERIAL TO THE BUYERS PLACE. HENCE, FACTS AND CIRCUMSTANCES OF THAT CASE ARE QUITE DISSIMILAR AND DISTINCT, THUS NO APPLICATION IN THE PRESENT CASE. THU S, WE FOLLOW THE SAME. 15. SIMILAR CLAIM WAS DELETED BY THE LD CIT(A) FOR A.Y. 2010 - 2011 IN ASSESSEES OWN CASE/APPEAL IN ITA NO.142/CTK/2017 ORDER DATED 31.8.201 7 WITH FOLLOWING OBSERVATIONS. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER OBSERVED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS SHOWN TURNOVER OF RS.458,16,44,870/ - AS AGAINST TURNOVER SHOWN IN THE PRECEDING YEAR AT RS.260,77,44,068/. HE ALSO OBSERVED THAT THE GROSS PROFIT FOR THE YEAR UNDER CONS IDERATION WAS SHOWN AT 54.18% AND THE NET PROFIT AT 45.94%. HE OBSERVED THAT ON VERIFICATION OF AUDITED P & L A/A, IT IS OBSERVED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.14,13,86,450/ - UNDER THE HEAD 'BROKERAGE & COMMISSION AS AGAINST CLAIM OF RS.6 ,35,61,976/ - MADE IN THE PRECEDING YEAR . THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO FURNISH DETAILS OF EXPENSES. IN REPLY, ASSESSEE FURNISHED THE COPY OF BILLS RAISED BY THE COMMISSION AGENTS. THE ASSESSING OFFICER MADE CORRESPONDENCE WITH THE COMMIS SION AGENTS AND REQUIRED THEM TO FURNISH NAME AND ADDRESS OF BUYERS FOR WHOM THEY HAVE EXECUTED COMMISSIONING WORK ALONGWITH NATURE OF SERVICES RENDERED AND THE BASIS OF CLAIM OF COMMISSION. IN SOME OF THE CASES, COMMISSION AGENTS IN REPLY ONLY FURNISHED T HE NAME OF THE BUYER WITHOUT THE ADDRESS. IN SOME OTHER CASES, LETTERS ISSUED TO COMMISSION AGENTS U/S. 133(6) OF IT.ACT, 1961 WERE RETURNED UNSERVED BY THE POSTAL AUTHORITIES WITH REMARK NOT KNOWN/LEFT/ADDRESSEE REFUSED. IN SOME CASES, COMMISSION AGENT S DID NOT MENTION ANYTHING ABOUT THE AGENTS AND ONLY PLEADED THAT THEY HAVE EXECUTED WORK ONLY FOR INDRANI PATNAIK. THEREAFTER, THE ASSESSING OFFICER OBSERVED THAT IT IS SEEN THAT WHILE MAKING PAYMENT TOWARDS COMMISSION, ASSESSEE HAS DEDUCTED TAX AT SOURC E AS REQUIRED U/S.194H OF THE ACT. HE OBSERVED THAT MERE DEDUCTION OF TAX AT SOURCE DOES NOT ESTABLISH THAT THE CLAIM OF EXPENSES IS GENUINE. BY MAKING PROVISION OF TDS, THE ASSESSEE ONLY LOSES 10% OF THE EXPENSES, WHEREAS CLAIM OF EXPENSES GIVES THE BEN EFIT OF 90% TO THE ASSESSEE. HE FURTHER OBSERVED THAT COMMISSION AGENTS AGAINST WHOM TAX HAS BEEN DEDUCTED AT SOURCE ARE BIFURCATING THE COMMISSION INCOME AND REFLECTING THE SAME IN SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 10 | 68 THEIR INDIVIDUAL CAPACITY AS WELL AS IN THE CAPACITY OF HUF AND ALSO IN T HE NAME OF FAMILY MEMBERS TO KEEP THE INCOME BELOW TAXABLE LIMIT. LASTLY, HE OBSERVED THAT THE COMMISSION AGENTS ARE GENERATING REFUND THROUGH THIS TDS AMOUNT. FURTHER, THE ASSESSING OFFICER OBSERVED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE SITUATION WAS ALSO CONFRONTED TO THE ASSESSEE IN RESPONSE TO WHICH THE ASSESSEE STATED THAT ALL THE COMMISSION AGENTS ARE REGULAR ASSESSEE AND THEIR RESPECTIVE STATUS HAS NO RELEVANCE WITH THE ASSESSEES BUSINESS. THE ASSESSING OFFICER OBSERVED THAT IT IS FURTHER SEEN THAT THE ASSESSE HAS PAID COMMISSION TO CORPORATE ASSESSEE WHO ARE LOSS MAKING AND SELF/ASSESSMENT TAX DEFAULTER. THE ASSESSEE HAS MADE TDS AND SERVICE TAX AND THEN ALSO IT IS BENEFICIAL FOR THE COMMISSION AGENTS AS THEY HAVE NEVER RENDERED ANY SERVICES AND CONSUMING TDS COMPONENTS. THEREFORE, HE HELD THAT IT IS ESTABLISHED FACT THAT COMMISSION AGENTS HAVE NEVER RENDERED ANY SERVICES TO THE ASSESSEE AND SIMPLY RAISED BILLS IN REGARD TO COMMISSION ON WHICH MERE PROVISION OF TDS WAS MADE TO SU STAIN THE CLAIM OF COMMISSION EXPENSES. THE COMMISSION AGENTS ARE PROVIDING ACCOMMODATION ENTRY TO THE ASSESSEE BY WHICH, THE ASSESSEE COULD ABLE TO INFLATE THE EXPENSES BY WAY OF COMMISSION. ACCORDINGLY, HE MADE CATEGORY WISE DISALLOWANCE AS UNDER: I) CATEGORY - 1 (BUYERS HAVE DENIED) :RS. 5,08,01,314 II) CATEGORY - II (LETTERS SENT TO BUYERS UNSERVED): RS. 55,56,819 III) CATEGORY - III (BUYERS NOT COMPLIED THOUGH SERVED)RS69,14,054 IV) CATEGORY - IV( AGENT NOT FURNISHED BUYERS NAME)RS. 29,21,476 V) CATEGORY - V (HUF CONCERNS) RS. 47,17,304 RS.7,09,10,967 4. ON APPEAL BEFORE THE CIT(A), THE ASSESSEE SUBMITTED AS UNDER: 1. COMMISSION ON SALES: RS. 7,09,10,967/ - HAVE BEEN DISALLOWED UNDER THIS HEAD, ON VARIOUS GROUNDS, AS UNDER: A. RS. 5,08,01,314/ - HAVE BEEN DISALLOWED ON THE GROUND THAT SOME BUYERS STATED THAT THEY MADE DIRECT PURCHASE FROM THE ASSESSEE. AS SUBMITTED BY THE ASSESSEE DURING ASSESSMENT PROCEEDINGS, T HE ASSESSEE HAD ENGAGED THE AGENTS TO LOOK AFTER ITS INTEREST WITH A VIEW TO SMOOTHEN THE WHOLE PROCESS OF SUPPLY OF MATERIALS TO VARIOUS PARTIES. ON THE OTHER HAND, THE BUYERS HAD NOT APPOINTED THE AGENTS, NOR THEY PAID TO THEM, AS SUCH THEIR DENIAL AS RE GARDS INVOLVEMENT OF AGENTS, WITHOUT ANY FINANCIAL INVOLVEMENT ON THEIR PART, IT IS HUMBLY SUBMITTED, CANT NEGATE THE EXPENDITURE INCURRED BY THE ASSESSEE. B. RS.55,56,819/ - HAVE BEEN DISALLOWED ON THE GROUND THAT SOME LETTERS ISSUED BY THE DEPARTMENT WERE RETURNED UNSERVED. THE ASSESSEE HAD PROVIDED ADDRESSES OF THE AGENTS AND BUYERS, SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 11 | 68 AS AVAILABLE WITH IT. IT ALSO PROVIDED COPIES OF THE ACKNOWLEDGEMENTS OF RETURNS SUBMITTED BY THE AGENTS, WHICH CARRY THEIR ADDRESSES, PAN., DETAILS OF JURISDI CTIONAL ASSESSING OFFICERS ETC. IF DUE TO SOME REASON, THE LETTERS WERE RETURNED UNSERVED, IT IS SUBMITTED, THE APPELLANT WAS NOT AT FAULT. C. RS.69,14,054/ - HAVE BEEN DISALLOWED ON THE GROUND THAT THE DEPARTMENT DIDNT RECEIVE ANY COMMUNICATION FROM THE AGEN TS/BUYERS. THE ASSESSEE REITERATES ITS STAND THAT IT PROVIDED ALL NECESSARY DETAILS OF THE AGENTS AND BUYERS AND IT MAY NOT BE TREATED TO BE AT FAULT FOR THEIR FAILURE TO RESPOND TO THE DEPARTMENTAL NOTICES. RS.29,21,476/ - HAVE BEEN DISALLOWED ON THE GROU ND THAT THE AGENTS FAILED TO FURNISH NAMES OF BUYERS. IT IS HUMBLY SUBMITTED THAT THE ASSESSEE SUBMITTED ALL DETAILS BEFORE THE LD AO INCLUDING BILLS RAISED BY THE GENTS, COPIES OF THEIR RETURNS, DETAILS OF SERVICE TAX PAID, WHEREVER APPLICABLE, DETAILS O F TAX DEDUCTED AT SOURCE , DETAILS OF BUYERS ETC AND AS SUCH IT DISCHARGED ITS ONUS AS REGARD THE GENUINITY OF THE EXPENDITURE INCURRED BY IT. 5. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITION. 6. LD D.R. SUPPORTED THE ORDER OF THE ASSESSING OFFICER WHEREAS LD A.R. FULLY JUSTIFIED THE ORDER OF THE CIT(A). 7. WE HAVE HEARD RIVAL SUBMISSIONS, PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE CIT(A) DELETED THE DISALLOWANCE OF RS.7,09,10,967/ - OUT OF TOTAL COMMISSION PAYMENT OF RS.14,13,86,450/ - BY OBSERVING AS UNDER I HAVE CONSIDERED THE CONTENT AND SUBSTANCE OF THE IMPUGNED ASSESSMENT ORDER AND THE GROUNDS OF APPEAL PREFERRED AND THE ADDITIONAL SUBMISSIONS F ILED BY THE APPELLANT, AND ACCORDINGLY DECIDE AS UNDER: A) IT IS CLEAR FROM THE OUTSET THAT THE AO HAS NOT CORRECTLY UNDERSTOOD THE MEANING AND IMPORT OF THE TERM AGENT. IT IS NOT NECESSARY THAT AN AGENT RECEIVING COMMISSION PAYMENTS HAS TO ALWAYS BE A PHYSICAL GO - BETWEEN BETWEEN THE PRINCIPAL (THE APPELLANT IN THE INSTANT CASE) AND HIS/HER/ITS CUSTOMERS BEING BUYERS. AN AGENT CAN CARRY OUT THE BUSINESS OF PROSPECTING FOR CLIENT - BUYERS WHICH WOULD MEAN THAT MANY OF THE INTENDED TARGETS MAY NOT TRANSFORM INTO BUYERS OR MAY DECIDE TO PURCHASE THE ITEMS DIRECTLY FROM THE PRINCIPAL INSTEAD OF THROUGH THE AGENT OR EVEN WITHOUT INFORMING THE AGENT. AN ADVERTISING AGENT, SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 12 | 68 LIKEWISE, HAS ONLY A GENERIC TARGET SEGMENT AND NO CUSTOMERS CAN BE ASKED OF SUCH AGENT TO B E SPECIFICALLY IDENTIFIED. A PROCUREMENT AGENT, ON THE CONTRARY, MAY HAVE A SET OF SELLERS FROM WHOM HE/SHE ROUTINELY CONTRACTS FOR PURCHASES. B)THE CAMBRIDGE DICTIONARY DEFINES AN AGENT AS SOMEONE WHO SELLS A COMPANY'S PRODUCTS AND RECEIVES A PART OF THE MONEY PAID FOR THE GOODS FOR DOING THIS', WHICH WOULD MEAN THAT IT WOULD BE UNFAIR AND UNREASONABLE IN MANY CASES AND CIRCUMSTANCES TO EXPECT SUCH AGENT TO REMEMBER AND PROVIDE THE NAMES OF THE MULTITUDE OF BUYERS. C) IT IS ALSO CLEAR FROM THE DEFINITION THAT AN AGENT IS DEPENDENT FOR HIS/HER/ITS INCOMES ON HIS/HER, ITS PRINCIPALS AND THE SALES THAT HE/SHE/IT HELPS FACILITATE FOR THE LATTER. A COMMISSION AGENT DERIVES COMPENSATION FROM ACTUAL SALES, USUALLY EXPRESSED AS A PERCENTAGE OF SALES. IN MANY CASES, THEY MAY FACILITATE IN LOCATING BUYERS FOR GOODS/SERVICES, PROVIDING INFORMATION ABOUT THE PRODUCT, MAKING THE ACTUAL SALE, AND ENSURING DELIVERY AND FOLLOW - UP SERVICE. HOWEVER, THE PRECISE NATURE AND DETAILS OF TH E FACILITATIONS ENGAGED IN BY THE AGENTS DEPENDS UPON THE FACTS AND CIRCUMSTANCES OF THE ARRANGEMENT/AGREEMENT ENTERED INTO WITH THE PRINCIPAL, THE NATURE OF THE PRODUCTS/GOODS SOLD, RELEVANT BUSINESS FACTORS, ETC. BENEFITS FROM THE AGENCY ARRANGEMENT ACCR UE TO BOTH THE PRINCIPAL AND AGENT. PRINCIPALS CAN EXTEND MARKET REACH WITHOUT INCURRING MAJOR FIXED PERSONNEL COSTS, AND AGENTS CAN EARN COMPENSATION BASED ON THEIR PRODUCTIVITY. SOME AGENTS MAY REPRESENT MORE THAN ONE PRINCIPAL. ALL OF THE ABOVE MEAN THA T THE AGENT IS MORE REACTIVELY DEPENDENT ON THE PRINCIPAL BEING PART OF A DIRECT ARRANGEMENT THAN WITH THE CLIENTS/BUYERS/CUSTOMER WHICH RELATIONSHIP IS MORE PROACTIVE AND HENCE INDEPENDENT. WHILE, COMMISSION AGENTS DEPEND ON CUSTOMERS IN GENERATING THEIR COMPENSATION, THE COMPENSATION ITSELF IS PAID BY THE PRINCIPAL AFTER THE CUSTOMER/BUYER PAYS THE PRINCIPAL THE PROCEEDS OF THE SALE OR OTHER TRANSACTION. WHILE SOME AGENTS MAY BE AGGRESSIVE, THEY ALSO DEPEND ON SATISFIED CUSTOMERS FOR REPEAT BUSINESS AND A RE MOTIVATED TO THAT END; IT IS IN THIS CONNECTION THAT SOME OF THEM MAY KEEP TRACK OF BUYERS/CUSTOMERS IN THEIR OWN INTERESTS. SUCH TRACKING AND RETRIEVAL OF CUSTOMER DETAILS UPON DEMAND, AS THE AO HAS INSISTED UPON, IS NOT. PART OF A MANDATORY OR STATUTO RILY STIPULATED NATURE OF DUTIES OF ALL AGENTS. D) THERE ARE COMMISSION AGENTS WHO ARRANGE AND PARTICIPATE IN THE SALES AND ARRANGE OUTBOUND - MOVEMENT - AND - PACKING, TRANSPORT AND LOGISTICS IN THE INTERESTS OF THE PRINCIPAL, AND THERE ARE AGENTS WHO DO NOT. THE LAW OF AGENCY IS AN AREA OF COMMERCIAL LAW DEALING WITH A SET OF CONTRACTUAL, QUASI - SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 13 | 68 CONTRACTUAL AND NON - CONTRACTUAL FIDUCIARY RELATIONSHIPS THAT INVOLVE A PERSON (THE AGENT), WHO IS AUTHORIZED TO ACT ON BEHALF OF ANOTHER (THE PRINCIPAL) TO CREATE LEGAL RELATIONS WITH A THIRD PARTY. SUCCINCTLY, IT MAY BE REFERRED TO AS A MORE - OR - LESS EQUAL RELATIONSHIP BETWEEN A PRINCIPAL AND AN AGENT WHEREBY THE PRINCIPAL, EXPRESSLY OR IMPLICITLY, AUTHORIZES THE AGENT TO WORK UNDER HIS OR HER OR ITS CONTROL AND ON HIS O R HER OR ITS BEHALF. THE AGENT IS, THUS, REQUIRED TO NEGOTIATE ON BEHALF OF THE PRINCIPAL OR BRING HIM OR HER AND THIRD PARTIES INTO A CONTRACTUAL RELATIONSHIP. THE RECIPROCAL RIGHTS AND LIABILITIES BETWEEN A PRINCIPAL AND AN AGENT REFLECT COMMERCIAL AND L EGAL REALITIES. A BUSINESS OWNER OFTEN RELIES ON AN EMPLOYEE OR ANOTHER PERSON TO CONDUCT A BUSINESS. THE PRINCIPAL IS BOUND BY THE CONTRACT ENTERED INTO BY THE AGENT, SO LONG AS THE AGENT PERFORMS WITHIN THE SCOPE OF THE AGENCY. IMPORTANTLY, A THIRD PARTY MAY RELY IN GOOD FAITH ON THE REPRESENTATION BY A PERSON WHO IDENTIFIES HIMSELF AS AN AGENT FOR ANOTHER. IT IS NOT ALWAYS COST EFFECTIVE TO CHECK WHETHER SOMEONE WHO IS REPRESENTED HAVING THE AUTHORITY TO ACT FOR ANOTHER ACTUALLY HAS SUCH AUTHORITY. IF I T IS SUBSEQUENTLY FOUND THAT THE ALLEGED AGENT WAS ACTING WITHOUT NECESSARY AUTHORITY, THE GENT WILL GENERALLY HE HELD LIABLE. E) IN THE INSTANT CASE, THE AGENTS WERE RELATIVELY SMALL AND UNKNOWN PLAYERS. ALSO, AS PER THE TERMS OF THE AGREEMENTS/UNDERSTAN DING WITH THE APPELLANT, THEY DID NOT APPEAR TO HAVE ANY AUTHORITY TO ATTRACT OR ENLIST BUYERS FOR THE APPELLANT. THEIR RANGE OF DUTIES WAS LIMITED TO FACILITATING SMOOTH SUPPLY OF GOODS TO THE BUYERS.' THIS WOULD MEAN THAT THEY WERE IN MOST CASES INTERACT ING WITH BUYERS WHO WERE IN DIRECT TRANSACTIONAL AND INTERACTIVE RELATIONSHIP WITH THE APPELLANT. THE BUYERS THEREFORE HAD NO CAUSE TO REGARD THE AGENTS AS PURCHASE INTERMEDIARIES (THEY BEING SUPPLY FACILITATORS TEMPORARILY VISIBLE AT A GIVEN POINT IN TIME IN RESPECT OF THE TRANSACTIONS OPERATIONAL AT THAT TIME) AND THE AGENTS HAD NO REASONS TO PREPARE IRON - CLAD LISTS AND DETAILS OF THE BUYERS. THEREFORE, THERE WAS LITTLE REASON FOR THE BUYERS TO MAKE ENQUIRIES ABOUT THE AGENTS AND CERTIFY THE GENUINENESS O R VERACITY OF THE LATTER IN THE MATTER OF SUPPLIES OF MATERIALS. I ALL THE BUYERS WERE CONCERNED WITH WAS THE TIMELY DELIVERY OF QUALITY - TESTED GOODS/PRODUCTS AS SPECIFIED BY THEM. ALL THE APPELLANT EXPECTED FROM THE AGENTS WAS TOTAL ADHERENCE TO THE TERMS OF THE AGREEMENT/ARRANGEMENT BETWEEN THEM. F) THEREFORE, THE EXPRESS NON - REMEMBRANCE OF THE AGENTS IN THE CREATIVE - PROACTIVE AWARENESSES OF THE BUYERS ALONE WILL NOT NEGATE THE FACT OF THE IMPUGNED TRANSACTIONS AND THE TRUTH AND CHARACTER OF THE COMMISSION PAYMENTS. THE AO HAS NOT CARRIED OUT ANY INVESTIGATIONS OR INQUIRES, ON SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 14 | 68 UNEARTHED/DISCOVERED ANY EVIDENCES THAT SUGGEST THAT THE TRANSACTIONS AND PAYMENTS WERE NOT WHAT THEY SEEMED TO BE. THE DECISION TO DISALLOW HAS BEEN MADE ON PRESUMPTION, SURMISE, CONJ ECTURE, SUPPOSITION, AND A SUMMARY AND UNILATERAL