ANUP INSULATION PVT. LTD., Jaipur V. ITO, Jaipur

ITA 392/JPR/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3567 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 11 month(s) 12 day(s)
• Appeal Type: Income Tax (International Taxation) Appeal
• Pronouncement Date: 29-04-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 17-05-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SEEMA MEENA
• Keywords: Business income; Earning of tax free income; Corroborative evidences; Commercial expediency; Set aside
• Section: 143(3); 14A; 10

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH HKKXPAN] YS[KK L NL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI BHAGCHAND, A M VK;DJ VIHY LA- @ ITA NO. 392/JP/2017 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2013-14 M/S ANUP INSULATION PVT. LTD. 7-B UMANG HOUSE, BHARAT MATA PATH, JAMANALAL BAJAJ MARG, C-SCHEME, JAIPUR. CUKE VS. THE ITO, WARD-6(2), JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAGCA 1569 F VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI RAJEEV SOGANI (C.A.) & SHRI ROHAN SOGANI (C.A.) JKTLO DH VKSJ LS @ REVENUE BY : SMT. SEEMA MEENA (JCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 12/06/2018 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 18/06/2018 VKNS'K@ ORDER PER: VIJAY PAL RAO, J.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 08.03.2017 OF CIT (A), AJMER FOR THE ASSESSMENT YEA R 2013-14. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- 1. THAT THE IMPUGNED ASSESSMENT ORDER U/S 143(3) D ATED 29.12.2015 IS BAD IN LAW AND ON FACTS OF THE CASE F OR WANT OF ITA NO. 392/JP/2017 M/S ANUP INSULATION PVT. LTD. VS. ITO 2 JURISDICTION AND FOR VARIOUS OTHER REASONS AND HENC E THE SAME MAY KINDLY BE QUASHED. 2. RS.23,78,650/-: THE ID. CIT(A) HAS GROSSLY ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE IN CONFIRMI NG THE DISALLOWANCE OF RS. 23,78,650/- MADE BY THE ID. AO U/S 14A R.W.R. 8D DESPITE THE ADMITTED FACTS THAT THE ASSESSEE NEITHER EARNED THE EXEMPT INCOME NOR INCUR RED ANY EXPENDITURE ON THOSE INVESTMENT AND WITHOUT CONSIDERING OUR CONTENTION. HENCE THE DISALLOWANCE SO MADE BY THE AO AND CONFIRMED BY THE ID. CIT(A) IS BEING TOTALLY CONTRARY TO THE PROVISIONS OF LAW AND FACTS ON THE RECORD AND HENCE SAME MAY KINDLY B DELETED I N FULL. 3. RS.6,28,288/-: THE ID. CIT(A) HAS GROSSLY ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE IN CONFIRMI NG THE DISALLOWANCE OF RS. 6,28,288/- OUT OF RS. 12,93,714 /- (ABOUT 50%) MADE BY THE ID. AO ON ACCOUNT OF COMMISSION PAID ON COMMISSION SALE. HENCE THE DISALLOWANCE SO MADE BY THE AO AND CONFIRMED BY THE ID. CIT(A) IS BEING TOTALLY CONTRARY TO THE PROVISI ONS OF LAW AND FACTS ON THE RECORD AND HENCE SAME MAY KIND LY BE DELETED IN FULL. 4. THE ID. AO FURTHER ERRED IN LAW AS WELL AS ON THE F ACTS OF THE CASE IN MAKING THE DISALLOWANCE WITHOUT REJE CTING THE BOOKS OF ACCOUNT OR WITHOUT INVOKING THE PROVIS IONS OF S. 145(3). HENCE ALL THE DISALLOWANCE SO MADE BY THE AO IS BEING TOTALLY CONTRARY TO THE PROVISIONS OF L