CONCLUSION BASED ON RUDIMENTARY FACTS (OF THE BUYERS BEING PRESUMABLY NON - EXISTENT OR APPARENTLY UNAWARE OF THE AGENTS AND THE AGENTS BEING UNABLE TO LIST THE BUYERS) TAKEN IN PREJUDICED ISOLATION AND BASED ON A SPURIOUS IMPLIED TRANSCENDENTAL PRINCIPLE THAT SEEKS TO COVER/FILL THE SCHISM BETWEEN FLIMSY FOUNDATIONS AND MERETRICIOUS ARGUMENTS ON ONE SIDE AND A TENDENTIOUS DECISION ON THE OTHER. THIS IS NOT A SCIENTIFIC, PROFESSIONAL AND RESPONSIBLE EXERCISE CARRIED OUT BY THE AO. MUCH MORE HOMEWORK WAS REQUIRED TO BE DONE BY THE AO IN DISCHARGE OF HIS RESPONSIBILITIES, WHICH HE PLAINLY FAILED TO CARRY OUT. G) HOW TO GO ABOUT DOING ONES BUSINESS SIS THE PREROGATIVE OF THE BUSINESS MAN, AS ARE THE RELATED MATTE RS LIKE INCURRING EXPENSES, MAKING INVESTMENTS, OBTAINING LOANS AND PROVIDING ADVANCES, ETC. THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LIMITED VS CIT, 288 ITR 1 (SC) IS RELEVANT. THE HONBLE COURT HELD IN THE ABOVE RATIO REITERAT ED THE SETTLED POSITION IN THE PAST THAT NO BUSINESSMAN CAN BE COMPELLED TO MAXIMIZE HIS PROFIT. WHILE CONSIDERING THE CLAIM OF DEDUCTION OF ANY EXPENDITURE, INCOME TAX AUTHORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUS INESSMAN WOULD ACT. ONCE IT WAS ESTABLISHED THAT THERE WAS NEXUS BETWEEN THE EXPENDITURE AND PURPOSE OF THE BUSINESS, REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARM CHAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUM E THE ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE. THE AUTHORITIES MUST LOOK AT THE MATTER NOT FROM THEIR OWN POINT VIEW BUT THAT OF A PRUDENT BUSINESSMAN. H) CONSEQUENTLY, WHETHER TO ENGAGE THE SERVICES OF A COMMISSION AGENT OR NOT IN RESPECT OF HER SALES IS THE BUSINESS PREROGATIVE OF THE APPELLANT, AND EVEN IF SUCH AGENTS DO ARE NOT ABLE TO BRING IN A SINGLE CUSTOMER, THE EXPENSES MADE OF THE NATURE OF COMMISSION PAYMENTS TO THE AGENTS WOUL D NOT BE INELIGIBLE. I) IN HARMONY WITH THE PRINCIPLES OF ECONOMIC NEUTRALITY, WHAT IS TO BE VERIFIED IS WHETHER THE AGENTS ARE CREATING ECONOMIC VALUE FOR THE APPELLANT THROUGH THE FUNCTIONS CARRIED OUT, RISKS ABSORBED AND ASSETS BEING TIME AND EFFORT INVESTED IN BY IT, AND IS T HEREFORE ENTITLED TO BE COMPENSATED FOR THE SAME IN THE FORM OF RECEIPTS OF COMMISSIONS. COMPENSATION CAN BE SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 15 | 68 DENIED OR DISALLOWED ONLY IF IT IS PROVED THAT THE APPARENT ARRANGEMENT IS NOT GERMANE OR RELATED TO THE BUSINESS AND/OR IS NON - GENUINE AND NO ECON OMIC VALUE IS BEING GENERATED BY THE AGENT FOR THE PRINCIPAL. THE APPELLANT IS FREE TO ENTER INTO AGREEMENTS WITH AND APPOINT AS MANY AGENTS, AS IT SEEKS TO, IN LINE WITH ITS BUSINESS NEEDS AND COMMERCIAL PRACTICES. IF THE AGREEMENTS AND APPOINTMENTS ARE W HOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, AND THE PAYMENTS MADE IN THE SAID REGARD ARE FULLY BILLED/VOUCHED, ACCOUNTED FOR AND AUDITED, THEN THERE IS LITTLE SCOPE FOR REVENUE TO TAKE A PREJUDICIAL VIEW. J) THE AO HAS NOT BEEN ABLE TO SHOW THAT TH E PAYMENTS HAVE NOT BEEN MADE TO THE PURPORTED AGENTS AND THAT THESE PAYMENTS ARE NOT RELATABLE TO THE CARRYING OUT THE BUSINESS AND FOR OTHER BUSINESS PURPOSES. THE AO HAS MERELY LEAPED TO CONCLUSIONS (IN THE CASES OF CATEGORIES II, III AND IV) THAT THE S EEMING ABSENCE OF BUYERS (AS OSTENSIBLY EVIDENCED BY LETTERS ADDRESSED TO THEM RETURNING UNSERVED), OR THE NEGATIONS OR DISAVOWALS BY SUCH BUYERS OF ANY KNOWLEDGE OR NEXUS WITH THE AGENTS OR THE INABILITY OF THE COMMISSION AGENTS TO LIST THE ACTUAL BUYERS WOULD AUTOMATICALLY DISENTITLE THE AGENTS OF THEIR STATUS AND RIGHTS TO RECEIVE COMMISSION PAYMENTS. IN THE SCHEME SET IN PLACE BY THE APPELLANT, THE BUYERS DIRECTLY TRANSACTED WITH HER; THE AGENTS DID NOT ENROLL THEM AND THEREFORE IN MOST CASES WOULD NOT KNOW THEM. THE AGENTS WOULD BE ABLE TO ONLY PROVIDE SOME NAMES OF BUYERS IN RESPECT OF WHOM/WHICH THE AGENT WOULD HAVE FACILITATED THE SUPPLY AFTER THE SALES WERE MADE. LIKEWISE, SWORN DEPOSITIONS FROM THE BUYERS THAT THEY DID NOT KNOW THE AGENTS WOULD NOT MAKE FOR ADVERSE FINDING BECAUSE IN THE MINDS OF THESE BUYERS, THEY HAD TRANSACTED DIRECTLY WITH THE APPELLANT, AND THE PERSON REFERRED TO AS AN AGENT WOULD HAVE APPEARED IN THEIR EYES LIKE AN EMPLOYEE OF THE APPELLANT OR OTHER INDIVIDUAL ENGAGED IN FACIL ITATING THE MOVEMENT OF THE GOODS, AND NOT IN A FORMAL POSITION OF ENGAGEMENT AS AN AGENT. K) WHAT WAS NEEDED FOR THE AO WAS TO PROVE ANY OF THE FOLLOWING: A) THE IMPUGNED AGENTS DID NOT EXIST OR WERE NOT GENUINE AGENTS; B) THE AGENTS HAD NOT CARRIED OUT ANY FACILITATION WORK FOR THE APPELLANT; AND C) THE AGENTS HAD NOT ACTUALLY RECEIVED THE STA TED COMMISSION MONEYS. HE HAS INSTEAD PROCEEDED ON PRESUMPTIONS AND CONCLUDED ON UNPROVEN INANITIES THAT THE ABSENCE OF INFORMATION ABOUT THE BUYERS MEANT THAT THE COMMISSION AGENTS DID NOT EXIST OR WERE NOT GENUINE PARTICIPANTS IN THE APPELLANTS BUSINESS. IN RESPECT OF CATEGORY I, THE BUYERS CONFIRMING AT THEY HAD SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 16 | 68 CARRIED OUT DIRECT TRANSACTIONS WITH THE APPELLANT IS WELL WITHIN THE GENERAL AND ACCEPTED SCHEME OF THINGS. IT IS NOT PART OF THE ROLE OF THE AGENT TO ALWAYS ACT AS A PHYSICAL INTERMEDIARY BETWE EN THE BUYERS AND THE APPELLANT BEING THE SELLERS. PURCHASES WERE DIRECTLY MADE FROM THE APPELLANT WITH THE AGENT REMAINING IN THE BACKGROUND. THE BUYER IS INTERESTED ONLY IN EFFECTING THE PURCHASES; HE IS NOT DUTY BOUND TO KEEP TAX ON THE APPELLANT - SELLE RS AGENTS AND PREPARE LISTS WHEN CALLED FOR. BUYERS ALSO INTERACT WITH SEVERAL AGENTS OF THE SAME NATURE EMPLOYED BY THEIR RESPECTIVE COMPETING PRINCIPALS PARTICIPATING IN THE SUPPLIERS OF MATERIAL SUPPLIES. SUCH LACK OF AWARENESS ALONE 'DOES NOT TAKE AWA Y THE CHARACTER OF THE PAYMENTS MADE BEING THAT OF COMMISSIONS OR THE TRUTH AND GENUINENESS OF THE PRINCIPAL - AGENT TRANSACTIONS. THE PART OF THE ORDER THAT DEALS WITH THE ENHANCEMENTS OF COMMISSION PAYMENTS APPEARS TO HAVE FRAMED ON SUSPICION AND PRESUMPTI ON, AND AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF STATE OF KERALA VS. M.M. MATHEW 42 STC (1978), HOWEVER STRONG SUCH SUSPICION OR PRESUMPTION IT COULD NOT REPLACE LEGAL PROOF. L) IN THE MATTER OF THE DISALLOWANCE OF THE COMMISSION AMOUNTS PAID TO TH E HUFS TOTALING RS. 47,17,304/ - (CATEGORY V), THE SIMPLE ISSUE WAS WHETHER THE PAYMENTS WERE MADE TO THE HUFS CONCERNED. WHETHER THE PAYMENTS WERE ASSESSABLE AS INCOMES IN THE HANDS OF THE KARTAS OR IN THE HANDS OF THE HUFS THEMSELVES IS A SEPARATE MATTER. THE AOS GROUND THAT AN HUF COULD NOT SEEMINGLY PHYSICALLY RECEIVE THE COMMISSION AMOUNTS IS NOT ONE THAT AUTOMATICALLY DISALLOWS THE EXPENSE IN THE HANDS OF THE PAYER. SEPARATELY, THE CONCLUSION OF THE AO THAT HUFS ARE NOT PHYSICAL ENTITIES DISPLAY A LACK OF UNDERSTANDING/APPRECIATION OF THE PLAIN MEANINGS OF THE WORD PHYSICAL WHICH INCLUSIVELY CONNOTES A CORPOREAL, MATERIAL, PHENOMENAL AND TEMPORAL EXISTENCE OR STATE OF BEING. WHEN THERE IS NO TECHNICAL MEANING DEFINED OF A WORD EMPLOYED IN THE STA TUTE, THE GENERAL MEANING OF THE SAME IN A PLAIN AND INCLUSIVE SENSE NEEDS TO BE EMPLOYED. M) THE WORD PHYSICAL DOES NOT LEND ITSELF TO EASY DEFINITION OR CONNOTATION. IT MEANS DIFFERENT THINGS TO DIFFERENT PEOPLE. WHEN UNDOUBTEDLY PHYSICAL MAN INHABITS A PHYSICAL WORLD, IT STANDS TO DEDUCTIVE REASON THAT GROUPS OF SUCH MEN SUCH AS ASSOCIATIONS OF PERSONS (AOPS) AND BODIES OF INDIVIDUALS (BOLS) TOO ARE PHYSICAL IN ESSENCE. EMPLOYING THE CANONIC PRINCIPLE OF NOSCITUR A SOCIIS (A WORD IS KNOWN BY THE COMPANY IT KEEPS), IT CAN BE READILY SEEN THAT AN HUF AS DEFINED U/S 2(15) OF THE INCOME - TAX ACT IS ACCOMPANIED BY OTHER PERSONS SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 17 | 68 THAT INCLUDE INDIVIDUAL. IT OBVIOUSLY CANNOT BE THE AOS CASE THAT AN INDIVIDUAL IS NOT A PHYSICAL ENTITY, AND IT FOLLOWS THEREFORE THAT AN HUF, AND ALL THE OTHER PERSONS MENTIONED THEREIN ARE PHYSICAL ENTITIES UNDER THE STATUTE. N) THE WORD PHYSICAL ITSELF IS DERIVED FROM THE LATIN WORD PHYSIS WHICH MEANT MATTER IN ITS INDIVISIBLY ELEMENTAL FORM. HOWEVER, THE PHYSICAL WORLD IS BOTH TANGIBLE AND INTANGIBLE. THE HUMAN MIND INHABITS THE PHYSICAL WORLD AND THERE ARE PHILOSOPHIES THAT HOLD THAT MIND IS MADE UP OF AN INTANGIBLE PHYSICAL SUBSTANCE. THE CORPUS OF HUMAN KNOWLEDGE AS IT EXISTS TODAY IS INDEED REGARDED A S A PHYSICALLY SUBSTANTIVE ENTITY BY SUCH PHILOSOPHERS. IN ANY EVENT, THE STATEMENT OF THE AO THAT AN HUF IS NOT A PHYSICAL ENTITY HAS BEEN MADE WITHOUT LAYING ANY FACTUAL FOUNDATION OR LOGICAL DISCURSIVE, DEDUCTIVE OR INDUCTIVE PROCESS AND CALLS FOR A SWEEPING AND BASELESS CONCLUSION. EVEN IF THE WORD PHYSICAL IS INTERPRETED IN ITS MOST LIMITED DEFINITION OF RELATING TO A BODY, IT CANNOT BE STATED THAT THE HUF AS DEFINED IN THE INCOME - TAX ACT DOES NOT HAVE A BODY AND IS THEREFORE NON - PHYSICAL. FO R, HUFS ARE MADE UP OF EMINENTLY PHYSICAL HUMAN BEINGS. NEXT, EVEN IF AN HUF IS NOT PHYSICAL, NOWHERE IS THE WORD PHYSICAL DEFINED IN THE INCOME - TAX ACT OR IT MENTIONED ANYWHERE THEREIN THAT COMMISSION PAYMENTS ARE TO BE MADE ONLY TO PHYSICAL ENTIT IES. UNDER THIS ARGUMENT, A REGISTERED FIRM OR A LIMITED COMPANY WOULD ALSO NOT BE PHYSICAL ENTITIES, AS THEY ARE DEFINED AND EXIST ONLY IN LAW. O ) HUF S EXIST AS ENTITIES UNDER LAW WHICH IS A CREATION OF CORPOREAL - PHYSICAL MAN TO FULFILL AND FACILITATE H IS LIFES NEEDS AND OBJECTIVES. HUFS EXIST IN PHYSICAL FORM AS MANIFESTED THROUGH. THEIR KARTAS AND IN SUCH FORM, AND AS, DEFINED PERSONS UNDER THE INCOME - TAX ACT U/S 2(15) ARE / PERFECTLY CAPABLE OF CARRYING OUT BUSINESS AND/OR COMMERCIAL TRANSACTIONS. THERE ARE NO PHYSICAL/LEGAL INFIRMITIES IN THIS REGARD. IN THE CASE OF RAM LAXMAN SUGAR MILLS - V - CIT 66 ITR 613 SC, IT HAS BEEN HELD THAT A HINDU UNDIVIDED FAMILY IS UNDOUBTEDLY A 'PERSON' WITHIN THE MEANING OF THE INDIAN INCOME - TAX ACT. IN VARIOUS CASES TH AT INDICATE THAT THE HONOURABLE COURTS HAVE UPHELD THAT HUFS CAN EARN COMMISSION INCOME, THE FOLLOWING MAY BE CONSIDERED. WHERE THE KARTA IS A PARTNER REPRESENTING THE HUF IN A FIRM AND SALARY OR COMMISSION IS PAID TO SUCH PARTNER, THE ISSUE ARISES WHETHER SUCH SALARY OR COMMISSION SHOULD BE ASSESSED IN THE HANDS OF HUF OR AS PERSONAL INCOME OF THE KARTA. THE TEST LAID DOWN BY THE HONOURABLE SUPREME COURT IN KUMAR SINGH HUKAM SINGHJI 78 ITR 33 (1970) (SC) IS WHETHER SUCH PAYMENT HAS BEEN MADE BECAUSE OF INV ESTMENT IN THE FIRM OR SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 18 | 68 AS A COMPENSATION FOR THE SERVICES RENDERED. IN CASE OF THE FORMER, IT WILL BE ASSESSED AS INCOME OF THE HUF WHILE IN CASE OF THE LATTER, IT WILL BE ASSESSED AS THE PERSONAL INCOME OF THE KARTA. THIS PROPOSITION OF LAW HAS BEEN REITE RATED IN PREM NATH - VS - CIT 78 ITR 319 (1970)(SC) AND HAS BEEN FOLLOWED IN CIT - VS - LACHLIMAN DASS BHATIA 162 TAXMANN 118 (DEL). THESE DECISIONS MEAN THAT HUFS CAN EARN COMMISSION INCOMES THAT ARE ASSESSABLE IN ITS HANDS (AS AGAINST THOSE OF THE KARTA) UNDER C ERTAIN CONDITIONS. IN ANY EVENT, IN THIS CASE, THE PAYMENT HAS BEEN MADE AND WHETHER THE SAME IS TO BE ASSESSED IN THE HANDS OF THE HUFS OR THEIR RESPECTIVE KARTAS IS A DECISION TO BE TAKEN BY THE RESPECTIVE AOS POSSESSED OF THE JURISDICTION OF THOSE CASES . P) THE AOS PEJORATIVE STATEMENTS IN THE ASSESSMENT ORDER THAT 7/ MAY ALSO BE RECALLED THAT AN EXPENDITURE IS AN EXPENDITURE WHEN THE PAYER AND THE PAYEE ARE TWO DIFFERENT HANDS AND TWO DIFFERENT BEINGS. HERE IT IS THE SERVICES WHICH ARE BEING PAID FOR AND THESE SERVICES COULD ONLY BE PROVIDED BY FLESH AND BLOOD. SUCH IN COME CANNOT BE ATTRIBUTED TO AN ENTITY LIKE HUF AS THE HUF CANNOT PERFORM FUNCTIONS OF AN INDIVIDUAL BEING BECAUSE OF NOT EXISTING IN PHYSICAL FORM IS TO BE SEEN AGAINST THE FACT THAT THE APPELLANT AND THE RECEIVERS (THE HUFS) ARE TWO DIFFERENT HANDS AND TWO DIFFERENT BEINGS. ALSO AND IN PARTICULAR, NO FAIR AND REASONABLE OPPORTUNITY HAS BEEN PROVIDED TO THE APPELLANT TO ARGUE THE POINT OF THE PHYSICALITY OR OTHERWISE OF AN HUF. Q) IN CONSEQUENCE OF ALL THE ABOVE, IT IS HELD THAT THE AOS ACTION IN DISA LLOWING THE IMPUGNED EXPENSES TOTALING RS. 7,09,10,967 HAVE BEEN MADE ON EXTREMELY THIN AND SPECIOUS GROUNDS THAT THE BUYERS WERE NOT FOUND OR DID NOT RESPOND OR DISCLAIMED ANY KNOWLEDGE OF THE AGENTS OR THAT THE AGENTS WERE NOT ABLE TO REMEMBER THE BUYERS OR WERE NOT ABLE TO FURNISH DETAILED PARTICULARS ABOUT THEM OR FOR THE REASON THAT THE COMMISSION AGENTS WERE HUFS. ALL OF THEM ARE REASONS THAT DO NOT SHOW ANY CLEAR UNDERSTANDING ABOUT T HE REASONS FOR AND THE MANNER IN WHICH THE AGENTS HA VE BEEN EMPLOY ED AND ENGAGED BY THE APPELLANT. THE APPELLANT IS SEEN TO HAVE MADE THE NECESSARY DEDUCTIONS OF I DS, MAINTAINED THE NECESSARY BILLS, RECEIPTS CERTIFICATES AND OTHER DOCUMENTATION, MADE THE NECESSARY ENTRIES IN BOOKS OF ACCOUNTS THAT HAVE BEEN DULY AUDITED AND ALSO FURNISHED THE INCOME - TAX PAR TICULARS OF THE AGENTS BEFORE TH E AO. COPIES OF SOME OF THE COMMUNICATIONS MADE BY THE APPELLANT TO THE AO IN THIS REGARD HAVE BEEN PROVIDED ON RECORD BY THE APPELLANT. R) THE INVERSE ARGUMENT OF THE AO THAT THE TDS DE DUCTIONS SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 19 | 68 WERE PART OF A GRAND INCOME - CONCEALMENT - TAX - EVASION - OR - ESCAPEMENT SCAM OPERATED BY THE APPELLANT IN A MANNER THAT THE LATTER WAS ENABLED TO LEGALLY DECAMP WITH 90% OF UNACCOUNTED MONEY DIVERSIONS AT A COST OF 10% OF THE SAME TOWARDS TDS, IS NOT B ORNE OUT BY FACTUAL EVIDENCES OR THE DILIGENT RESULTS OF RIGOROUS INQUIRY. THE STATEMENT OF THE AO THAT THE COMMISSION AGENTS WERE PROVED TO HAVE RENDERED NO SERVICES TO THE APPELLANT TOO IS SEEN TO BE ONE THAT CALLS FOR A CONCLUSION WITHOUT DUE FOUNDATION . RECORDING SWORN STATEMENTS FROM THE BUYERS AND NOT OBTAINING THESE FROM THE COMMISSION AGENTS THEMSELVES IS AN ASYMMETRIC EXERCISE, AND THE LATTER WOULD HAVE REVEALED THE K - TRUE PICTURE TO THE AO. S) THE ENHANCEMENT MADE OF RS. 7,09,10,967/ - ON THE SAI D COUNT IS CONSEQUENTLY DELETED AND THE APPEAL ALLOWED. 8. LD D.R. COULD NOT POINT OUT ANY SPECIFIC ERROR IN THE FINDINGS OF THE CIT(A) THAT AT TIMES COMMISSION AGENT WHEN APPROACHES THE PURCHASERS, HE DOES NOT IDENTIFY HIMSELF AS AN AGENT OF THE SELLER A ND MERELY IDENTIFYING HIMSELF AS REPRESENTATIVE OF THE SELLER, IN SUCH CIRCUMSTANCES, THE BUYER CANNOT BE AWARE THAT THE PERSON WHO HAS APPROACHED IS EMPLOYEE OF THE SELLER OR AGENT OF THE SELLER. FURTHER, THE CIT(A) OBSERVED THAT THE COMMISSION MAY BE P AID TO AN AGENT FOR FACILITATING THE TRADE EVEN WHEN THE ORDERS ARE DIRECTLY GIVEN TO THE SELLERS BY THE PURCHASERS. FURTHER, NON - SERVICE OF LETTERS TO THE BUYERS OR NON - COMPLIANCE OF THE LETTERS BY THE BUYERS DOES NOT SHOW THAT THE PAYMENT OF COMMISSION WAS NOT GENUINE WHEN THE RELATIVE SALE WAS CONSIDERED GENUINE. FURTHER, NON - FURNISHING OF THE NAME OF THE BUYERS BY AGENT IN COMPLIANCE TO THE NOTICE DOES NOT NECESSARILY MEAN THAT THE AGENT IS NOT AWARE OF THE BUYERS. FURTHER, TO HOLD THAT IN NO SITUATI ON COMMISSION CAN BE EARNED BY A PERSON LIKE HUF IS ALSO NOT TENABLE. WE FIND THAT NO MATERIAL COULD BE BROUGHT BEFORE US TO SHOW THAT THE PERSON TO WHOM COMMISSION WAS PAID WERE ACCOMMODATION/ENTRY PROVIDER AND THE MONEY WHICH WAS PAID THROUGH BANKING C HANNEL TO THEM CAME BACK TO THE ASSESSEE. IN THE CIRCUMSTANCES, IN THE ABSENCE OF ANY SPECIFIC DEFECT BEING POINTED OUT IN THE ORDER OF THE CIT(A), WE FIND NO GOOD REASON TO INTERFERE WITH THE ORDER OF THE CIT(A), WHICH IS HEREBY CONFIRMED AND THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. ACCORDINGLY, FACTS AND CIRCUMSTANCES IN THE CASE OF SURESH KUMAR G. HUNDIA (SUPRA) ARE QUITE DISSIMILAR AND DISTINCT IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. THUS, THIS PREPOSITION HAS NO APPLICATION TO THE PRESENT CASE IN FAVOUR OF THE REVENUE. SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 20 | 68 1 6 . IT IS NOT DISPUTED BY LD CIT DR THAT IN RESPECT OF COMMISSION PAYMENT, TDS WAS DEDUCTED AND DEPOSITED INTO THE GOVERNMENT ACCOUNT AND THE CO PIES OF INCOME TAX RETURNS IN SUPPORT OF THE TAX BEING DEPOSITED BY THE COMMISSION AGENTS. IT IS ALSO NOT IN DISPUTE THAT THE SIMILAR COMMISSION PAYMENT HAS BEEN MADE IN EARLIER YEARS AND ALSO IN THE PRESENT ASSESSMENT YEAR. 1 7 . AS REGARDS TO THE DECISIONS RELIED UPON BY LD CIT DR, WE FIND THAT THE SAID DECISIONS ARE DISTINGUISHABLE ON FACTS. 1 8 . IN THE CASE OF SCHNEIDER ELECTRIC INDIA LTD (SUPRA), THE APPELLANT CLAIMED EXPENSES ON ACCOUNT OF SALES COMMISSION, HOWEVER, IN THE CASE AT HAND, NO PAYMENT IS MADE ON ACCOUNT OF SALES COMMISSION FOR PROCURING ORDERS. THE AGENTS PROVIDING SERVICES TO THE APPELLANT FOR FACILITATING TRANSFER OF MATERIALS. HENCE, THE SAID DECISION HAS NO APPLICATION IN THE CASE OF THE ASSESSEE. 1 9 . IN T HE CASE OF PRINTER HOUSE (P) LTD (SUPRA), NO EVIDENCE WAS FURNISHED IN SUPPORT OF THE SERVICES RENDERED BY THE COMMISSION AGENTS. HOWEVER, IN THE CASE AT HAND, THE SERVICE PROVIDED BY AN AGENT WAS ESTABLISHED IN DIFFERENT FORUMS. THE SAME ISSUE WAS PLACED BEFORE THIS BENCH BY THE REVENUE IN THE CASE OF TARINI MINERALS (P) LTD., (SUPRA) FOR A.Y. 2010 - 11 AND THE TRIBUNAL CONFIRMED AND UPHELD THE FINDINGS RECORDED BY SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 21 | 68 THE LD CIT(A) DELETING THE ADDITION ON ACCOUNT OF PAYMENT OF COMMISSION. ON BEING ASKED BY THE BENCH, THE LD CITDR COULD NOT POINT OUT ANY DISSIMILAR NEW FACTS OR CIRCUMSTANCES FROM THIS CASE AND PRESENT A.Y. 2012 - 13 AND 2013 - 14 UNDER CONSIDERATION. HENCE, WE ARE COMPELLED TO ACCEPT AND FOLLOW THE FINDINGS RECORDED BY THIS BENCH IN THE ORDER D ATED 4.9.2019. 20 . WE ALSO FIND THAT THE ITAT CUTTACK IN THE CASE OF TARINI MINERAL (P) LTD., (SUPRA) ON SIMILAR FACTS HAVE UPHELD THE DECISION OF THE LD CIT(A) FOLLOWING THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD VS CIT 88 ITR 1 (SC). 21 . LD CIT D.R. ALSO COULD NOT POINT OUT ANY SPECIFIC ERROR , AMBIGUITY OR PERVERSITY IN THE FINDINGS OF THE CIT(A) THAT AT TIMES COMMISSION AGENT WHEN APPROACHES THE PURCHASERS, HE DOES NOT IDENTIFY HIMSELF AS AN AGENT OF THE SELLER AND MERELY I DENTIFYING HIMSELF AS REPRESENTATIVE OF THE SELLER, IN SUCH CIRCUMSTANCES, THE BUYER CANNOT BE AWARE THAT THE PERSON WHO HAS APPROACHED IS EMPLOYEE OF THE SELLER OR AGENT OF THE SELLER. FURTHER, THE CIT(A) OBSERVED THAT THE COMMISSION MAY BE PAID TO AN A GENT FOR FACILITATING THE TRADE EVEN WHEN THE ORDERS ARE DIRECTLY GIVEN TO THE SELLER (ASSESSEE) BY THE PURCHASERS. FURTHER, NON - SERVICE OF LETTERS TO THE BUYERS OR NON - COMPLIANCE OF THE LETTERS BY THE BUYERS DOES NOT SHOW THAT THE PAYMENT OF COMMISSION WA S NOT GENUINE WHEN THE RELATIVE SALE WAS CONSIDERED GENUINE AND ACCEPTED BY THE DEPARTMENT . FURTHER, NON - SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 22 | 68 FURNISHING OF THE NAME OF THE BUYERS BY AGENT IN COMPLIANCE TO THE NOTICE DOES NOT NECESSARILY MEAN THAT THE AGENT IS NOT AWARE OF THE BUYERS. FURTHE R, TO HOLD THAT IN NO SITUATION COMMISSION CAN BE EARNED BY A PERSON LIKE HUF IS ALSO NOT TENABLE. WE FIND THAT NO MATERIAL COULD BE BROUGHT BEFORE US TO SHOW THAT THE PERSON TO WHOM COMMISSION WAS PAID WERE ACCOMMODATION/ENTRY PROVIDER AND THE MONEY WHI CH WAS PAID THROUGH BANKING CHANNEL TO THEM CAME BACK TO THE ASSESSEE IN CASH OR THROUGH ANY OTHER MODE . IN THE CIRCUMSTANCES, IN THE ABSENCE OF ANY SPECIFIC DEFECT BEING POINTED OUT IN THE ORDER OF THE CIT(A), WE FIND NO GOOD REASON TO INTERFERE WITH THE FINDINGS RECORDED BY THE LD FIRST APPELLATE AUTHORITY, WHICH IS HEREBY CONFIRMED AND THE IDENTICAL GROUND OF APPEAL OF THE REVENUE FOR A.Y. 2012 - 13 & 2013 - 14 ARE DISMISSED. 2 2 . GROUND NO.2 OF APPEAL FOR THE ASSESSMENT YEAR 2012 - 13 IS AGAINST THE DELETION OF ADDITION OF RS.34,25,485/ - MADE UNDER THE HEAD PUNITIVE CHARGES. 2 3 . FACTS IN BRIEF APROPOS THIS ISSUE ARE THAT THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS DEBITED RS.34,25,485/ - UNDER THE HEAD PUNITIVE CHARGES. THE AO REQUIRED THE ASSESSEE TO FURNISH THE DETAILS OF SUCH EXPENSES WITH DOCUMENTARY EVIDENCE AND SAME SHOULD NOT BE DISALLOWED BEING AN EXPENDITURE NOT ALLOWABLE U/S.37 OF THE ACT. IN REPLY, THE ASSESSEE SUBMITTED THAT THE AMOUNT WAS PAID TO GANGAVARAM PORT LTD., VISAKHAP ATNAM TOWARDS OVERLOADING OF RAKES. IT WAS ALSO SUBMITTED THAT SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 23 | 68 THOUGH THE NOMENCLATURE IS PUNITIVE CHARGES, IT IS NOT PAID FOR INFRACTION OF ANY LAW AND OVERLOADING IS A NORMAL FEATURE OF SHIPMENT. THE ABOVE EXPLANATION OF THE ASSESSEE WAS NOT FOUND ACCE PTABLE TO THE AO AND HE, ACCORDINGLY DISALLOWED RS.34,25,485/ - AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 2 4 . ON APPEAL, THE LD CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER: I HAVE GIVEN CAREFUL CONSIDERATION TO THE MATTER. EXPLANATION - 1 BELOW SECTION 37(1) CLARIFIES THAT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PURPOSE WHISH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS AND NO DEDUCTION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE. IN THE CASE OF THE ASSESSEE, THE PUNITIVE CHARGES PAID TO GANGAVARAM PORT LTD., IS FOR OVERLOADING OF RAKES AND NOT FOR INFRACTION OF ANY LAW. HENCE, CLEARLY IT IS NOT A PENALTY FOR BREACH OF LAW. THE NOMENCLATURE PUNIT IVE CHARGES CANNOT LEAD TO DISALLOWANCE U/S.37 IF THE PAYMENT IS NOT FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW. 2 5 . LD CIT DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER. HE SUBMITTED THAT THE ACT OF THE ASSESSEE IN OVERLOADING THE WAGON WAS AN ACT WHICH WAS AGAINST PUBLIC POLICY FOR WHICH PUNITIVE CHARGES ARE LEVIED. HE DREW OUR ATTENTION TO SECTION 73 OF THE RAILWAY A CT, 1989 WHICH READS AS FOLLOWS : - 73. PUNITIVE CHARGE FOR OVERLOADING A WAGON. - WHERE A PERSON LOADS GOODS IN A WAGON BEYOND ITS PERMISSIBLE CARRYING CAPACITY AS EXHIBITED UNDER SUB - SECTION (2) OR SUB SECTION (3), OR NOTIFIED UNDER SUB - SECTION (4), OF SE CTION 72, A RAILWAY ADMINISTRATION MAY, IN ADDITION TO THE FREIGHT AND OTHER CHARGES, RECOVER FROM THE CONSIGNOR, THE CONSIGNEE OR THE ENDORSEE, AS THE CASE MAY BE, SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 24 | 68 CHARGES BY WAY OF PENALTY AT SUCH RATES, AS MAY BE PRESCRIBED, BEFORE THE DELIVERY OF THE G OODS: PROVIDED THAT IT SHALL BE LAWFUL FOR THE RAILWAY ADMINISTRATION TO UNLOAD THE GOODS LOADED BEYOND THE CAPACITY OF THE WAGON, IF DETECTED AT THE FORWARDING STATION OR AT ANY PLACE BEFORE THE DESTINATION STATION AND TO RECOVER THE COST OF SUCH UNLOADIN G AND ANY CHARGE FOR THE DETENTION OF ANY WAGON ON THIS ACCOUNT. 2 6 . HE SUBMITTED THAT THE STATUTORY PROVISION MAKES IT CLEAR THAT THE PUNITIVE CHARGES ARE IN ADDITION TO FREIGHT AND OTHER CHARGES AND THAT THE PUNITIVE CHARGES ARE CLEARLY REFERRED TO AS PENALTY. LD CIT DR RELIED UPON THE DECISION OF ITAT DELHI BENCH IN THE CASE OF ARUN KUMAR GUPTA, HUF VS ACIT (2012) 27 TAXMANN./COM 230 (DEL) AND ALSO THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS MAMTA ENTERPRISES (2004) 135 TAXMAN 393 (KAR), WHEREIN, IT WAS HELD THAT COMPOUNDING CHARGES PAID FOR UNAUTHORIZED CONSTRUCTION WAS CLAIMED AS DEDUCTION WHILE COMPUTING INCOME FROM BUSINESS. IT WAS ALSO HELD THAT THE COMPOUNDING FEE WAS PAID FOR THE PURPOSE OF COMPOUNDING A CRIMINAL OFFE NCE AND WAS THEREFORE HIT BY THE PROVISION OF EXPLANATION TO SECTION 37(1) OF THE ACT. 2 7 . REPLYING TO ABOVE, LD AR SUPPORTED THE ORDER OF THE LD CIT(A). HE ALSO RELIED ON THE DECISION OF ITAT KOLKATA IN THE CASE OF DCIT VS M/S. RUNGA MINES LTD., IN ITA NO.1531/KOL/2017 FOR A.Y. 2014 - 15, WHEREIN, IT WAS HELD THAT OVERLOADING CHARGES MAY , IN ITS TERMINOLOGY , BE TERMED AS PUNITIVE CHARGES BUT SUCH PAYMENTS APPEAR TO BE ROUTINE PAYMENTS IN NATURE OF ADDITIONAL FREIGHT CHARGES FOR OVERLOADING AND THE PUNITIVE CHARGES SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 25 | 68 CANNOT BE CHARACTERIZED AS EXPENDITURE INCURRED FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW AND, THEREFORE, EXPLA NATION 37(1) IS NOT ATTRACTED. HE, ACCORDINGLY, URGED TO UPHOLD THE ORDER OF THE LD CIT(A) ON THIS ISSUE. 2 8 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD OF THE CASE. IN THE INSTANT CASE, THE PUNITIVE CHARGES PAID TO GANGAVARAM PORT LTD., IS FOR OVERLOADING OF RAKES. NO WHERE, IT IS CLAIMED THAT THE CHARGES PAID AS PUNITIVE CHARGES IS INFRACTION OF ANY LAW. HENCE, IT CANNOT BE HELD THAT THE PUNITIVE CHARGES IS A PENALTY FOR BREACH OF LAW. 2 9 . IN THE CASE OF ARUN KUMAR GUPTA, HUF (SUPRA), RELIED UPON BY LD CIT DR, THE FACTS ARE THAT THE PAYMENT MADE BY THE ASSESSEE AGAINST VIOLATION OF MUNCIPALI TY LAWS FOR MISUSE OF PROPERTY WHICH IS INFRACTION OF LAW. HOWEVER, IN THE PRESENT CASE, THE PUNITIVE CHARGES IS AGAINST OVERLOADING CHARGES IN THE RAKE. 30 . IN THE CASE OF MAMATA ENTERPRISES (SUPRA) RELIED UPON BY LD CIT DR, THE FACTS ARE THAT THE APPEL LANT MADE CONSTRUCTION IN CONTRAVENTION OF THE PROVISION OF KARNATAKA MUNCIPAL CORPORATION ACT AND HENCE, THE OFFENCE WAS COMPOUNDED ON PAYMENT OF COMPOUNDING FINE. IN THE CASE AT HAND, THERE IS NO FINE IMPOSED FOR EXCESS LOADING IN THE SHIP. THE EXCESS PAYMENT IS KNOWN AS PUNITIVE CHARGES. IN THE PRESENT CASE THERE IS NO OFFENCE SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 26 | 68 WHATSOEVER AND THERE IS NO COMPOUNDING FEE PAID AND CLAIMED AS DEDUCTION. 31 . WE FIND IN THE CASE OF RUNGA MINES LTD (SUPRA), KOLKATA ITAT UNDER SIMILAR FACTS HELD THAT OVERLOADI NG CHARGES MAY , IN ITS TERMINOLOGY , BE TERMED AS PUNITIVE CHARGES BUT SUCH PAYMENTS APPEAR TO BE ROUTINE PAYMENTS IN NATURE OF ADDITIONAL FREIGHT CHARGES FOR OVERLOADING AND THE PUNITIVE CHARGES CANNOT BE CHARACTERIZED AS EXPENDITURE INCURRED FOR ANY PUR POSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW AND, THEREFORE, EXPLANATION 37(1) IS NOT ATTRACTED. 3 2 . FROM THE AFORESAID FACTS, WE OBSERVE THAT P UNITIVE CHARGES FOR OVERLOADING WERE ACTUALLY IN THE NATURE OF ADDITIONAL FREIGHT FOR TRANSPORTING GOODS BEYOND THE PERMISSIBLE CARRYING CAPACITY WHICH CANNOT BE CATEGORIZED AS AN EXPENDITURE INCURRED FOR ANY PURPOSE WHICH IS AN OFFICE OR INFRINGEMENT OF L AW. WE ALSO FIND THAT AFTER CONSIDERING THE DETAILED SUBMISSIONS, THE CIT(A) TOOK THE VIEW THAT PAYMENT IN QUESTION WAS COMPENSATORY IN NATURE AND WAS MADE TOWARDS EXTRA OR OVERLOADING BRINGING EXTRA BENEFIT FOR ASSESSEE IN THE FORM OF TRANSPORTATION OF E XTRA GOODS OR MATERIAL, WHICH CANNOT BE TAGGED AS PENAL AND THEREFORE THE PROVISION TO EXPLANATION TO SECTION 37(1) OF THE ACT WILL NOT BE APPLICABLE. WE THEREFORE UPHOLD THE ORDER OF CIT(A) AND DISMISS GROUND NO. 2 RAISED BY THE REVENUE FOR THE ASSESSMENT YEAR 2012 - 13. SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 27 | 68 3 3 . GROUND NO.3 OF APPEAL FOR THE ASSESSMENT YEAR 2012 - 13 AND GROUND NO.3 OF APPEAL FOR ASSESSMENT YEAR 2013 - 14 ARE IDENTICAL AND SIMILAR IN RESPECT OF DELETION OF ADDITION OF INTEREST. HENCE, WE DISCUSS THE FACTS FOR THE ASSESSMENT YEAR 2012 - 13. 