AW AND FACTS ON THE RECORD AND HENCE SAME MAY KINDLY BE DELETED IN FULL. 5. THE ID. AO HAS GROSSLY ERRED IN LAW AS WELL AS O N THE FACTS OF THE CASE IN CHARGING INTEREST U/S 234A, 23 4B & 234C. THE APPELLANT TOTALLY DENIES IT LIABILITY OF CHARGING ITA NO. 392/JP/2017 M/S ANUP INSULATION PVT. LTD. VS. ITO 3 OF ANY SUCH INTEREST. THE INTEREST, SO CHARGED, BEI NG CONTRARY TO THE PROVISIONS OF LAW AND FACTS, MAY KI NDLY BE DELETED IN FULL. 6. THE APPELLANT PRAYS YOUR HONOUR INDULGENCES TO A DD, AMEND OR ALTER OF OR ANY OF THE GROUNDS OF THE APPE AL ON OR BEFORE THE DATE OF HEARING. 2. AT THE TIME HEARING, THE LEARNED COUNSEL FOR ASS ESSEE AS STATED AT BAR THAT THE ASSESSEE DOES NOT PRESS GROUND NOS. 1, 4 TO 6 AND THE SAME MAY BE DISMISSED AS NOT PRESSED. THE LD. DR HA S RAISED NO OBJECTIONS IF GROUND NOS. 1, 4 TO 6 OF THE ASSESSEE S APPEAL ARE DISMISSED AS NOT PRESSED. ACCORDINGLY THE GROUND NO S. 1, 4 TO 6 OF THE ASSESSEES APPEAL ARE DISMISSED BEING NOT PRESSED. 3. GROUND NO. 2 IS REGARDING DISALLOWANCE MADE U/S 14A OF THE INCOME TAX ACT. DURING THE COURSE OF ASSESSMENT PRO CEEDINGS THE AO NOTED THAT THE ASSESSEE IS HAVING INVESTMENT OF RS. 3,09,00,000/- THE INCOME ON WHICH IS EXEMPT FROM TAX. ACCORDINGLY, TH E AO PROPOSED TO DISALLOW THE EXPENDITURE ON ACCOUNT OF INTEREST AS WELL AS INDIRECT ADMINISTRATIVE EXPENDITURE. THE ASSESSEE OBJECTED T O THE DISALLOWANCE U/S 14A OF THE ACT AND CONTENDED THAT THESE ARE STR ATEGIC INVESTMENT MADE ON ACCOUNT OF BUSINESS EXPEDIENCY. FURTHER, TH E ASSESSEE CONTENDED THAT NO INCOME WAS RECEIVED DURING THE YE AR OUT OF THE INVESTMENT AND THE INVESTMENTS WERE MADE FROM INTER EST FREE FUND ITA NO. 392/JP/2017 M/S ANUP INSULATION PVT. LTD. VS. ITO 4 AVAILABLE WITH THE ASSESSEE. AO DID NOT ACCEPT THES E CONTENTIONS AND MADE DISALLOWANCE U/S 14A R.W.R 8D AND COMPUTED ON AMOUNT OF RS. 23,78,650/- TO BE DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. THE ASSESSEE CHALLENGED THE ACTION OF THE AO BEFORE THE LD. CIT(A) BUT COULD NOT SUCCEED. 4. BEFORE US, THE LD. AR OF THE ASSESSEE HAS SUBMIT TED THAT WHEN NO EXEMPT INCOME WAS EARNED OR RECEIVED BY THE ASSESSE E DURING THE YEAR UNDER CONSIDERATION FROM THE INVESTMENT THEN NO DIS ALLOWANCE IS CALLED FOR. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPO N THE FOLLOWING CASES AS UNDER:- ACIT VS. DEEPAK VEGPRO IN ITA NO. 235 & 248/JP/2017 ORDER DATED 11.05.2017. KGK ENTERPRISES VS. ACIT 88 TAXMANN.COM 264. CHEMINVEST LTD. VS. CIT 378 ITR 33. THE ALTERNATIVE CONTENTION OF THE LD. AR OF THE ASS ESSEE IS THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE IN RESPEC T OF THE INVESTMENT MADE AND FOR EARNING ANY EXEMPT INCOME. THE LD. AR HAS SUBMITTED THAT THE ASSESSEES OWN INTEREST FREE FUND WAS AVAI LABLE FOR MAKING INVESTMENT. IN ANY CASE ONLY A SHORTAGE OF RS. 75,5 8,200/- CAN BE CONSIDERED FOR THE PURPOSE OF DISALLOWANCE ON ACCOU NT OF INTEREST EXPENDITURE WHEREAS THE ASSESSING OFFICER HAS CONSI DERED THE ENTIRE ITA NO. 392/JP/2017 M/S ANUP INSULATION PVT. LTD. VS. ITO 5 INVESTMENT OF RS. 3,09,00,000/- FOR COMPUTING THE D ISALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE. THUS, THE LD. AR H AS SUBMITTED THAT THE ORDER OF THE AO IS CONTRARY TO THE ACTUAL FACTS. 5. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THAT THE ASSESSEE RAISED THE CONTENTION BEFORE THE AO AS WELL AS LD. CIT(A) THAT THE INVESTMENTS IN QUESTION WERE STRATEGIC IN NATURE AN D DUE TO COMMERCIAL EXPEDIENCY AND THEREFORE, NO DISALLOWANCE U/S 14A OF THE ACT IS CALLED FOR. THE LD. DR HAS SUBMITTED THAT THE HONBLE SUPR EME COURT IN CASE OF MAXOPP INVESTMENT LTD. VS. CIT HAS HELD THAT DOMINA NT PURPOSE FOR WHICH THE INVESTMENT INTO SHARE IS MADE BY AN ASSES SEE IS NOT RELEVANT. FURTHER, THE HONBLE SUPREME COURT HAS UPHELD THE R ULE OF APPORTIONMENT AS INCLUDED IN THE PROVISIONS OF SECT ION 14A OF THE ACT. THUS, THE OBJECTIVE BEHIND SECTION 14A IS TO APPORT ION THE EXPENSES INCURRED IN RELATION TO THE INCOME WHICH DOES NOT F ROM PART OF TOTAL INCOME. THE LD. DR HAS FURTHER SUBMITTED THAT IF TH E AO HAS GIVEN A DETAILS AS FURNISHED BY THE ASSESSEE REGARDING THE ASSESSEES OWN FUND AND THERE IS NO CHANGE OR INCREASE IN ASSESSEES OW N FUNDS DURING THE YEAR UNDER CONSIDERATION WHEREAS THERE IS A FRESH I NVESTMENT DURING THE YEAR TO THE TUNE OF RS. 1.40 CRORES. THEREFORE, THE INTEREST ON ACCOUNT ITA NO. 392/JP/2017 M/S ANUP INSULATION PVT. LTD. VS. ITO 6 OF BORROWED FUNDS USED FOR INVESTMENT PURPOSE IS LI ABLE TO BE DISALLOWED. SHE HAS RELIED UPON THE ORDERS OF THE A UTHORITIES BELOW. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS THE RELEVANT MATERIAL ON RECORD. THE FIRST CONTENTION OF THE ASS ESSEE IS THAT IT HAS NOT RECEIVED OR EARNED ANY TAX FREE INCOME DURING THE Y EAR UNDER CONSIDERATION FROM THE INVESTMENTS IN QUESTION AND CONSEQUENTLY NO DISALLOWANCE CAN BE MADE. WE FIND THAT SO FAR AS TH E INDIRECT EXPENDITURE TO BE APPORTIONED FOR EARNING THE DIVID END INCOME IT IS NOW SETTLED PROPOSITION THAT WHEN THE ASSESSEE HAS NOT RECEIVED OR EARNED ANY EXEMPT INCOME THEN, NO DISALLOWANCE ON ACCOUNT OF INDIRECT COMMON EXPENDITURE TO BE APPORTIONED. THE HONBLE D ELHI HIGH COURT IN CASE OF CHEMINVEST VS. CIT (SUPRA) HAS DEALT WIT H THIS ISSUE HAS HELD IN PARAS 18 TO 23 AS UNDER:- 18. IN THE PRESENT CASE, THE FACTUAL POSITION THAT HAS NOT BEEN DISPUTED IS THAT THE INVESTMENT BY THE ASSESSEE IN THE SHARES OF MAX INDIA LTD. IS IN THE FORM OF A STRATEGIC INVEST MENT. SINCE THE BUSINESS OF THE ASSESSEE IS OF HOLDING INVESTMENTS, THE INTEREST EXPENDITURE MUST BE HELD TO HAVE BEEN INCURRED FOR HOLDING AND MAINTAINING SUCH INVESTMENT. THE INTEREST EXPENDITU RE INCURRED BY THE ASSESSEE IS IN RELATION TO SUCH INVESTMENTS WHICH GIVES RISE TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. 19. IN LIGHT OF THE CLEAR EXPOSITION OF THE LAW IN HOL CIM INDIA (P.) LTD'S. CASE (SUPRA) AND IN VIEW OF THE ADMITTED FAC TUAL POSITION IN THIS CASE THAT THE ASSESSEE HAS MADE STRATEGIC INVE STMENT IN SHARES OF MAX INDIA LTD.; THAT NO EXEMPTED INCOME W AS EARNED ITA NO. 392/JP/2017 M/S ANUP INSULATION PVT. LTD. VS. ITO 7 BY THE ASSESSEE IN THE RELEVANT AY AND SINCE THE GE NUINENESS OF THE EXPENDITURE INCURRED BY THE ASSESSEE IS NOT IN DOUBT, THE QUESTION FRAMED IS REQUIRED TO BE ANSWERED IN FAVOU R OF THE ASSESSEE AND AGAINST THE REVENUE. 