3 4 . FACTS IN BRIEF ARE THAT THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS GIVEN INTEREST FREE LOANS AND ADVANCES TO RELATED PARTIES. THE AO REQUIRED THE ASSESSEE TO FURNISH THE DETAILS OF SUCH LOANS AND ADVANCES GIVEN TO TH E FOLLOWING PARTIES AND PAID INTEREST ON THE BANK LOAN AND EXPLAIN, AS TO WHY INTEREST @ 12% SHOULD NOT BE DISALLOWED: I) ALTRADE INFRASTRUCTURE PVT LTD ; RS. 25,00,.000 II) D.R.PATNAIK : RS.12,71,06,652 III) ALTRADE HOTELS PVT LTD. : RS. 7,75,00,000 IV) ALTRADE IRON & POWER LTD. : RS.20,45,08,000 V) OCAN CAPITAL LTD. `: RS. 9,70,15,668 3 5 . IN REPLY, THE ASSESSEE SUBMITTED THAT THE ASSESSEES CAPITAL WAS RS.441.11 CRORES AS ON 31.3.2012, WHEREAS LOANS AND ADVANC ES WERE TO THE TUNE OF RS. 43.16 CRORES, THEREFORE, THE ASSESSEE HAD ENOUGH CAPITAL TO GIVE INTEREST FREE LOANS AND ADVANCES TO VARIOUS PARTIES. THE ABOVE EXPLANATION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE AO , AND, ACCORDINGLY, NOTIONAL INTEREST AMOUNT OF RS.37,17,885/ - WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 28 | 68 3 6 . ON APPEAL, THE LD CIT(A) DELETED THE ADDITION MADE BY THE AO, BY OBSERVING AS UNDER: I HAVE CONSIDERED THE MATTER CAREFULLY. IT IS A FACT THAT THE TOTAL CAPITAL OF THE ASSESSEE STANDS AT RS.441.11 CRORES AS ON 31.3.2012 AGAINST LOANS & ADVANCE OF RS.43.16 CRORES (WRONGLY MENTIONED AS RS.50.86 CRORES BY THE AO). HENCE, THERE WAS NO NEED FOR THE ASSESSEE TO DIVERT BORROWED FUNDS BY WAY OF INTEREST FREE LOANS TO SISTER CONCERNS. MOREOVER, IT IS SEEN THAT THE LOANS FROM BANKS HAVE BEEN UTILIZED FOR CREATION/ACQUISITION OF SPECIFIC ASSETS AND NO PART OF THE SAME HAS BEEN DIVERTED BY WAY OF INTER EST FREE LOANS TO SISTER CONCERNS AND OTHERS. IN THE CASE OF CIT V HDFC BANK (2014) 366 ITR 505, IT HAS BEEN HELD BY THE HON'BLE BOMBAY HIGH COURT THAT WHERE THE ASSESSEE'S CAPITAL, NET PROFIT, RESERVES, SURPLUS AND CURRENT ACCOUNT DEPOSITS ARE HIGHER THAN THE INVESTMENT IN TAX FREE SECURITY, IT WOULD HAVE TO BE PRESUMED THAT THE INVESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. THE DECISION IN THIS CASE IS SQUARELY APPLICABLE TO THE CASE OF THE ASSESSEE BECAUS E SHE HAS HUGE CAPITAL BALANCE AND PROFITS. IN THIS VIEW OF THE MATTER, IT IS NOT AT ALL JUSTIFIED TO HOLD THAT INTEREST BEARING LOANS HAVE BEEN DIVERTED IN THE FORM OF INTEREST FREE LOANS AND ADVANCES TO SISTER CONCERNS. ACCORDINGLY, THE DISALLOWANCE OF R S.37,17,885/ - IS DELETED. 3 7 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD OF THE CASE. LD CIT DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER. HE SUBMITTED THAT THERE IS NO DOCUMENTARY EVIDENCE FURNISHED BY THE ASSESSEE THAT THE LOANS AND ADVANCES ARE GIVEN TO PARTIES OUT OF HER CAPITAL. HE SUBMITTED THAT WHEN THE ASSESSEE HAS TAKEN LOAN FROM THE BANK AND PAID INTEREST THEREON, THE N HOW CAN IT POSSIBLE TO GIVE INTEREST FREE LOANS AND ADVANCES OUT OF OWN CAPITAL OR INTEREST FREE FUNDS . HENCE, IT WAS URGED TO REVERSE THE ORDER OF THE LD CIT(A) TO RESTORE THAT OF THE AO . 3 8 . REPLYING TO ABOVE, LD AR SUPPORTED THE ORDER OF THE LD CIT(A) . SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 29 | 68 3 9 . ON CONSIDERATION OF THE RIVAL SUBMISSION, FROM FINANCIAL STATEMENT FOR F.Y., 2011 - 12 PERTAINING TO A.Y. 2012 - 13 WE CLEARLY OBSERVE THAT THE ASSESSEE HAD A CAPITAL OF RS.441.11 CRORES AS ON 31.3.2012 AND THE ASSESSEE HAD GIVEN INTEREST FREE LOANS AND ADVANCES TO THE TUNE OF RS. 43.16 CRORES, WHICH IS VERY MUCH BELOW OR LESSEER FROM SAID AMOUNT OF THE CAPITAL OF THE ASSESSEE. WHEN, THE ASSESSEE HAS INTEREST BEARING FUNDS AS ALSO OTHER (I.E. INTEREST FREE HUGE CAPITAL OR OWN FUNDS) THEN UNTIL & UNLESS IT CAN BE ESTABLISHED BY WAY OF COGENT MATERIAL OR FACTS THAT THE ASSESSEE HAS ADVANCED INTEREST FREE LOANS OUT OF INTEREST BEARING FUNDS, THE INTEREST PAID ON THE BORROWED FUNDS CANNOT BE DISALLOWED. THE MERE FACT THAT THE ASSESSEE IS PAYING INTEREST O N ITS BORROWINGS AND THE ASSESSEE HAS ALSO GIVEN INTEREST FREE LOANS OR ADVANCES , BY ITSELF, DOES NOT ENTITLE THE AO FOR MAKING DISALLOWANCE OF INTEREST SO PAID ON THE FLIMSY GROUND THAT THE BORROWED FUNDS HAVE BEEN USED FOR BUSINESS PURPOSES WITHOUT ANY COGENT ADVERSE MATERIAL OR EVIDENCE PROVING THE UTILISATION OF INTEREST BEARING FUNDS FOR THE PURPOSE OF ADVANCING INTEREST FREE LOANS/ADVANCES. 40 . WE FIND THAT THE LD CIT(A) REFERRED TO THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS HDFC BANK (2014) 366 ITR 505 (BOM), WHEREIN, IT HAS BEEN HELD THAT WHERE THE ASSESSEES CAPITAL, NET PROFIT, RESERVES, SURPLUS AND CURRENT ACCOUNT DEPOSITS ARE HIGHER THAN THE INVESTMENT IN TAX FREE SECURITY, IT WOULD HAVE TO BE PRESUMED THAT THE SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 30 | 68 INVESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. 41 . LD CIT DR COULD NOT CONTROVERT THAT THE CLAIM OF THE ASSESSEE THAT SHE HAS TOTA L CAPITAL OF RS.441.11 CRORES AS ON 31.3.2012. THEREFORE, RESPECTFULLY FOLLOWING THE JUDGEMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF HDFC BANK (SUPRA), WE UPHOLD AND CONFIRM THE FINDINGS OF THE LD CIT(A) DISMISS ING THE GROUND OF REVENUE. ACCORDING LY, GROUND NO.3 FOR ASSESSMENT YEAR 2012 - 13 AND GROUND NO.3 OF APPEAL FOR ASSESSMENT YEAR 2013 - 14 ARE DISMISSED. 4 2 . GROUND NO.4 OF APPEAL FOR ASSESSMENT YEAR 2012 - 13 IS AGAINST THE DELETION OF RS.3,99,28,438/ - MADE UNDER THE HEAD DISALLOWANCE OF PERIPHER AL DEVELOPMENT CHARGES. 4 3 . APROPOS THIS GROUND, LD CIT DR, SUPPORTING THE ACTION OF THE ASSESSING OFFICER, DREW OUR ATTENTION TOWARDS PARA 9 AT PAGES 5 - 6 OF THE ASSESSMENT ORDER, SUBMITTED THAT THE AO BY FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TRAVANCORE TITANIUM PRODUCTS LTD VS CIT , 1966 SCR (3) 321 , HAS RIGHTLY DISALLOWED THE CLAIM OF THE ASSESSEE TOWARDS PERIPHERAL DEVELOPMENT CHARGES BY OBSERVING THAT HE IS UNABLE TO VERIFY WHETHER PERIPHERAL DEVELOPMENT CHARGES IS THE EXPENDITURE INCIDENTAL TO THE BUSINESS AND MUST HAVE BEEN NEC ESSITATED OR JUSTIFIED BY COMMERCIAL EXPEDIENCY OR NOT IN THE CASE OF THE ASSESSEE AS THE ASSESSEE HAS FAILED TO SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 31 | 68 JUSTIFY THE PERIPHERAL DEVELOPMENT CHARGES WITH SUPPORTING DOCUMENTS/EVIDENCES. LD CIT DR SUBMITTED THAT THE LD CIT(A) HAS GRANTED RELIEF TO T HE ASSESSEE WITHOUT ANY REASONABLE CAUSE AND JUSTIFIED FINDINGS IGNORING THE FACTS AND CIRCUMSTANCES OF THE CASE, UNDER WHICH THE ASSESSEE HAS CLAIMED EXPENSES TOWARDS PERIPHERAL DEVELOPMENT CHARGES. THEREFORE, THE IMPUGNED ORDER OF THE LD CIT(A) ON THIS POINT, MAY KINDLY BE SET ASIDE BY RESTORING THAT OF THE ORDER OF THE AO. 4 4 . REPLYING TO ABOVE, LD AR DREW OUR ATTENTION TOWARDS EXPLANATION OF THE ASSESSEE AND SUBMITTED THAT DURING ASSESSMENT PROCEEDINGS BEFORE THE AO, AS HAS BEEN RECORDED BY THE AO IN PARA - 9 OF THE ASSESSMENT ORDER, IT WAS SUBMITTED THAT THE ASSESSEE IS A MINES OWNER AND THE MINES ARE LOCATED IN THE FORESTS AND OPERATION IN THE MINES AREA AFFECTS THE PERIPHERY IN WHICH SEVERAL VILLAGES ARE LOCATED. LD A.R. FURTHER EXPLAINED THAT TO COMPENSATE THE DAMAGE HAPPENING TO THE LOCAL AMENITIES DUE TO OPERATION OF THE MINES, THE ASSESSEE IS REQUIRED TO UNDERTAKE PERIPHERY DEVELOPMENT EXPENSES AS PER THE PROVISIONS OF LAW. THEREFORE, THE AMOUNT HAS BEEN SPENT OR INCURRED FOR UPGRADATION OF THE ROADS IN THE PERIPHERY THROUGH KEONJHAR INFRASTRUCTURE DEVELOPMENT CO. LTD. LD A.R. SUBMITTED THAT ALL RELEVANT COPIES AND DOCUMENTS WERE SUBMITTED BEFORE THE AO REFLECTING THAT AT THE TIME OF MAKING PAYMENT, TAX HAS BEEN DEDUCTED AT SOURCE AS PER THE PROVISIONS OF THE INCOME TAX ACT, 1961 AND INCOME TAX RULES, 1962. LD A.R. ALSO EXPLAINED THAT MINES A RE LOCATED IN THE DEEP FOREST AND BY THE SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 32 | 68 PASSAGE OF TIME THE ROADS CONSTRUCTED BY THE GOVERNMENT ARE FULLY DAMAGED DURING RAINY AND OTHER NATURAL REASONS AND, THEREFORE, FOR SMOOTH FACILITATION OF VEHICLES USED BY THE ASSESSEE FOR TRANSPORTATION OF MATERI ALS AND ALSO TO FACILITATE THE LOCAL PEOPLE AND VILLAGERS , FOREST DEPARTMENT OFFICIALS AND GOVERNMENT OFFICIALS, THE ASSESSEE HAS REPAIRED /UPGRADED THE OLD ROADS. THEREFORE, THIS EXPENDITURE IS INEXTRICABLY LINKED WITH THE BUSINESS OF THE ASSESSEE WHICH IS ALLOWABLE. 4 5 . ON CAREFUL CONSIDERATION OF THE RIVAL SUBMISSIONS ALONGWITH PARA 9 OF THE ASSESSMENT ORDER AND PARA 7.2 OF THE CIT(A) ORDER, WE ARE OF THE CONSIDERED VIEW THAT THE NATURE OF BUSINESS CARRIED ON BY THE ASSESSEE MUST BE EVALUATED AND ACCEPTED AS PER THE COMMERCIAL EXPEDIENCY AND TRADING PRINCIPLES. THE EXPENDITURE CLAIMED BY THE ASSESSEE MUST BE INCIDENTAL TO THE BUSINESS AND MUST BE NECESSITATED OR JUSTIFIED BY THE COMMERCIAL EXPEDIENCY AND MUST BE DIRECTLY AND INTIMATELY CONNECTED WITH THE BUSINESS AND MUST BE INCURRED BY THE PRUDENT BUSINESS MAN/TAXPAYER. FOR TH E PURPOSE OF SMOOTH RUNNING OF BUSINESS, THE CHARACTERISTIC OF PERMISSIBLE DEDUCTION, THERE MUST BE A DIRECT AND INTERLINKED CONNECTION WITH THE BUSINESS OF THE ASSESSEE, MEANING THEREBY, THE AMOUNT INEXTRICABLE CLAIMED BY THE ASSESSEE AND MODE OF BUSINESS OF THE ASSESSEE, IN ORDER TO JUSTIFY THE DEDUCTION, THE EXPENDITURE MUST BE INCIDENTAL TO THE BUSINESS AND MUST BE NECESSITATED OR JUSTIFIED BY THE COMMERCIAL EXPEDIENCY. PRECISELY, IT CAN BE SAID THAT THERE MUST BE INTER - CONNECTION SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 33 | 68 BETWEEN THE EXPENDI TURE CLAIMED BY THE ASSESSEE AND BUSINESS OPERATION BY THE ASSESSEE. 4 6 . IN THE PRESENT CASE, UNDISPUTEDLY, THE ASSESSEE IS A MINES OWNER AND THE MINES ARE LOCATED IN THE DEEP FOREST AND OBVIOUSLY THE MINING ACTIVITIES IN THE MINES AREA AFFECTS THE PERIPHE RY OF THE MINES, WHERE SEVERAL VILLAGERS ARE RESIDING IN THE VILLAGES LOCATED IN THE PERIPHERY. WHEN A MINER EXTRACTS MATERIAL FROM THE MINES, THEN, HE IS DUTY BOUND TO ENSURE THAT THERE SHOULD BE MINIMAL DISTURBANCE AND DESTRUCTION IN THE PERIPHERY AND T HERE SHOULD BE NO NUISANCE TO THE VILLAGERS RESIDING AROUND THE AREA OF OPERATION BY THE MINING ACTIVITIES. AT THE SAME TIME , IT IS ALSO A REQUIREMENT OF THE MINER THAT THERE MUST BE GOOD ROAD IN THE PERIPHERY FOR SMOOTH MOVEMENT OF MATERIALS, WHICH IS AL SO USED BY THE FOREST DEPARTMENT OFFICIALS AND OTHER GOVERNMENT OFFICIALS AND THE VILLAGERS RESIDING IN THE PERIPHERY. 4 7 . ON PERUSAL OF ASSESSMENT ORDER, WE OBSERVE THAT THE ASSESSING OFFICER HAS MADE ADDITION BY OBSERVING THAT HE IS UNABLE TO VERIFY AS TO WHETHER PERIPHERY DEVELOPMENT CHARGE IS THE EXPENDITURE INCIDENTAL TO THE BUSINESS AND MUST HAVE BEEN NECESSITATED OR JU STIFIED BY COMMERCIAL EXPEDIENCY OR NOT IN THE CASE OF THE ASSESSEE . HE ALSO NOTED THAT THE ASSESSEE HAS FAILED TO JUSTIFY THE PERIPHERAL DEVELOPMENT CHARGE WITH SUPPORTING DOCUMENTS/EVIDENCES. FROM THESE OBSERVATIONS, WE SAFELY OBSERVE THAT THE AO HAS NOT DISPUTED THE QUANTUM OF EXPENSES OR ANY OTHER COMPLIANCE REQUIRED AS PER THE PROVISIONS OF INCOME TAX ACT AT THE SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 34 | 68 TIME OF MAKING PAYMENT AND HE SIMPLY DISALLOWED THE CLAIM OF THE ASSESSEE BY OBSERVING THAT HE IS UNABLE TO VERIFY THE CLAIM OF THE ASSESSE E IN ABSENCE OF SUPPORTIVE EVIDENCES/DOCUMENTS. 4 8 . FURTHER FROM PARA 7.2 OF THE CIT(A), WE OBSERVE THAT THE LD CIT(A) HAS GRANTED RELIEF TO THE ASSESSEE BY OBSERVING AS FOLLOWS: 7.2 I HAVE CONSIDERED THE MATER CAREFULLY. THE AO HAS DISALLOWED THE ENTIRE EXPENDITURE UNDER THE ABOVE HEAD OBSERVING THAT IT IS NOT POSSIBLE TO VERIFY WHETHER THE EXPENDITURE IS INCIDENTAL TO THE BUSINESS OF THE ASSESSEE AND NECESSITATED OR JUSTIFIED BY COMMERCIAL EXPEDIENCY. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESS EE IS FOUND TO HAVE FURNISHED ALL THE DETAILS RELATING TO THE EXPENDITURE INCURRED UNDER THE ABOVE HEAD OF RS.3,99,28,438/ - . THE ENTIRE AMOUNT HAS BEEN PAID TO M/S. KEONJHAR INFRASTRUCTURE DEV. COMPANY LTD FOR IMPROVEMENT OF ROADS IN THE MINES AREAS OF TH E ASSESSEE. THE ASSESSEE HAS TO MAINTAIN THE ROADS IN HER MINES AREAS FOR THE SAKE OF HER MINING BUSINESS. THOUGH CLASSIFIED AS PERIPHERY DEV. EXPENSES, THE EXPENDITURE HAS ACTUALLY BEEN INCURRED FOR CONSTRUCTION AND MAINTENANCE OF ROADS IN THE PERIPHERY OF THE MINES BELONGING TO THE ASSESSEE. OF COURSE, THERE WAS NO DIRECTION FROM THE SO CALLED DISTRICT COMMITTEE FOR DOING SUCH WORKS. BUT IT IS A FACT THAT IT VERY MUCH INCIDENTAL TO THE ASSESSEES BUSINESS TO MAINTAIN THE ROADS IN AND AROUND THE MINES AREAS FOR SMOOTH RUNNING OF HER BUSINESS. IT IS NOT UNDERSTOOD, WHAT BUSINESS EXPEDIENCY, THE AO WAS LOOKING FOR TO ALLOW THE EXPENSES. IN THIS VIEW OF THE MATTER, THE DISALLOWANCE OF RS.3,99,28,438/ - UNDER THE ABOVE HEAD IS DELETED. 