20. SINCE THE SPECIAL BENCH HAS RELIED UPON THE DECISI ON OF THE SUPREME COURT IN RAJENDRA PRASAD MOODY'S CASE (SUPR A), IT IS CONSIDERED NECESSARY TO DISCUSS THE TRUE PURPORT OF THE SAID DECISION. IT IS NOTICED TO BEGIN WITH THAT THE ISSU E BEFORE THE SUPREME COURT IN THE SAID CASE WAS WHETHER THE EXPE NDITURE UNDER SECTION 57(III) OF THE ACT COULD BE ALLOWED AS A DE DUCTION AGAINST DIVIDEND INCOME ASSESSABLE UNDER THE HEAD 'INCOME F ROM OTHER SOURCES'. UNDER SECTION 57(III) OF THE ACT DEDUCTIO N IS ALLOWED IN RESPECT OF ANY EXPENDITURE LAID OUT OR EXPENDED WHO LLY OR EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SU CH INCOME. THE SUPREME COURT EXPLAINED THAT THE EXPRESSION 'INCURR ED FOR MAKING OR EARNING SUCH INCOME', DID NOT MEAN THAT ANY INCO ME SHOULD IN FACT HAVE BEEN EARNED AS A CONDITION PRECEDENT FOR CLAIMING THE EXPENDITURE. THE COURT EXPLAINED: 'WHAT S. 57(III) REQUIRES IS THAT THE EXPENDITURE M UST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING INCOME. IT IS THE PURPOSE OF THE EXPENDITUR E THAT IS RELEVANT IN DETERMINING THE APPLICABILITY OF S. 57(III) AND THAT PURPOSE MUST BE MAKING OR EARNING OF INCOME. S. 57(III) DOES NOT REQUIRE THAT THIS PURPOSE MUST BE FULFILLED IN ORDER TO QUALIFY THE E XPENDITURE FOR DEDUCTION. IT DOES NOT SAY THAT THE EXPENDITURE SHA LL BE DEDUCTIBLE ONLY IF ANY INCOME IS MADE OR EARNED. THERE IS IN F ACT NOTHING IN THE LANGUAGE OF S. 57(III) TO SUGGEST THAT THE PURPOSE FOR WHICH THE EXPENDITURE IS MADE SHOULD FRUCTIFY INTO ANY BENEFI T BY WAY OF RETURN IN THE SHAPE OF INCOME. THE PLAIN NATURAL CO NSTRUCTION OF THE LANGUAGE OF S. 57(III) IRRESISTIBLY LEADS TO THE CO NCLUSION THAT TO BRING A CASE WITHIN THE SECTION, IT IS NOT NECESSARY THAT ANY INCOME SHOULD IN FACT HAVE BEEN EARNED AS A RESULT OF THE EXPENDI TURE.' ITA NO. 392/JP/2017 M/S ANUP INSULATION PVT. LTD. VS. ITO 8 21. THERE IS MERIT IN THE CONTENTION OF MR. VOHRA THAT THE DECISION OF THE SUPREME COURT IN RAJENDRA PRASAD MOODY'S CAS E (SUPRA) WAS RENDERED IN THE CONTEXT OF ALLOWABILITY OF DEDUCTIO N UNDER SECTION 57(III) OF THE ACT, WHERE THE EXPRESSION USED IS 'F OR THE PURPOSE OF MAKING OR EARNING SUCH INCOME'. SECTION 14A OF THE ACT ON THE OTHER HAND CONTAINS THE EXPRESSION 'IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME.' THE DECISI ON IN RAJENDRA PRASAD MOODY'S CASE (SUPRA) CANNOT BE USED IN THE R EVERSE TO CONTEND THAT EVEN IF NO INCOME HAS BEEN RECEIVED, T HE EXPENDITURE INCURRED CAN BE DISALLOWED UNDER SECTION 14A OF THE ACT. 22. IN THE IMPUGNED ORDER, THE ITAT HAS REFERRED TO TH E DECISION IN MAXOPP INVESTMENT LTD'S. CASE (SUPRA) AND REMAND ED THE MATTER TO THE AO FOR RECONSIDERATION OF THE ISSUE AFRESH. THE ISSUE IN MAXOPP INVESTMENT LTD'S. CASE (SUPRA) WAS WHETHE R THE EXPENDITURE (INCLUDING INTEREST ON BORROWED FUNDS) IN RESPECT OF