4 9 . IN VIEW OF ABOVE, FROM THE EXPLANATION SUBMITTED BY THE ASSESSEE BEFORE THE AO DATED 5.2.2015, IT IS CLEAR THAT THE ASSESSEE INFORMED THE NAME OF CONTRACTOR, WHO WAS PAID THE IMPUGNED AMOUNT FOR UPGRADATION OF ROADS IN THE PERIPHERY AREA I.E. M/S. KEONJHAR INFRASTRUCTURE DEV. COMPANY LTD. ON RECEIPT OF ABOVE EXPLANATION, THE AO WITHOUT POINTING OUT ANY DEFECT IN THE QUANTUM OF EXPENSES SPENT BY THE ASSESSEE AND MODE OF SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 35 | 68 PAYMENT ADOPTED BY THE ASSESSEE FOR MAKING PAYMENT AND WITHOUT VERIFYING FROM THE RECIPI ENT CONTRACTOR REGARDING RECEIPT OF PAYMENT AND RENDERING OF SERVICES TOWARDS UPGRADATION OF ROADS PROCEEDED TO MAKE DISALLOWANCE AND ADDITION. THE AO WAS DUTY BOUND TO ISSUE SHOW CAUSE NOTICE TO THE ASSESSEE AND IF HE WAS NOT SATISFIED WITH THE REPLY, H E COULD HAVE ISSUED NOTICE TO THE RECIPIENT CONTRACTOR WHO WAS PAID THE IMPUGNED THE AMOUNT REGARDING THE WORK OF UPGRADATION OR CONSTRUCTION OF ROADS ON THE DIRECTION OF THE ASSESSEE IN THE PERIPHERY AREA OF THE MINES OWNED BY THE ASSESSEE BUT NO SUCH EX ERCISE HAD BEEN UNDERTAKEN. THEREFORE, THE ALLEGATION MADE BY THE AO THAT THE ASSESSEE HAS FAILED TO JUSTIFY THE EXPENSES WITHOUT EVIDENCES/DOCUMENTS HAS NO LEGS TO STAND. 50 . ON CAREFUL PERUSAL OF THE FINDINGS OF THE LD CIT(A) (SUPRA) , WE DO NOT FIND ANY INFIRMITY IN HIS FINDINGS TO INTERFERE WITH THE SAME AND, ACCORDINGLY, WE UPHOLD AND DISMISS GROUND NO.4 OF REVENUE FOR ASSESSMENT YEAR 2012 - 13. 51. GROUND NO.1 OF APPEAL FOR ASSESSMENT YEAR 2013 - 14 IN ITA NO.390/CTK/2017 READS AS UNDER: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD CIT(A) IS JUSTIFIED IN DELETING THE ADDITION MADE BY AO TOWARDS DISALLOWANCE OF DONATION TO THE TUNE OF RS.1,75,00,000/ - SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 36 | 68 52. APROPOS THIS GROUND, LD CIT DR SUPPORTING THE ASSESSMENT ORDER, SUB MITTED THAT THE ASSESSEE, DURING THE RELEVANT FINANCIAL PERIOD, HAS MADE CLAIM OF DONATION GIVEN TO SCHOOL OF HUMAN GENETICS & POPULATION HEALTH (SHG&PH). LD CIT DR SUBMITTED THAT ON RECEIPT OF ENQUIRY REPORT OF INVESTIGATION WING OF KOLKATA, A SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE ON 22.1.2016. IN RESPONSE TO THE SAME, THE ASSESSEE VIDE WRITTEN SUBMISSION DATED 2.2.2016 STATED THAT THE ASSESSEE HAS MADE DONATION THROUGH PROPER BANKING CHANNEL AFTER BEING SATISFIED WITH THEIR GENUINITY. THE ASSES SEE HAS MADE DONATION OUT OF HER HARD EARNED TAX PAID MONEY WITH GENUINE BENEVOLENCE TO HELP THE ORGANISATION DOING YEOMEN SERVICE. IT WAS NOT POSSIBLE FOR THE ASSESSEE TO ENQUIRY ABOUT THE MAL ACTIVITIES DONE BY THE OFFICE BEAR ERS AND OFFICERS OF THE SAI D ORGANISATION. THEREFORE, THE ASSESSEE IS NOT A POSITION TO COMMENT ON THE FINDINGS IN SURVEY. LD CIT DR VEHEMENTLY POINTED OUT THAT FROM THE ENQUIRY REPORT AND STATEMENT OF THE SECRETARY AND THE TREASURER OF THE SHG & PH, IT WAS CLEARLY ESTABLISHED THAT THIS INSTITUTION IS NOT INVOLVED IN ANY SCIENTIFIC RESEARCH ACTIVITIES AND THEY USED TO RECEIVE BOGUS DONATION THROUGH CHEQUE, RTGS & SIMULTANEOUSLY RETURNS MONEY AFTER DEDUCTING 7% TO 8% OF DONATION AMOUNT AS COMMISSION. LD CIT DR SUBMIT TED THAT DURING STATEMENT, THE ASSESSEE HERSELF ACCEPTED THAT SHE HAS NOT VERIFIED THE SCIENTIFIC ACTIVITY OF SHG&PH AND SHE HAS GIVEN DONATION WITHOUT KNOWING THE INSTITUTION. LD CIT DR SUBMITTED THAT THE ASSESSEE HAS NOT GIVEN ANY EXPLANATION ON THE SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 37 | 68 S TATEMENT OF THE SECRETARY AND THE TREASURER OF SHG&PH ON THE ISSUE OF BOGUS DONATION. THEREFORE, THE AO WAS RIGHT IN MAKING DISALLOWANCE/ADDITION IN THE HANDS OF THE ASSESSEE TREATING THE SAME AS BOGUS DONATION, WHICH WAS RECEIVED BACK BY THE ASSESSEE. LD CIT DR POINTED OUT THAT THE CLAIM OF DONATION U/S.35(1)(II) OF THE ACT WAS RIGHTLY DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE . LD CIT DR PRAYED THAT THE LD CIT(A) HAS GRANTED RELIEF WITHOUT ANY REASONABLE CAUSE AND BASIS, THEREFORE, TH E IMPUGNED ORDER MAY KINDLY BE SET ASIDE THAT OF RESTORING THE ORDER OF THE AO. 53. REPLYING TO ABOVE, LD A.R. PLACED RELIANCE ON THE ORDER OF THE ITAT KOLKATA B BENCH IN THE CASE OF EBIW INFO ANALYTICS PVT LTD VS ITO IN ITA NO.582/KOL/2019 ORDER DATED 13.11.2019 FOR A.Y. 2014 - 15 AND SUBMITTED THAT THE CO - ORDINATE BENCH OF THIS TRIBUNAL BY FOLLOWING ANOTHER ORDER OF ITAT KOLKATA IN THE CASE OF NARBHERAM VISHRAM IN ITA NO.S42 & 43/KOL/2018 FOR A.Y S 2013 - 14 & 2014 - 15, HAS ALLOWED THE CLAIM OF DONATION U/S.35(1)(II) MADE TO SHG&PH. THEREFORE, THE FINDINGS RECORDED BY THE LD CIT(A) IN PARA 2.2 OF THE IMPUGNED ORDER MAY KINDLY BE UPHELD ACCEPTING THE CLAIM OF THE ASSESSEE TOWARDS MAKING DONATION TO SAME ORGANISATION/INSTITUTION. LD AR SUBMITTED THAT THE AO HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT THE AMOUNT OF DONATION GIVEN BY THE ASSESSEE WAS REFUNDED BACK TO THE ASSESSEE BY THE DONEE IN CASH, PER CONTRA, THE DOCUMENTS RELIED BY THE AO CLEA RLY SHOWS THAT THE AO HAS SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 38 | 68 VERIFIED THE GENUINENESS OF THE APPROVAL OBTAINED BY THE ORGANISATION FOR THE PURPOSE OF SECTION 35(1) FROM THE COMPETENT AUTHORITY AND ONLY THEREAFTER HAS GIVEN DONATION FOR SCIENTIFIC RESEARCH. LD AR STRENUOUSLY CONTENDED THAT THE ASSESSEE CANNOT BE HELD LIABLE FOR MISDEEDS OF THE SCHOOL AND THE FRAUD COMMITTED BY THEM BY HELPING ASSESSEE TO EVADE TAX BY WAY OF BOGUS DONATION UNEAR THED DURING SURVEY CONDUCTED AFTER PASSAGE OF LONG TIME. LD AR AGAIN DREW OUR ATTENTION TO PARA 2.1 & 2.2 OF THE CIT(A) ORDER AND SUBMITTED THAT NO EVIDENCE HAS BEEN BROUGHT ON RECORD THAT THE ASSESSEE HAS GOT BACK THE DONATION MONEY FROM THE DONEE ORGANISATION ON PAYMENT OF COMMISSION, THE DONATION CANNOT BE TREATED AS BOGUS UNLESS AND UNTIL, IT IS ESTABLISHED BY WAY OF CONCRETE RELIABLE AND ADVERSE MATERIAL/DOCUMENTS THAT THE AMOUNT OF DONATION GIVEN WAS RETURNED BACK IN CASH OR ANY OTHER MODE TO THE ASSESSEE AFTER DEDUCTING SOME AMOUNT AS COMMISSION BY THE OFFICE BEARERS/SECRETARY OR TREASURER OF THE DONEE ORGANISATION. PARA 2.1 & 2.2 OF THE IMPUGNED ORDER READ AS FOLLOWS: 2.1 IN THE COURSE OF APPEAL HEARING, THROUGH A WRITTEN SUB MISSION HAS CONTENDED AS UNDER: '1. DONATION: RS.1,75,00,000/ - CLAIMED U/S 35(L)(II) OF THE I.T.ACT, D IS ALLOWED BY THE LEARNED A.O. ON THE GROUND THAT UPON A SUR CONDUCTED ON THE DONEE INSTITUTION, THE OFFICE BEARERS THEREOF HA D THAT IT WAS NOT A GENUINE ORGANIZATION. THE APPELLANT HA D CATEGORICALLY SUBMITTED BEFORE THE A.O. THAT AT THI S TIME WHEN THE DONATION WAS GIVEN, THE ORGANIZATION IN QUESTION WAS APPROVAL FROM THE INCOME TAX AUTHORITIES. THE APPELLANT HAD COMMUNICAT ED THE ORGANIZATION AND AFTER BEING THOROUGHLY SATISFIED ABOU T ITS STATUS APPROVED ORGANIZATION THAT SHE MADE THE DONATION THROUGH PROPER BA NKING SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 39 | 68 CHANNEL. IT IS REITERATED THAT ONCE THE ASSESSE E HAD SATISFIED HERSELF ABOUT VERACITY OF THE ORGANIZATION, HER ROLE ENDED AND THAT SHE HAD GIVEN THE DONAT ION UNDE R BONAFIDE BELIEF. AS SUCH, IT IS THE EARNEST SUBMISSION OF THE APPELLANT THE SHE CAN'T BE EXPECTED TO KEEP A TRACK OF THE ACTIVITIES OF THE DONEE ORGANIZATIO N AND THE DISALLOWANCE OF THE DONATION IS UNJUSTIFIED AND FULLY DESERVES TO BE DELETED. COPIES OF THE SUBMISSION BEFORE THE A.O. ARE ATTACHED. 2.2 I HAVE CONSIDERED THE MATTER WITH REFERENCE TO THE FACTS ON RECORD. IT IS A FACT THAT THE ASSESSEE HAS GIVEN A DONATION OF RS.1,75,00,000/ - TO AN ORGANIZATION IN KOLKATA BY NAME SCHOOL OF HUMAN GENETICS & PO PULATION HEALTH (SHG&PH) AND THE DONATION HAS BEEN GIVEN THROUGH CHEQUE. THIS ORGANIZATION/SCHOOL IS DULY APPROVED BY THE COMPETENT AUTHORITY FOR ACCEPTING DONATIONS FOR SCIENTIFIC RESEARCH AS PER THE PROVISIONS OF SECTION 35(1). OF COURSE, SUBSEQUENTLY CE RTAIN OFFICE BEARERS/EXECUTIVES OF THE SCHOOL HAVE STATED IN THE COURSE OF SURVEY OPERATION U / S .133A THAT THE SCHOOL USED TO RECEIVE DONATIONS THROUGH AGENTS WHICH WERE BEING REFUNDED BACK IN .'CASH TO THE DONORS IN EXCHANGE OF 8% COMMISSION. FROM THE STAT EMENTS RECORDED FROM THESE OFFICE BEARERS O F THE SCHOOL, IT IS SEEN THAT THEY HAVE GIVEN A GENERALIZED STATEMENT AND NOWHERE HAVE STATED THAT THE DONATION OF RS.1 CRORE GIVEN BY THE ASSESSEE WAS REFUNDED BACK TO THE ASSESSEE IN CASH. CERTAIN DOCUMENTS LYING ON RECORDS SHOW THAT THE ASSESSEE HAS VERIFIED THE GENUINENESS OF THE APPROVAL OBTAINED BY THE SCHOOL FOR THE PURPOSE OF SECTION 35(1) FROM THE COMPETENT AUTHORITY AND ONLY THEREAFTER HAS GIVEN THE DONATION FOR SCIENTIFIC RESEARCH. THE ASSE SSEE CANNOT BE HELD RESPONSIBLE FOR THE MISDEEDS OF THE SCHOOL AND THE FRAUD COMMITTED BY THEM BY HELPING ASSESSES TO EVADE TAX BY WAY OF BOGUS DONATION. SINCE THERE IS NO EVIDENCE BROUGHT ON RECORD TO SHOW THAT THE ASSESSEE HAS GOT BACK THE DONATION MONEY FROM THE SCHOOL ON PAYMENT OF COMMISSION, THE DONATION CANNOT BE TREATED AS BOGUS. THE DONATION HAS BEEN GIVEN TO THE AFORESAID SCHOOL WHICH HAS APPROVAL FROM THE COMPETENT AUTHORITY AS A SCIENTIFIC RESEARCH INSTITUTION ELIGIBLE FOR ACCEPTING DONATION U/ S.35(1) AND, THEREFORE, THE ASSESSEE IS ENTITLED TO THE BENEFIT OF WEIGHTED DEDUCTION U/S.35(1)(II). ACCORDINGLY, THE DISALLOWANCE OF RS.1,75,00,000/ - IS DELETED. 54. LD AR SUBMITTED THAT THE SURVEY ACTION U/S.133A OF THE ACT WAS CARRIED OUT ON 27. 1.2015 AT THE REGISTERED OFFICE OF SHG&PH, THE DONEE BY THE INVESTIGATION WING, KOLKATA SUBSEQUENTLY AND NOT BEFORE GRANTING OF DONATION BY THE ASSESSEE AND THE ASSESSEE HAD GRANTED DONATION TO THE DONEE SHG&PH MUCH PRIOR DURING FINANCIAL YEAR 2012 - 13 TO THE DATE OF SURVEY WHICH WAS CARRIED ON 27.1.2015. THEREFORE, THE CLAIM OF THE SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 40 | 68 ASSESSEE FOR DONATION TOWARDS SCIENTIFIC RESEARCH CANNOT BE DENIED OR DISMISSED ON THE BASIS OF SUBSEQUENT SURVEY ACTION AGAINST THE DONEE AFTER PASSAGE OF ABOUT TWO YEARS TIME WITHOUT ANY ADVERSE MATERIAL AGAINST THE ASSESSEE REGARDING RECEIVING BACK ENTIRE OR PART AMOUNT OF DONATION IN CASH. 55. ON CAREFUL CONSIDERATION OF THE RIVAL SUBMISSION, FIRST OF ALL, FROM THE PARA 4 OF THE ASSESSMENT ORDER, WE OBSERVE THAT THE A O HAS DISALLOWED THE CLAIM OF THE ASSESSEE TOWARDS DONATION BY HOLDING THAT THE DONEE SGH&PH IS NOT INVOLVED IN ANY SCIENTIFIC RESEARCH ACTIVITIES AND THEY USED TO RECEIVE BOGUS DONATION THROUGH CHEQUE, RTGS & SIMULTANEOUSLY RETURNS MONEY AFTER DEDUCTING 7 % TO 8% OF DONATION AMOUNT AS COMMISSION. DURING FIRST APPELLATE PROCEEDINGS, THE ASSESSEE THROUGH WRITTEN SUBMISSION CONTENDED THAT THE AO HAS DISALLOWED CLAIM OF THE ASSESSEE U/S.35(1)(II) OF THE ACT ON THE GROUND UPON A SURVEY OPERATION CONDUCTED ON TH E DONEE INSTITUTION ON 27.1.2015 , THE OFFICE BEARERS HAD ADMITTED THAT IT WAS NOT A GENUINE ORGANISATION. IT WAS ALSO SUBMITTED THAT AT THE POINT OF TIME WHEN THE DONATION WAS GIVEN, THE ORGANISATION DURING A.Y,. 2012 - 13 WAS ENJOYING APPROVAL FROM THE INC OME TAX AUTHORITIES TO RECEIVE DONATION U/S.35(1)(II) OF THE ACT AND THE APPELLANT HAD GRANTED DONATION TO THE ORGANISATION AFTER BEING THOROUGHLY SATISFIED ABOUT ITS STATUS AS AN APPROVED ORGANISATION FOR RECEIVING DONATION FOR THE PURPOSE OF SCIENTIFIC R ESEARCH TO BE CLAIMED U/S.35(1)(II) OF THE ACT. IT HAS NOT BEEN CONTROVERTED THAT THE ASSESSEE HAS SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 41 | 68 GIVEN DONATION THROUGH BANKING CHANNEL AND AT THE TIME OF GRANTING DONATION, THE DONEE ORGANISATION WAS ENJOYING THE APPROVAL OF INCOME TAX AUTHORITIES U/S. 35(1) OF THE ACT DURING F.Y. 2012 - 13 . IT IS ALSO IN DISPUTE THAT THE SURVEY PROCEEDINGS U /S.133A OF THE ACT WAS CONDUCTED ON THE DONEE ORGANISATION MUCH AFTER GRANT OF DONATION BY THE ASSESSEE ON 27.1.2015. 56. FROM CONJUNCT READING OF ASSESSMENT ORDER AN D ORDER OF LD CIT(A), WE ARE OF THE CONSIDERED VIEWS THAT UNDISPUTEDLY, DONATION HAS BEEN GIVEN BY THE ASSESSEE TO SGH&PH THROUGH BANKING CHANNEL AND THIS ORGANISATION/INSTITUTION WAS DULY APPROVED BY THE COMPETENT INCOME TAX AUTHORITIES FOR ACCEPTING DONA TION FOR SCIENTIFIC RESEARCH AS PER THE PROVISION OF SECTION 35(1) OF THE ACT AT THE TIME OF GRANT OF DONATION BY THE ASSESSEE. 57. IT IS ALSO NOT IN DISPUTE THAT SUBSEQUENTLY OFFICE BEARERS OF SCHOOL HAVE STATED DURING THE COURSE OF SURVEY OPERATION U/S.133A OF THE ACT ON 27.1.2015 ACCEPTED THAT THE DONATIONS ARE RECEIVED THROUGH AGENTS AND REFUNDED THE DONATION TO THE RESPECTIVE DONORS IN EXCH ANGE OF 7% TO 8% COMMISSION. LD CIT(A) RIGHTLY OBSERVED THAT FROM THE STATEMENT OF OFFICE BEARERS OF DONEE ORGANISATION/SCHOOL , IT IS SEEN THAT THEY HAVE GIVEN GENERAL ISED STATEMENT AND NOWHERE THE DONATION GIVEN BY THE ASSESSEE WAS REFUNDED BACK TO THE ASSESSEE IN CASH . AT THE SAME TIME, WE ALSO NOTE THAT THE ASSESSEE HAS SUBMITTED CERTAIN STATEMENT BEFORE THE AUTHORITIES BELOW, WHICH SHOWS THAT THE ASSESSEE HAS VERIFIED THE GENUINENESS OF THE APPROVAL SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 42 | 68 OBTAINED BY THE SCHOOL FOR THE PURPOSE OF SECTION 35(1) FROM THE COMPETENT AUTHORITY AND ONLY THEREAFTER HAS GIVEN THE DONATION FOR SCIENTIFIC RESEARCH. WE ARE IN AGREEMENT WITH THE FINDINGS OF THE LD CIT(A) THAT THERE IS NO EVIDENCE BROUGHT ON RECORD TO SHOW THAT THE ASSESSEE HAS GOT BACK THE DONATION M ONEY FROM THE SCHOOL ON PAYMENT OF COMMISSION, THEREFORE, THE DONATION CANNOT BE TREATED AS BOGUS. AT THE TIME OF GRANTING DONATION, THE ASSESSEE WAS VERY MUCH AWARE THAT THE DONEE INSTITUTION WAS ENJOYING THE STATUS OF SCIENTIFIC RESEARCH ORGANIASATION/ INSRTITUTION ELIGIBLE FOR RECEIVING DONATION U/S.35(1) OF THE ACT AND, THEREFORE, WE ARE UNABLE TO SEE ANY AMBIGUITY AND PERVERSITY IN THE FINDINGS OF THE LD CIT(A) AND HENCE, WE UPHOLD THE SAME. GROUND NO.1 OF APPEAL FOR A.Y. 2013 - 14 IS DISMISSED. 5 8 . T HE REVENUE IN GROUND NO.4 FOR A.Y. 2013 - 14 HAS CHALLENGED THE DELETION OF ADDITION MADE BY THE AO UNDER THE HEAD DISALLOWANCE OF PERIPHERAL DEVELOPMENT CHARG ES OF RS.1,85,46,330/ - . 59. APROPOS THIS GROUND OF APPEAL, BOTH THE PARTIES AGREED THAT THE FACTS AND CIRCUMSTANCES FOR A.Y. 2013 - 14 ARE SIMILAR TO THE FACTS AND CIRCUMSTANCES FOR THE ASSESSMENT YEAR 2013 - 14 ON THE ISSUE OF DISALLOWANCE OF PERIPHERY DEVEL OPMENT CHARGES. WHILE DECIDING THE GROUND NO.4 OF APPEAL FOR A.Y. 2012 - 13 ON SIMILAR ISSUE, WE HAVE DISMISSED THE GROUND NO.4 OF APPEAL OF REVENUE AND OUR CONCLUSION DRAWN THEREIN WOULD APPLY MUTATIS - MUTANDIS TO GROUND NO.4 OF APPEAL FOR A.Y. 2013 - 14. HE NCE, GROUND NO.4 OF APPEAL OF REVENUE IS DISMISSED. SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 43 | 68 ITA NOS.393 & 394/CTK/2017 FOR A.Y. 2012 - 13 & 2013 - 14 ASSESSES APPEAL. 60. GROUND NO.1 OF APPEAL FOR A.Y. 2012 - 13 & 2013 - 14 ARE GENERAL IN NATURE. 6 1 . GROUND NO.2 FOR A.Y. 2012 - 13 AND A.Y. 2013 - 13 IS COMMON I.E. DISALLOWANCE UNDER SECTION 14A OF THE ACT. HENCE, WE PROCEED TO ADJUDICATE THE FACTS FOR THE ASSESSMENT YEAR 2012 - 13. 62. LD A.R., CHALLENGING THE ACTION OF THE ASSESSING OFFICER IN MAKING THE ADDITION U/S.14A OF THE INCOME TAX ACT, (IN SHORT THE ACT) SUBMITTED THAT THE LD CIT(A), IN HIS ORDER IN PARA 3.2 NOTED THAT THE CONTENTION OF THE APPELLANT THAT SHE HAS NOT INCURRED AN Y EXPENDITURE FOR EARNING OF DIVIDEND INCOME , CANNOT BE ACCEPTED. LD A.R. SUBMITTED THAT THOUGH THE APPELLANT HAS NOT CLAIMED ANY EXPENDITURE, THE AO MADE ADDITION MERELY ON PRESUMPTION OF INCURRING EXPENSES AGAINST EXEMPT INCOME, WITHOUT RECORDING ANY R EASON AS PER REQUIREMENT OF SECTION 14A OF THE ACT. LD A.R. SUBMITTED THAT THE KEY WORDS IN SUB - SECTION ( 2) OF SECTION 14A OF THE ACT ARE THAT IF THE AO, HAVING REGARD TO THE ACCOUNT OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, IN RESPECT OF SUCH EXPENDITURE. LD A.R. FURTHER SUBMITTED THAT SUB - SECTION(3) OF SECTION 14A OF THE ACT FURTHER PROVIDES THAT THE PROVISION OF SUB - SECTION (2) SHALL ALSO APPLY IN RELATION TO A CASE WHERE THE ASSESSEE CLAIMS THAT NO EXPENDI TURE HAS BEEN INCURRED BY HIM IN RELATION TO INCOME, WHICH DOES NOT SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 44 | 68 FORM PART OF THE TOTAL INCOME. LD A.R. FURTHER POINTED OUT THAT HENCE, IT IMPLIES THAT METHOD PRESCRIBED UNDER RULE 8D OF INCOME TAX RULES, 1961 (IN SHORT THE RULES) IS APPLICABLE, WH ERE THE AO HAS TO RECORD REASONS FOR SUCH NON - SATISFACTION ABOUT THE CLAIM AS WELL AS ACCOUNTS OF THE APPELLANT AFTER THE VERIFICATION AND EXAMINATION OF BOOKS OF ACCOUNTS AND FINANCIAL STATEMENT OF THE ASSESSEE . LD A.R. HAS PLACED RELIANCE ON THE FOLLOWI NG JUDICIAL PRONOUNCEMENTS: I) SESA GOA LTD VS JCIT, 60 SOT 121 (PAN) II) JK INVESTORS LTD VS ACIT (ITA NO.7858/MUM/2011 ) III) JOINT INVESTMENTS PVT LTD VS CIT, 372 ITR 694 (DELHI) IV) MAXOPP INVESTMENT LTD VS CIT, 402 ITR 640 (SC) V) DCIT VS INTEGRATED COAL MINING LTD (ITA NO.1031/KOL/2017). 63. FURTHERMORE , LD A.R. SUBMITTED TH AT THEREFORE, IF THE AO, HAVING REGARDS TO THE ASSESSEE IS NOT SATISFIED WITH THE AMOUNT OF THE CLAIM OF THE ASSES SEE, IN RESPECT OF SUCH EXPENDITURE IN RELATION TO EXEMPT INCOME, WHICH DOES NOT FORM PART OF THE TOTAL INCOME, AS PER THE PROVISION OF SECTION 14(2) AND 14(3) OF THE ACT, THE AO IS BOUND TO RECORD HIS DIS SATISFACTION ABOUT THE CLAIM OF EXPENDITURE OR CLA IM OF NO EXPENDITURE AGAINST EXEMPT INCOME FROM THE BOOKS OF ACCOUNT. DRAWING OUR ATTENTION TOWARDS FINDING RECORD BY THE AUTHORITIES BELOW, LD A.R. SUBMITTED THAT IN THE INSTANT CASE, THE AO WITHOUT RECORDING ANY OBSERVATION OR FINDING THAT, HAVING REGAR D TO THE ACCOUNTS OF THE ASSESSEE THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 45 | 68 THE CLAIM OF ASSESSEE IN RESPECT OF SUCH CLAIM OF EXPENDITURE OR NO EXPENDITURE, OBSERVED THAT THOUGH THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE FOR SUCH EXEMPT INCOME, THERE IS EVERY POSSIBILITY THAT THE INVESTMENTS FROM WHICH SUCH EXEMPT INCOME IS EARNED MIGHT HAVE BEEN MADE OUT OF LOAN ACCOUNT, FOR WHICH ASSESSEE PAID INTEREST. LD A.R. FURTHER DREW OUR ATTENTION TOWARDS RELEVANT PARA 6.1 AT PAGE 6 OF THE CIT(A ) ORDER AND SUBMITTED THAT THE LD CIT(A) IN HIS ORDER MENTIONED THAT DURING ASSESSMENT PROCEEDING, THE APPELLANT HAD EXPLAINED THAT SHE HAS A CAPITAL BALANCE OF RS.441.11 CRORES AS ON 31.3.2012 AND FUNDS BORROWED WAS EXCLUSIVELY UTILISED FOR THE PURPOSE FOR WHICH THOSE WERE OBTAINED. LD A.R. FURTHER EXPLAINED THAT THE TERM LOAN OF RS.84.74 CRORES RAISED FROM HDFC BANK WAS UTILISED FOR ACQUIRING WINDMILLS TO THE EXTENT OF RS.90.00 CRORES AND THERE WAS NO SCOPE FOR APPELLANT TO UTILISE THE LOAN FUND OTHER WISE OR FOR MAKING INVESTMENT FOR EARNING EXEMPT INCOME. 64. FURTHER, LD A.R. PLACED RELIANCE ON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS HDFC BANK, 366 ITR 505 (BOM), WHEREIN, IT IS HELD THAT WHERE THE ASSESSEES CAPITAL NET PROFIT, RESERVE, SURPLUS AND CURRENT ACCOUNT DEPOSIT WERE HIGHER THAN INVESTMENT IN TAX FREE SECURITIES, IT WOULD HAVE TO BE PRESUMED THAT THE INVESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF INTEREST FREE FUND, AVAILABLE WITH THE ASSESSEE. LD AR PRESSING INTO S ERVICE THIS PROPOSITION RENDERED BY HONBLE HIGH COURT SUBMITTED THAT THE LD CIT(A) CONCLUDED THAT INTEREST BEARING LOAN FROM BANK SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 46 | 68 HAVE BEEN UTILISED FOR THE CREATION OF ASSET I.E. WINDMILLS AND IT HAS NOT BEEN DIVERTED AND THIS FACT HAS NOT BEEN CONTROVER TED BY THE AO IN ANY MANNER . LD A.R. VEHEMENTLY POINTED OUT THAT THE ASSUMPTION OF THE AO THAT INTEREST BEARING LOANS HAS BEEN UTILISED FOR INVESTMENT IN SHARES HAS NO BASE IN VIEW OF THE FINDINGS RECORDED BY THE LD CIT(A) IN PARA 6.1 AT PAGE 6 OF FIRST A PPELLATE ORDER . LD A.R. ALSO CONTENDED THAT THE AO HAS NOT DEMONSTRATED IN THE ASSESSMENT ORDER THAT ON EXAMINATION OF ACCOUNT HE COULD BE ABLE TO LOCATE ANY EXPENDITURE INCURRED OR ATTRIBUTABLE TO EARN EXEMPTED INCOME AND ALSO HE HAS NOT RECORDED HIS DISSATISFACTION ON ACC OUNT OF THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING EXEMPT INCOME AS PROVIDED IN SUB - SECTION (3) OF SECTION 14A OF THE ACT. LD A.R ALSO SUBMITTED THAT THE APPELLANT HAS SUFFICIENT FUNDS IN HER CAPITAL ACCOUNT AND TOTAL INVE STMENT IN MUTUAL FUNDS, SHARE, DEPOSIT AND PAYMENT TO INSURANCE IS LESS THAN THE AMOUNT OF CAPITAL, THEREFORE, THERE IS NO POSSIBILITY OR CHANCE OF INVESTMENT OF BORROWED FUNDS IN SHARES, MUTUAL FUNDS AND DEPOSIT, THEREFORE, THE AO ON WRONG ASSUMPTION WITH OUT RECORDING DISSATISFACTION SWITCHED OVER AND JUMPED TO RULE 8D OF INCOME TAX RULES TO COMPUTED THE DISALLOWANCE, WHICH IS NOT SUSTAINABLE AND VALID AS PER MANDATE OF SECTION 14A OF THE INCOME TAX ACT, 1961. 65. LD A.R. FURTHER SUBMITTED THAT THE HONBLE SUPREME COURT IN THE CASE OF CIT VS RELIANCE INDUSTRIES LTD., IN CIVIL APPEAL NO.10 OF 2019 ORDER SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 47 | 68 DATED 2.1.2019 HEARD AND DISPOSED OF WITH THE OBSERVATIONS NOTED AS UNDER: THE INTEREST FREE FUNDS AVAILABLE TO THE ASSESSEE WERE SUFFICIENT TO MEET ITS IN VESTMENT. HENCE, IT COULD BE PRESUMED THAT INVESTMENTS WE R E MADE FROM THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. 66. LD A.R. LASTLY SUBMITTED THAT THE OBSERVATIONS OF THE AO AS WELL AS LD CIT(A) ARE ONLY ASSUMPTION THAT THE APPELLANT MIGHT HA VE INCURRED CERTAIN EXPENSES TO EARN EXEMPT INCOME. HE SUBMITTED THAT WITHOUT RECORDING DISSATISFACTION HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE ABOUT THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING EXEMPT INCOME, ON ASSU MPTION ONLY, THE DISALLOWANCE U/S.14A OF THE ACT R.W RULE 8D OF THE RULES , IT IS NOT CORRECT AND SUSTAINABLE AND THE AO WAS NOT CORRECT IN MAKING ADDITION AND LD CIT(A)IS NOT JUSTIFIED IN CONFIRMING THE SAME. HE FINALLY PRAYED THAT THE ADDITION MADE BY THE AO AND CONFIRMED BY THE LD CIT(A) BE ORDERED TO BE DELETED. 67. REPLYING TO ABOVE, LD CIT DR SUBMITTED THAT UNDER SECTION 14A OF THE ACT, STATUE PROVIDE FOR PR ESUMP TIVE EXPENDITURE WHICH HAS TO BE DISALLOWED BY FORCE OF STATUE. HE PLACED RELIANCE ON THE ORDER OF THE ITAT CHENNAI IN THE CASE OF M.A. ALAGAPPAN VS ACIT, 82 TAXMANN.COM 276 (CHE.TRIB). LD D.R. FURTHER PLACED RELIANCE ON THE DECISION OF ITAT DELHI IN THE CASE OF DELHI TOWERS LTD VS DCIT, 78 TAXMANN.COM 56 (DEL) AND SUBMITTED THAT THE MERE FACT THAT THE AO DID NOT EXPRESSLY RECORDED HIS SATISFACTION, WHILE SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 48 | 68 MAKING THE DISALLOWANCE, WOULD NOT PER SE DESTROY MANDATE OF SECTION 14A OF THE ACT. LD CIT D R SUPPORTING THE ORDERS OF LOWER AUTHORITIES SUBMITTED THAT THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE TOWARDS EARNING OF EXEMPT INCOME, HENCE, THERE IS EVERY POSSIBILITY THAT THE INVESTMENT FROM WHICH SUCH EXEMPT IS EARNED MIGHT HAVE BEEN MADE OUT OF TH E LOAN AMOUNT, FOR WHICH THE ASSESSEE HAD PAID INTEREST AND CLAIMED IN THE PROFIT AND LOSS ACCOUNT. THEREFORE, THE AO WAS CORRECT IN MAKING ADDITION AND L D CIT(A) WAS ALSO JUSTIFIED IN CONFIRMING THE SAME. DRAWING FURTHER OUR ATTENTION TOWARDS PARA 5 & SUB - PARA 2 & 3 OF THE ASSESSMENT ORDER, LD CIT DR SUBMITTED THAT THE EXPENDITURE IS ATTRIBUTABLE TO SUCH E ARING IS NOT ASCERTAINABLE, THE ONLY METHOD AVAILABLE FOR SUCH C LAIM UNDER RULE 8D OF I.T. RULES AND THE AO RIGHTLY COMPUTED THE PRESUMPTIVE AMOUNT OF DISALLOWANCE U/S.14A OF THE ACT AS PER RULE 8D OF I.T. RULES AND THERE IS NO DEFECT OR DEFICIENCY IN THE CALCULATION MADE BY THE AO IN THIS REGARD. LD CIT DR CONCLUDED HIS ARGUMENTS BY SUBMITTING THAT THE ORDERS OF LOWER AUTHORITIES MAY KINDLY BE UPHELD BY CONFIRMING THE ADDITION. 68. PLACING REJOINDER TO ABOVE, LD A.R. SUBMITTED THAT IN THE CASE OF M.A. ALAGAPPAN (SUPRA), THE TRIBUNAL HELD THAT WHERE THE ASSESSEE CLAIM ED THAT NO EXPENDITURE IS INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM A PART OF TOTAL INCOME UNDER THE INCOME TAX ACT, STATUE HAS PROVIDED FOR PRESUMPTIVE EXPENDITURE WHICH HAS TO BE DISALLOWED BY FORCE OF THE STATUTE. LD A.R. SUBMI TTED THAT THE ITAT CHENNAI IN THIS ORDER HAS SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 49 | 68 RELIED UPON THE JUDGEMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF PRADEEP KHANNA VS ACIT IN ITA APPEAL NO.953 OF 2015 ORDER DATED 11.8.2016 AND THE DECISION OF COORDINATE BENCH OF ITAT IN THE CASE OF JUSTICE SAM P. BHARUCHA VS ADDL. CIT, 53 SOT 192. IN THE CASE OF JUSTICE SAM P. BHARUCHA (SUPRA), IN PARA 5.1, IT HAS BEEN CLEARLY MENTIONED THAT NO NOTIONAL EXPENDITURE CAN BE APPORTIONED FOR THE PURPOSE OF EARNING EXEMPT INCOME UNLESS THERE IS AN ACTUAL EXPENDI TURE AND THE INCOME NOT FORMING PART OF TOTAL INCOME AND IN PARA 5.2, IT HAS ALSO BEEN MENTIONED THAT THE AO HAS NOT GIVEN ANY FINDING THAT ANY OF THE EXPENDITURE INCURRED AND CLAIMED BY THE ASSESSEE IS ATTRIBUTABLE FOR EARNING THE EXEMPT INCOME. HENCE, S ECTION 14A CANNOT BE APPLIED TO THE ABOVE CASE. IN PARA 6, IT HAS BEEN MENTIONED THAT SUB - SECTION(3) FURTHER PROVIDES THAT EVEN IN CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE WAS INCURRED, THE ASSESSING AUTHORITY HAS TO PRESUME THAT THE INCURRING O F SUCH EXPENDITURE AS PROVIDED WITH SUB - SECTION (2) READ WITH RULE 8D. LD A.R. SUBMITTED THAT NEITHER IN SECTION 14A NOR IN RULE 8D OF I.T.RULES, THERE IS NO MENTIONING OF MANDATE THAT THE AO IS ENTITLED FOR MAKING PRESUMPTIVE DISALLOWANCE. THEREFORE, TH E OBSERVATION OF THE CHENNAI ITAT IN THE CASE OF M.A. ALAGAPPAN (SUPRA) IS AGAINST THE LAW AND MANDATE OF SECTION 14A OF THE ACT. 69. FURTHER, LD A.R. SUBMITTED THAT THE ORDER OF ITAT DELHI IN THE CASE OF DELHI TOWERS (SUPRA) IS NOT APPLICABLE IN THE PRESENT CASE AT HAND. LD A.R. COMPARING THE FACTS AND CIRCUMSTANCES OF THE CASE OF DELHI TOWER (SUPRA) SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 50 | 68 WITH THE PRESENT CASE SUBMITTED THAT IN PARA 11 OF THE SAID ORDER OF ITAT DELHI, A CALCULATION OF DISALLOWING EXPENDITURE WAS GIVEN IN THE PAPER BOOK AND THE TRIBUNAL, FROM THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT, OBSERVED THAT THERE IS NO FRESH INVESTMENT THAT HAS BEEN MADE BY THE ASSESSEE DURING THE YEAR UNDER CON SIDERATION AND THE DIVIDEND INCOME HAS BEEN EARNED FROM OLD INVESTMENT. THEREAFTER, THE TRIBUNAL OBSERVED THAT THE LD CIT(A) WAS NOT CORRECT IN CONFIRMING THE ENTIRE DISALLOWANCE MADE BY THE AO AND RESTRICTED THE DISALLOWANCE TO THE TUNE OF EXEMPT INCOME EARNED BY THE ASSESSEE. LD A.R. SUBMITTED THAT IN THE PRESENT CASE, THE ASSESSEE HAS NOT SUBMITTED ANY CALCULATION REGARDING DISALLOWANCE UNDER SECTION 14A R.W. 8D OF I.T.RULES A . THE LD A.R. STRENUOUSLY CONTENDED THAT FROM THE OBSERVATIONS OF THE AO IN THE ASSESSMENT ORDER AND FINDINGS RECORDED BY THE LD CIT(A) IN THE IMPUGNED ORDER CLEARLY REVEALS THAT THE AUTHORITIES BELOW HAVE NOT MADE SUBSTANTIAL COMPLIANCE OF MANDATE OF STATUTORY PROVISIONS OF SECTION 14A R.W RULE 8D OF I.T.RULES. THEREFORE, THE OR DER OF ITAT DELHI IN THE CASE OF DELHI TOWERS (SUPRA) ARE NOT APPLICABLE IN FAVOUR OF T HE REVENUE IN THE PRESENT CASE HAVING DISSIMILAR FACTS AND CIRCUMSTANCES. 70. LD A.R. VEHEMENTLY POINTED OUT THAT THE LD CIT DR HAS NOT SHOWN ANY JUDGMENT OF HONBLE S UPREME COURT AND HONBLE HIGH COURT FAVOURING HIS STAND THAT BEFORE MAKING DISALLOWANCE AND CONSEQUENT ADDITION U/S.14A R.W RULE 8D OF I.T.RULES, SHOWING THAT NO SATISFACTION IS REQUIRED TO BE SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 51 | 68 RECORDED BY THE AO REGARDING THE CLAIM OF EXPENDITURE ATTRIBUTABLE TO EARNING OF EXEMPT INCOME OR CLAIM OF NO EXPENDITURE OF THE ASSESSEE OR DISPENSING THE COMPLIANCE OF REQUIREMENT OF SUB - SECTION (2) & (3) OF SECTION 14A OF THE ACT . PER CONTRA, THERE ARE NUMBER OF JUDGMENTS BY HONBLE SUPREME CO URT, HONBLE HIGH COURTS AND CO - ORDINATE BENCHES OF THIS TRIBUNAL TO SUPPORT THE CONTENTION OF THE ASSESSEE THAT FOR MAKING SUBSTANTIAL COMPLIANCE AND SUSTAINABLE ADDITION U/S.14A R.W. RULE 8D, THE AO IS MANDATORILY REQUIRED TO RECORD HIS DISSATISFACTION, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE OR NO EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. 71. LD A.R. PLACED RELIANCE ON THE DECISION OF ITAT PANAJI IN THE CASE OF SESA GOA LTD (SUPRA) TO SUBMIT THAT BEFORE MAKING ANY DISALLOWANCE UNDER SECTION 14A OF THE ACT, THE AO IS REQUIRED TO RECORD HIS SATISFACTION HAVING REGARD TO THE ACCOUNTS OF THE A SSESSEE , THAT CLAIM OF THE ASSESSEE THAT EXPENDITURE INCURRED IS NOT RELATED TO INCOME FORMING PART OF TOTAL INCOME IS INCORRECT AND SUCH SATISFACTION MAY BE ARRIVED AT AN OBJECTIVE BASIS. LD A.R. FURTHER SUBMITTED THAT IN THIS ORDER, THE TRIBUNAL HAS HELD THAT THE AO IS REQUIRED TO RECORD REASONS FOR ARRIVING AT SUCH SATISFACTION . I N THE INSTANT CASE, THE AO HAS NOT MADE SUCH EXERCISE BEFORE PROCEEDING TO MAKE DISALLOWANCE U/S.14A R.W RULE 8D . SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 52 | 68 72. FURTHER DRAWING OUR ATTENTION TOWARDS ORDER OF ITAT MUMBAI IN THE CASE OF J.K. INVESTORS (SUPRA), LD A.R. SUBMITTED THAT IT IS IMPERATIVE THAT THE AO CAN INVOKE RULE 8D ONLY WHEN HE RECORDS SATISFACTION IN REGARD TO THE CORRECTNESS OF THE CLAIM OF TH E ASSESSEE, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. THEREFORE, THE CONDITION PRECEDENT FOR AO ENTERING UPON A DETERMINATION OF THE AMOUNT OF THE EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME IS THAT THE AO MUST RECORD THAT , HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, IN RELATION TO EXEMPT INCOME. 73. FURTHER, PLACING ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENT PVT LTD (SUPRA), LD A.R. SUBMITTED THAT AS PER SUB - SECTION (2) OF SECTION 14A OF THE ACT, THE JURISDICTION TO PROCEED FURTHER AND DETERMINE THE AMOUNT OF DISALLOWANCE COULD BE DERIVED ONLY AFTER EXAMINATION OF THE ACCO UNTS AND REJECTION OF THE ASSESSEES CLAIM OR EXPLANATION. LD A.R. FURTHER POINTED OUT THAT IN THIS JUDGMENT , HONBLE HIGH COURT HAS CLEARLY LAID DOWN THE PROPOSITION THAT THE AO CAN PROCEED TO MAKE DISALLOWANCE U/S.14A R.W RULE 8D ONLY WHEN THE AO REJECTS THE CLAIM OF THE ASSESSEE THAT EXPENDITURE CLAIMED BY THE ASSESSEE TOWARDS EARNING OF EXEMPT INCOME OR CLAIM THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING OF EXEMPT INCOME IS REJECTED. SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 53 | 68 74. FURTHER PLACING RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD (SUPRA), LD A.R. DREW OUR ATTENTION TO PARA 41 OF THE JUDGEMENT AND SUBMITTED THAT HAVING REGARD TO THE LANGUAGE OF SECTION 14A(2) OF THE ACT, R.W. RULE 8D OF THE RULES, THEIR LORDSHIPS HAVE MADE IT CLEAR THAT BEFORE APPLYING THE THEORY OF APPORTIONMENT, THE AO NEEDS TO RECORD SATISFACTION THAT HAVING REGARD TO THE KIND OF THE ASSESSEE, SUO MOTO DISALLOWANCE UNDER SECTION 14A WAS NOT CORRECT. LD A.R. FUR THER POINTED OUT THAT SUB - SECTION(2) OF SECTION 14A OF THE ACT TALKS ABOUT SUO MOTO DISALLOWANCE OR EXPENDITURE SHOWN BY THE ASSESSEE TOWARDS EARNING OF EXEMPT INCOME AND SUB - SECTION(3) OF SECTION 14A PROVIDES THAT THE PROVISIONS OF SUB - SECTION (2) SHALL A LSO APPLY IN RELATION TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS AC T AND THE PRESENT ASSESSEES CASE FALLS WITHIN THE AMBIT OF SUB - SECTION(3) OF SECTION 14A OF THE ACT. 75. RELIANCE HAS ALSO BEEN PLACED BY THE LD AR ON THE DECISION OF ITAT KOLKATA IN THE CASE OF M/S. INTEGRATED COAL MINING LTD (SUPRA) TO SUBMIT THAT IN THIS CASE, IT WAS OBSERVED THAT THE AO HAS NOT EXAMINED THE ACCOUNTS OF THE ASSESSEE AND THERE WAS NO SATISFACTION RECORDED BY THE AO ABOUT THE CORRECT NESS OF THE CLAIM OF THE ASSESSEE AND WITHOUT THE SAME, HE INVOKED RULE 8D OF I.T.RULES. IT WAS ALSO HELD THAT WHILE REJECTING THE CLAIM OF ASSESSEE WITH REGARD TO EXPENDITURE IN RELATION TO EXEMPT INCOME, SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 54 | 68 THE AO HAS TO INDICATE COGENT REASONS FOR THE SAM E BUT NO SUCH EXERCISE HAS BEEN UNDERTAKEN. LD A.R. SUBMITTED THAT THE AO HAD STRAIGHT AWAY EMBARKED UPON COMPUTING DISALLOWANCE UNDER RULE 8D OF THE RULES AND IT WAS CONCLUDED THAT THE AO IS BOUND TO RECORD HIS DISSATISFACTION ONLY FROM BOOKS OF ACCOUNT OF THE ASSESSEE BEFORE PROCEEDING TO MAKE DISALLOWANCE UNDER SECTION 14A OF THE ACT R.W. RULE 8D OF THE RULES . 76. LD A.R. ALSO PLACED RELIANCE ON THE DECISION OF ITAT CUTTACK IN THE CASE OF ACIT VS PATNAIK MINERALS PVT LTD IN ITA NO.231/CTK./2015 FOR A .Y. 2011 - 12 ORDER DATED 3.8.2017 TO SUPPORT HIS CONTENTION. 77. LD A.R. ALSO DREW OUR ATTENTION TOWARDS RECENT DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF PRINCIPAL CIT VS CIMS HOSPITAL PVT LTD (2020) 4 NYPCTR 244 (GUJ) ORDER DATED 25.2.2020 AND SUBMITTED THAT THE AO CAN APPLY RULE 8D ONLY IF THE AO HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO THE EXEMPTED INCOME AND CONSEQUENTLY, IT WAS HELD THAT THE TRIBUNAL WAS JUSTIFIED IN DELETING THE DISALLOWANCE. THEREFORE, THE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LD CIT(A) FOR BOTH THE ASSESSMENT YEAR MAY KINDLY BE DELETED. 78. ON CONSIDERATION OF ABOVE NOTED RIVAL SUBMISSIONS, FIRST OF ALL, WE ARE OF THE VIEW THAT IT WOULD BE APPROPRIATE TO REPRODUCE RELEVANT SECTION 14A OF THE ACT FOR PROPER ADJUDICATION OF THE GROUND OF THE ASSESSEE SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 55 | 68 CHALLENGING THE CONFIRMATION OF DISALLOWANCE BY THE LD CIT(A) MADE BY THE AO U/S.14A OF THE ACT R.W. RULE 8D, WHICH READS AS UNDER: 14A. (1) FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. (2) THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBE D, IF THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. (3) THE PROVISIONS OF SUB - SECTION (2) SHALL ALSO APPLY IN RELATION TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT : 79. IN OUR HUMBLE UND ERSTANDING, THE MANDATE OF SECTION 14A OF THE ACT HAS BEEN BASED ON THE THEORY THAT THERE MUST BE PROXIMATE CAUSE BASED ON RELATIONSHIP OF EXPENDITURE THAT TAX EXEMPT INCOME IS ESTABLISHED, ONLY THEN A DISALLOWANCE HAS TO BE MADE U/S.14A OF THE ACT. THE O NUS TO ESTABLISH PROXIMATE CAUSE BASED ON THE RELATIONSHIP OF THE EXPENDITURE THAT THE EXEMPT INCOME IS ESTABLISHED IS ON THE REVENUE. THUS, THE APPLICATION OF PROVISIONS OF SUB - SECTION (2) & (3) OF SECTION 14A OF THE ACT R.W RULE 8D IS NOT AUTOMATIC IN E ACH AND EVERY CASE, WHERE THERE IS INCOME NOT FORMING PART OF TOTAL INCOME, THE ASSESSEE IS EARNING EXEMPT INCOME. IN OUR CONSIDERED OPINION, SUB - SECTION ( 2) & (3) OF SECTION 14A OF THE ACT ARE SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 56 | 68 INTENDED TO ENFORCE AND IMPLEMENT THE PROVISIONS OF SUB - SECTI ON (1) OF SECTION 14A OF THE ACT. AS PER SUB - SECTION ( 2), IT IS NECESSARY FOR THE AO FIRST TO ASCERTAIN WHERE THERE IS PROXIMATE CONNECTION BETWEEN THE EXPENDITURE INCURRED AND THE INCOME NOT FORMING PART OF THE TOTAL INCOME. UNDER THIS ACT, IN ACCORDANC E WITH SUCH METHOD , AS MAY BE PRESCRIBED, IF THE AO HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS WITH THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THIS ACT, THEN, THE AO WOULD BE JUSTIFIED IN APPLYING PROVISIONS OF SUB - SECTION(2) & (3) OF SECTION 14A OF THE ACT R.W. RULE 8D FOR MAKING THE DISALLOWANCE. 80. KEEPING IN VIEW ABOVE MANDATE OF SECTION 14A OF THE ACT, WE PROCEED TO ADJUDICATE THE GROUND OF THE ASSESSEE CHALLENGING THE DISALLOWANCE MADE BY THE AO UNDER SECTION 14A OF THE ACT R.W RULE 8D. FROM THE RELEVANT PARA 5 OF THE ASSESSMENT ORDER, WE OBSERVE THAT IN SUB PARA (1), THE AO NOTED THAT THE ASSESSEE HAS SHOWN INVESTMENT THAT YI ELD TAX FREE INCOME AND HE SHOW CAUSED THE ASSESSEE TO EXPLAIN AS TO WHY PROVISIONS OF SECTION 14A SHALL NOT BE RESORTED TO. IN RESPONSE TO SAID SHOW CAUSE NOTICE, LD A.R. OF THE ASSESSEE STATED THAT THE ASSESSEE HAS NOT INCURRED NOR CLAIMED ANY EXPENDITURE IN RESPECT OF SUCH INCOME, HENCE, NO DISALLOWANCE IS WARRANTED FOR. THUS, THE CASE OF THE ASSESSEE FALLS WITHIN SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 57 | 68 THE AMBIT OF SUB - SECTION (3) OF SECTION 14A OF THE ACT. FURTHER, FROM SUB PARA (2) OF PARA 5, WE OBSERVE THAT THE AO OBSERVED AS UNDER: THOUGH THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE FOR SUCH EXEMPT INCOME, THERE IS EVERY POSSIBILITY THAT THE INVESTMENT FROM WHICH SUCH EXEMPT INCOME IS EARNED MIGHT HAVE BEEN MADE OUT OF THE LOAN AMOUNT, FOR WHICH ASSESSEE PAID INTEREST. 81. THEREAFTER, T HE AO MENTIONED THE PROVISIONS OF RULE 8D IN THE NEXT SUB - PARA (3) AND IMMEDIATELY AFTER RECORDING SAID PROVISIONS, HE PROCEED TO CALCULATE THE DISALLOWANCE UNDER RULE 8D OF THE I.T.RULES. FROM ABOVE NOTED ANALYSIS OF RELEVANT PARAS OF THE ASSESSMENT ORD ER, IT IS CLEAR THAT AFTER RECEIVING REPLY OF SHOW CAUSE NOTICE FROM THE ASSESSEE THAT THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE IN RESPECT OF SUCH INCOME, HENCE, NO DISALLOWANCE IS REQUIRED TO BE MADE, THE AO WITHOUT COMPLYING WITH THE MANDATE OF SUB - SECTION (2) & (3) OF SECTION 14A DIRECTLY JUMPED TO AN IMAGINARY CONCLUSION THAT THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE FOR SUCH EXEMPT INCOME, THERE IS EVERY POSSIBILITY THAT THE INVESTMENT FROM WHICH SUCH EXEMPT INCOME IS EARNED MIGHT HAVE BEEN M ADE OUT OF THE LOAN AMOUNT , FOR WHICH THE ASSESSEE PAID INTEREST . 82. THUS, T HERE IS NO WHISPER OR MENTION BY THE AO IN THE ASSESSMENT ORDER PARA 5 COMPLYING WITH THE MANDATE OF SUB - SECTION(2) & (3) OF SECTION 14A OF THE ACT, WHICH REQUIRES THAT THE AO SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHOD, AS MAY BE SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 58 | 68 PRESCRIBED, VIZ; RULE 8D OF I.T.RULES, IF THE AO, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS THAT THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE, IN RELATION TO EXEMPT INCOME. THUS, WE SAFELY PRESUME THAT THE AO HAS NOT MADE OR UNDERTAKEN ANY EXERCISE AS PER MANDATE OF SUB - SECTION ( 2) & (3) OF SECTION 14A BEFORE PROCEEDING TO MAKE DISALLOWANCE WHILE INVOKING OR RESORTING TO SECTION 14A OF THE ACT R.W RULE 8D. 8 3 . FROM THE RELEVANT PART OF THE CIT(A) ORDER, I.E. PARA 3.2, WE OBSERVE THAT THE LD CIT(A) HAS CONFIRMED THE ADDITION BY OBS ERVING THAT THE CONTENTION OF THE ASSESSEE THAT IT HAS NOT INCURRED ANY EXPENDITURE FOR EARNING OF DIVIDEND INCOME CANNOT BE ACCEPTED AND THERE HAS TO BE EXPENDITURE INCURRED FOR SUCH EARNING. HENCE, PROVISIONS OF SECTION 14A ARE CLEARLY ATTRACTED. THERE AFTER, LD CIT(A) FURTHER OBSERVED THAT SINCE THE EXPENDITURE ATTRIBUTABLE TO SUCH EARNING IS NOT ASCERTAINABLE, THE ONLY METHOD AVAILABLE FOR SUCH CALCULATION IS RULE 8D OF THE I.T.RULES AND THE AO HAS COMPUTED THE EXPENDITURE AS PER RULE 8D AND SUCH CALCU LATION APPEARED TO BE CORRECT, AS THE ASSESSEE HAS NOT POINTED OUT ANY ERROR IN SUCH CALCULATION. LASTLY, LD CIT(A) NOTED THAT SIMILAR DISALLOWANCE HAS BEEN CONFIRMED BY LD CIT(A) - 2 FOR ASSESSMENT YEAR 2010 - 2011 BY ORDER DATED 28.1.2015, THEREFORE, THE DI SALLOWANCE MADE BY THE AO IS CONFIRMED. 8 4 . IN OUR CONSIDERED OPINION, THE BASIC PRINCIPLES OF TAXATION IS TO TAX NET INCOME AND THE EXEMPTION HAS TO BE ALLOWED ON THE NET BASIS I.E. GROSS SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 59 | 68 RECEIPTS ( - ) RELATED EXPENDITURE. HENCE, IF THE EXPENDITURE IS DIRECTLY RELATED TO EXEMPT INCOME, IT CANNOT BE ALLOWED TO SET OFF AGAINST THE TAXABLE PROFIT AND IF ANY EXPENDITURE IS DIRECTLY RELATED TO TAXABLE INCOME, IT CANNOT BE ALLOWED TO SET OFF AGA INST THE EXEMPT INCOME MERELY BECAUSE SOME INCIDENTAL BENEFIT HAS ARISEN TOWARDS EXEMPTED INCOME. 8 5 . ON VIGILANT AND CAREFUL UNDERSTANDING OF INTENTION OF THE LEGISLATURE AND THE MANDATE GIVEN IN SECTION 14A OF THE ACT, WE ARE OF THE HUMBLE VIEW THAT BEFO RE MAKING DISALLOWANCE U/S.14A OF THE ACT, THE AO IS REQUIRED TO RECORD SATISFACTION THAT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, HE IS NOT SATISFIED WITH THE CORRECTNESS THAT THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE, IN RELATION TO EXEMPT INCOME NOT FORMING PART OF TOTAL INCOME IS INCORRECT. SUCH SATISFACTION MUST BE ARRIVED AT ON THE OBJECTIVE BASIS. 8 6 . AS WE HAVE NOTED ABOVE, IN THE INSTANT CASE, THE AO SIMPLY SHOW CAUSED THE ASSESSEE AND AFTER TAKING ON RECORD REPLY OF THE ASSES SEE MERELY OBSERVED THAT THOUGH THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE FOR SUCH EXEMPT INCOME THAT THERE IS EVERY POSSIBILITY THAT THE INVESTMENTS FROM WHICH SUCH EXEMPT INCOME IS EARNED MIGHT HAVE BEEN MADE OUT OF LOAN ACCOUNT, FOR WHICH ASSESSEE PA ID INTEREST . BUT THERE IS NO EXERCISE AS PER MANDATE OF SUB - SECTION ( 2) & (3) OF SECTION 14A OF THE ACT BY THE AO, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 60 | 68 CORRECTNESS THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE FOR SUCH EXEMPT INCOME. 8 7 . FROM THE VIGILANT READING OF LD CIT(A) ORDER PARA 3.2, IT IS VIVID THAT NO SUCH EXERCISE H AS BEEN UNDERTAKEN BY THE LD CIT (A) BEFORE CONFIRMING THE DISALLOWANCE MADE BY THE AO AS PER MANDATE OF SUB - SECTION (2)& (3) OF THE SECTION 14A OF THE ACT. 8 8 . BEFORE REACHING TO ANY CONCLUSION, WE ALSO FIND IT APPROPRIATE AND NECESSARY TO CONSIDER THE RA TIO OF CASE LAWS CITED BY BOTH THE PARTIES. 89. LD CIT DR HAS PLACED RELIANCE ON THE ORDER DATED 6.1.2017 OF ITAT DELHI BENCH IN THE CASE DELHI TOWERS LTD (SUPRA), WHEREIN, IT WAS HELD THAT WHERE THE AO PROCEEDED TO MAKE DISALLOWANCE UNDER SECTION 14A OF T HE ACT R.W. RULE 8D IN RESPECT OF EXEMPT DIVIDEND INCOME EARNED BY THE ASSESSEE, MERE FACT THAT AO DID NOT EXPRESSLY RECORD HIS SATISFACTION WHILE MAKING SAID DISALLOWANCE, WOULD NOT PER SE DESTROY MANDATE OF SECTION 14A OF THE ACT. HE PLACED ANOTHER ORDE R OF ITAT CHENNAI IN THE CASE OF M.A.ALAGAPPAN (SUPRA), ORDER DATED 3.4.2017, WHEREIN, IT WAS HELD THAT EVEN NO EXPENDITURE IS INCURRED BY AN ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT, STATUTE HAS PROVIDED FOR P RESUMPTIVE EXPENDITURE WHICH HAS TO BE DISALLOWED BY FORCE OF STATUTE, THE ASSESSING AUTHORITY HAS TO APPLY RULE 8D OF THE I.T.RULES. 90. WHEN WE RESPECTFULLY CONSIDER THE RATIO OF THE JUDGMENT RELIED ON BY LD A.R., THEN WE FIND THAT IN THE RECENT JUDGME NT ORDER DATED 25.2.2020 IN SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 61 | 68 THE CASE OF CIMS HOSPITAL PVT LTD (SUPRA), HONBLE GUJARAT HIGH COURT HELD THAT THE AO CAN APPLY RULE 8D ONLY IF THE AO HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO THE EXEMPTED INCOME. AS WE HAVE NOTED ABOVE IN EARLIER PARA OF THE ORDER, THE AO IN THE PRESENT CASE DID NOT RECORD SUCH SATISFACTION PRIOR TO INVOKING OF SECTION 14A OF THE ACT R.W RULE 8D OF I.T.RU LES, HE COULD NOT HAVE MADE ANY DISALLOWANCE. FURTHER IN THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD (SUPRA), THEIR LORDSHIPS SPEAKING FOR THE APEX COURT HELD IN PARA 41 THUS: HAVING REGARD TO THE LANGUAGE OF SECTION 14A(2) OF THE ACT, READ WITH RULE 8D OF THE RULES, WE ALSO MAKE IT CLEAR THAT BEFORE APPLYING THE THEORY OF APPORTIONMENT, THE AO NEEDS TO RECORD SATISFACTION THAT HAVING REGARD TO THE KIND OF THE ASSESSEE, SUO MOTO DISALLOWANCE UNDER SECTION 14A WAS NOT CORRECT . IT WILL BE IN THOSE CASES WHERE THE ASSESSEE IN HIS RETURN HAS HIMSELF APPORTIONED BUT THE AO WAS NOT ACCEPTING THE SAID APPORTIONMENT. IN THAT EVENTUALITY, IT WILL HAVE TO RECORD ITS SATISFACTION TO THIS EFFECT. FURTHER, WHILE RECORDING SUCH A SATISF ACTION, NATURE OF LOAN TAKEN BY THE ASSESSEE FOR PURCHASING THE SHARES/MAKING THE INVESTMENT IN SHARES IS TO BE EXAMINED BY THE AO. 91. FURTHERMORE, HONBLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENTS PVT LTD (SUPRA) IN PARA 8 HELD THUS: THE COURT IN TAIKISHA ENGINEERING (SUPRA) PERTINENTLY OBSERVED SECTION 14A(2) OF THE ACT AND RU L E 8D(1) IN UNISON AND AFFIRMATIVELY RECORD TH A T THE COMPUTATION OR DISALLOWANCE MADE BY THE ASSESSEE OR CLAIM THAT NO EXPENDITURE WAS INCURRED TO EARN EXEMPT INCOME MUST BE EXAMINED WITH REFERENCE TO THE ACCOUNTS, AND ONLY AND WHEN THE EXPLANATION/CLAIM OF THE ASSESSEE WAS NOT SATISFACTORY, COMPUTATION UNDER SUB - RULE (2) TO RULE 8D OF THE RULES WAS TO BE MADE. SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 62 | 68 WE NEED NOT, THEREFORE, GO ON TO SUB - RULE (2) TO RULE 8D OF THE RULES UNTIL AND UNLESS THE AO HAS FIRST RECORDED THE SATISFACTION, WHICH IS MANDATED BY SUB - SECTION (2) TO SECTION 14A OF THE ACT AND SUB - RULE (1) TO RULE 8D OF THE RULES. 92. IN THE CASE OF SESA GOA LTD.,(SUPRA), CO - ORDINATE BENCH OF ITAT PANAJI ALLOWED THE GROUND OF THE ASSESSEE CHALLENGING THE ADDITION MADE UNDER SECTION 14A OF THE ACT R.W RULE 8D OF I.T.RULES BY OBSERVING THAT BEFORE MAKING ANY DISALLOWANCE UNDER SECTION 14A, AO IS REQUIRED TO RECORD A SATISFACTION, HAVING REGARD TO ACCOUNTS O F ASSESSEE, THAT CLAIM OF THE ASSESSEE THAT EXPENDITURE INCURRED IS NOT RELATED TO THE INCOME , WHICH IS FORMING PART OF TOTAL INCOME , IS INCORRECT. 93. IN VIEW OF FOREGOING DISCUSSION AND AFTER CONSIDERING THE PREPOSITIONS AND INTERPRETATION LAID DOWN BY VARIOUS JUDGMENTS INCLUDING THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD (SUPRA) AND JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIMS HOSPITAL PVT LTD (SUPRA), IT IS IM PERATIVE THAT THE AO CAN INVOKE RULE 8D OF THE I.T.RULES ONLY WHEN HE RECORDS HIS SATISFACTION IN REGARD TO CORRECTNESS OF THE CLAIM OF THE ASSESSEE VIZ; SUO MOTO DISALLOWANCE OF EXPENDITURE OR NO EXPENDITURE, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE . THE CONDITIONS PRECEDENT CREATED BY THE LEGISLATURE FOR THE AO ENTERING UPON THE DETERMINATION OF THE ACCOUNTS OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME IS THAT THE AO HIMSELF RECORD THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUO MOTO DISALLOWANCE OR CLAIM OF NO SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 63 | 68 EXPENDITURE FOR EARNING EXEMPT INCOME. OBVIOUSLY, WHILE REJECTING THE CLAIM OF THE ASSESSEE IN REGARD TO SUO MOTO DISALLOWED EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, IN RELATION TO EXEMPT INCOME, THE AO HAS TO INDICATE COGENT REASON FOR THE SAME AND FOR RECORDING SUCH COGENT REASONS, IT IS REQUIRED THAT THE AO HAS TO EXAMINE THE ACCOUNTS OF THE ASSESSEE FIRST AND THEN IF HE IS NOT SATISFIED WITH THE CORRECTNESS OF SUCH CLAIM, ONL Y THEN HE CAN INVOKE THE PROVISIONS OF SECTION 14A OF THE ACT R.W RULE 8D OF THE I.T.RULES. IN THE PRESENT CASE, AS WE HAVE DISCUSSED ABOVE, THAT NEITHER FROM THE ASSESSMENT ORDER NOR FROM THE FIRST APPELLATE ORDER, THE AUTHORITIES BELOW HAVE NOT CONSIDER ED THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING EXEMPT INCOME AS PER MANDATE OF SECTION 14A OF THE ACT FROM THE RELEVANT PART OF THE ASSESSMENT ORDER, IT IS CLEARLY DISCERNIBLE THAT THE AO HAS NOT CONSIDERED THE CLAIM OF THE ASSESSEE FILED IN RESPONSE TO THE SHOW CAUSE NOTICE THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING EXEMPT INCOME AND HE STRAIGHTFORWARD EMBARKED UPON AND JUMPED TO COMPUTE THE DISALLOWANCE UNDER RULE 8D OF RULES ON THE PRESUMPTION THAT THERE IS EVERY P OSSIBILITY THAT THE INVESTMENTS MADE FROM WHICH SUCH EXEMPT INCOME IS EARNED MIGHT HAVE BEEN MADE OUT OF LOAN AMOUNT, FOR WHICH THE ASSESSEE HAS PAID INTEREST. THE DISALLOWANCE U/S.14A OF THE ACT REQUIRES FINDINGS OF THE AO THAT THE CLAIM OF THE ASSESSEE PERTAINING TO SUO MOTO DISALLOWANCE OR NO EXPENDITURE IS NOT CORRECT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE AND THEREAFTER ONLY THE AO IS VALIDLY SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 64 | 68 ENTITLED TO COMPUTE DISALLOWANCE UNDER RULE 8D OF THE RULES. IN ABSENCE OF SUCH EXERCISE, THE DISALLO WANCE MADE BY THE AO CANNOT BE HELD AS VALID AND SUSTAINABLE IN VIEW OF MANDATE GIVEN BY THE LEGISLATURE FOR INVOKING PROVISIONS OF SECTION 14A OF THE ACT. 9 4 . THE DECISIONS RELIED UPON BY LD CIT DR HAVE BEEN PASSED BY CO - ORDINATE BENCHES OF CHENNAI AND DELHI ITAT IN THE YEAR 2017. SUBSEQUENTLY, THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD (SUPRA) DATED 12.2.2018 HAS EXPRESSLY CLEARED ALL THE CLOUDS AND DOUBTS O N THE ISSUE AND CATEGORICALLY HELD THAT THE AO NEEDS TO RECORD SATISFACTION THAT HAVING REGARD TO THE CLAIM OF ASSESSEES SUO MOTO DISALLOWANCE U/S.14A WAS NOT CORRECT. IN THAT EVENTUALITY, IT WILL HAVE TO RECORD ITS SATISFACTION , OBLIVIOUS IN THE ASSES SMENT ORDER, TO THIS EFFECT PRIOR TO PROCEEDING TO MAKE DISALLOWANCE. SIMILAR VIEW HAS BEEN EXPRESSED BY HONBLE GUJARAT HIGH COURT IN THE RECENT JUDGMENT IN THE CASE OF C IM S HOSPITAL PVT LTD (SUPRA). THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD (SUPRA) AND HONBLE GUJARAT HIGH COURT IN THE CASE OF C IM S HOSPITAL PVT LTD (SUPRA) ARE BINDING ON ALL THE AUTHORITIES BELOW INCLUDING THE TRIBUNAL. THEREFORE, RESPECTFULLY FOLLOWING THE SAME WE HOLD THAT THE ADDITION MADE BY THE AO AND CONFIRMED BY THE LD CIT(A) UNDER SECTION 14A OF THE ACT R.W. RULE 8D OF I.T.RULES IS NOT VALID AND SUSTAINABLE. THEREFORE, WE DIRECT THE AO TO DELETE THE ADDITION. OUR SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 65 | 68 CONCLUSION ON THIS ISSUE WOULD APPLY MUTATIS MUTANDIS TO THE ASSESSMENT YEAR 20 13 - 14. HENCE, GROUND NO.2 OF APPEAL FOR BOTH THE ASSESSMENT YEARS IS ALLOWED. GROUND NO.3 OF ASSESSEE FOR A.Y. 2013 - 14. 9 5 . IN ASSESSMENT YEAR 2013 - 14, IN GROUND NO.3, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF EXPENDITURE OF RS.1,28,39,665/ - TOWARDS PERIPHERY DEVELOPMENT CHARGES AS PARTLY CONFIRMED BY THE LD CIT(A). 9 6 . FIRST OF ALL, WE NOTE THAT THE REVENUE HAD CHALLENGED THE DISALLOWANCE OF RS.1,85,46,330/ - TOWARDS PERIPHERY DEVELOPMENT CHARGES INCURRED BY THE ASSESSEE TOWAR DS RENOVATION AND DEVELOPMENT OF ROADS IN AROUND THE MINING AREA FOR BETTER MOVEMENT OF TRANSPORTATION, THE DELETION OF DISALLOWANCE BY THE CIT(A) HAS BEEN UPHELD BY US IN EARLIER PART OF THIS ORDER IN THE APPEAL FILED BY THE REVENUE. HOWEVER, THE ASSESS EE HAS CHALLENGED THE CONFIRMATION OF ADDITION OF RS.1,28,39,665/ - BY THE LD CIT(A) TOWARDS THE AMOUNT INCURRED FOR PURCHASE OF MOSQUITO NETS OF RS.1,24,39,665/ - AND DONATION TO SOCIAL HEALTH EDUCATION DEVELOPMENT SOCIETY TOWARDS WATERSHED DEVELOPMENT, FO R WHICH, THE ASSESSEE IS IN APPEAL BEFORE US. 9 7 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD OF THE CASE OF THE TRIBUNAL. SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 66 | 68 9 8 . LD A.R. OF THE ASSESSEE SUBMITTED THAT THE MINING ACTIVITIES OF THE ASSESSEE IS CARRIED IN THE TRIBAL AREA BEING SURROUNDED BY THE DENSE FOREST WHERE, THE RESIDENTS ARE GENERALLY AFFECTED BY MALARIA. HE SUBMITTED THAT THE FOREST AREA BEING WETLAND, WHICH IS THE BREEDING GROUND OF MOSQUITOES, G ENERALLY AFFECTED THE RESIDENT IN THIS DISEASE. THAT IS THE VITAL GROUND FOR DISTRIBUTING THE MOSQUITOES TO THE PEOPLE OF MINING AREA FOR THEIR SAFETY AND THE ASSESSEE HAD PURCHASED 51,000 MOSQUITO NETS FOR RS.1,24,39,665/ - FOR DISTRIBUTION AMONG THE RESI DENT OF MINING AREA. THE EXPENSES INCURRED BY THE ASSESSEE WERE ON WELFARE SCHEMES ONLY WHICH ARE FOR MALARIA ERADICATION FOR WHICH, THE ASSESSEE DISTRIBUTES MOSQUITO NETS . HE ALSO SUBMITTED THAT AMOUNT OF RS.4,00,000/ - HAS BEEN GIVEN TO SOCIAL HEALTH ED UCATION DEVELOPMENT SOCIETY FOR WATER SHED DEVELOPMENT AS DONATION, WHICH IS FOR THE BUSINESS PURPOSES OF THE ASSESSEE. HE SUBMITTED THAT THE ORDER OF THE LD CIT(A) ON THIS COUNT BE REVERSED BY ALLOWING THE APPEAL OF THE ASSESSEE. 9 9 . REPLYING TO ABOVE, LD CIT DR SUBMITTED THAT THE PURCHASE OF MOSQUITOES HAS NOT SATISFIED THE TEST OF COMMERCIAL EXPEDIENCY, HENCE, LD CIT(A) HAS RIGHTLY DISALLOWED THE SAME. AS REGARDS THE AMOUNT OF DONATION OF RS.4 LAKHS, LD CIT(A) SUBMITTED THAT THE DO NATION TO SOCIAL HEALTH SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 67 | 68 EDUCATION DEVELOPMENT SOCIETY FOR WATER SHED DEVELOPMENT DOES NOT FULFIL THE BUSINESS COMPULSION. 100. ON CAREFUL CONSIDERATION OF THE RIVAL SUBMISSIONS, WE FIND THAT THE ASSESSEE HAS DISTRIBUTED 51,000 MOSQUITOES TO THE RESIDENT OF MINING AREA TO PREVENT THEM FROM MALARIA FOR AN AMOUNT OF RS.1,24,39,665/ - . WE DO NOT FIND ANY POSITIVE GROUND THAT EXPENSES TOWARDS DISTRIBUTION O F MOSQUITO NETS ETC AGAINST MALARIA ERADICATION FULFIL THE CRITERIA THE TEST OF COMMERCIAL EXPEDIENCY. WE OBSERVE THAT THE LD CIT(A) WHILE CONFIRMING THE ADDITION HELD AS UNDER: THE ASSESSEE HAS EXPLAINED THAT 51,000 MOSQUITO NETS WERE DISTRIBUTED AMONG THE INHABITANTS OF THE SURROUNDING VILLAGES IN THE PERIPHERY OF THE MINING AREAS BELONGING TO THE ASSESSEE. THE TOTAL EXPENDITURE INCURRED ON PURCHASE OF MOSQUITO NETS AMOUNTS TO RS.1,24,39,665/ - INCLUDING ENTRY TAX. THIS EXPENDITURE DOES NOT FULFIL THE TEST OF COMMERCIAL EXPEDIENCY SINCE THERE APPE ARS TO BE NO BUSINESS COMPULSION TO DISTRIBUTE MOSQUITO NETS. THERE WAS ALSO NO DIRECTION FROM THE DISTRICT PERIPHERY DEVELOPMENT COMMITTEE CONSTITUTED BY THE GOVT. OF ODISHA TO INCUR SUCH EXPENDITURE. HENCE, THIS EXPENDITURE CANNOT BE ALLOWED AS BUSINES S EXPENDITURE. SIMILARLY, THE DONATION OF RS.4 LACS GIVEN TO SOCIAL HEALTH EDUCATION DEVELOPMENT SOCIETY FOR WATER SHED DEVELOPMENT CANNOT BE CONSIDERED AS INCURRED FOR THE PURPOSE OF BUSINESS. 10 1 . THE FINDINGS OF THE LD CIT (A) COULD NOT BE CONTROVERT ED BY LD A.R. EXCEPT POINTING OUT THAT MOSQUITOS ARE DISTRIBUTED AMONG THE RESIDENT OF MINING AREAS FOR THE ERADICATION OF MALARIA. WE ALSO FIND THAT THERE IS NO SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA P A G E 68 | 68 BUSINESS CONNECTION OF THE ASSESSEE FOR DONATING RS.4 LAKHS FOR WATER SHED DEVELOPMENT TO SOC IAL HEALTH EDUCATION DEVELOPMENT SOCIETY, HENCE, WE AFFIRM THE FINDINGS OF THE LD CIT(A) IN CONFIRMING THE ADDITION OF RS.1,28,39,665/ - . GROUND NO.3 OF ASSESSEE FOR A.Y. 2013 - 14 IS DISMISSED. 10 2 . IN THE RESULT, APPEALS OF THE REVENUE FOR ASSESSMENT YEARS 2012 - 13 & 2013 - 14 ARE DISMISSED AND APPEAL FOR THE ASSESSMENT YEAR 2012 - 13 IS ALLOWED WHEREAS APPEAL FOR A.Y. 2013 - 14 IS PARTLY ALLOWED. ORDER PRONOUNCED ON 2 6 / 0 8 /20 20 . SD/ - SD/ - (LAXMI PRASAD SAHU) ( CHANDRA MOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER CUTTACK; DATED 26 / 8 /20 20 B.K.PARIDA, SPS COPY OF THE ORDER FORWARDED TO : BY ORDER SR . PVT. S ECRETARY ITAT, CUTTACK 1. THE ASSESSEE: SMT. INDRANI PATNAIK A - 6, COMMERCIAL ESTATE, CIVIL TOWNSHIP, ROURKELA 2. THE REVENUE: ACIT, ROURKELA CIRCLE, ROURKELA 3. THE CIT(A) - , SAMBALPUR 4. PR.CIT - , SAMBALPUR 5. DR, ITAT, CUTTACK 6. GUARD FILE. //TRUE COPY//
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