INVESTMENT IN SHARES OF OPERATING COMPANIES FOR ACQ UIRING AND RETAINING A CONTROLLING INTEREST THEREIN WAS DISALL OWABLE UNDER SECTION 14A OF THE ACT. IN THE SAID CASE ADMITTEDLY THERE WAS DIVIDEND EARNED ON SUCH INVESTMENT. IN OTHER WORDS, IT WAS NOT A CASE, AS THE PRESENT, WHERE NO EXEMPT INCOME WAS EA RNED IN THE YEAR IN QUESTION. CONSEQUENTLY, THE SAID DECISION W AS NOT RELEVANT AND DID NOT APPLY IN THE CONTEXT OF THE ISSUE PROJE CTED IN THE PRESENT CASE. 23. IN THE CONTEXT OF THE FACTS ENUMERATED HEREINBEFOR E THE COURT ANSWERS THE QUESTION FRAMED BY HOLDING THAT THE EXP RESSION 'DOES NOT FORM PART OF THE TOTAL INCOME' IN SECTION 14A O F THE ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME, W HICH IS NOT INCLUDIBLE IN THE TOTAL INCOME, DURING THE RELEVANT PREVIOUS YEAR FOR THE PURPOSE OF DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE SAID INCOME. IN OTHER WORDS, SECTION 14A WILL N OT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. ITA NO. 392/JP/2017 M/S ANUP INSULATION PVT. LTD. VS. ITO 9 FOLLOWING THE SAID DECISION, THE COORDINATE BENCHES OF THIS TRIBUNAL IN CASE OF ACIT VS. DEEPAK VEGPRO (SUPRA) AS WELL AS K .G.K. ENTERPRISES VS. ACIT (SUPRA) HAS ALSO TAKEN A SIMILAR VIEW. HOW EVER, THE SAID PRINCIPLE WOULD NOT APPLY IN CASE OF DIRECT EXPENDI TURE INCURRED FOR MAKING THE INVESTMENT WHICH WOULD YIELD IN TAX FREE INCOME. THEREFORE, IN CASE THE ASSESSEE HAS UTILIZED BORROWED FUNDS FO R MAKING INVESTMENT THEN THE INTEREST EXPENDITURE ON SUCH BORROWED FOUN DS WOULD BE A DIRECT EXPENDITURE FOR THE PURPOSE OF MAKING INVEST MENT AND CONSEQUENTLY THE SAID EXPENDITURE IS NOT ALLOWABLE AGAINST THE OTHER TAXABLE HENCE, THE SAME WOULD BE DISALLOWED U/S 14A OF THE IT ACT. IN THE CASE IN HAND, THE AO HAS GIVEN THE DETAILS OF I NVESTMENT AS UNDER:- INVESTMENT IS EQUITY INSTRUMENTS RS. 1,69,00,000/- CURRENT INVESTMENT IN EQUITY RS. 1,40,00,000/- TOTAL RS. 3,09,00,000 /- THUS, IT IS CLEAR CASE THAT DURING THE YEAR AN INVE STMENT IN THE EQUITY OF RS. 1.40 CRORES WAS MADE BY THE ASSESSEE. THE ASSES SING OFFICER HAS ALSO GIVEN DETAILS FURNISHED BY THE ASSESSEE REGARD ING INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE AS UNDER:- PARTICULARS AS ON 31/03/2013 AS ON 31/03/2012 SHREE CAPITAL 1,82,67,090/- 1,82,67,090/- ITA NO. 392/JP/2017 M/S ANUP INSULATION PVT. LTD. VS. ITO 10 SECURITIES PREMIUM 50,74,710/- 50,74,710/- TOTAL 2,33,41,800/- 2,33,41,800/- THESE FACTS WERE PART OF THE ASSESSEES REPLY AND T HEREFORE, THE ASSESSEE HAS NOT DISPUTED THE CORRECTNESS OF THE FA CTS RECORDED BY THE AO. HENCE, THERE IS FRESH INVESTMENT OF RS. 1.40 CR ORES DURING THE YEAR UNDER AND THERE IS NO INCREASE IN THE INTEREST FREE FUNDS WITH THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION AND TH EREFORE, TO THE EXTENT OF BORROWED FUNDS USED BY THE ASSESSEE FOR M AKING FRESH INVESTMENT DURING THE YEAR, THE INTEREST ON SUCH BO RROWED FUND IS NOT ALLOWABLE CLAIM AGAINST THE TAXABLE INCOME AND HENC E, THE SAME IS A DIRECT EXPENDITURE TO BE DISALLOWED U/S 14A OF THE ACT. THE EXACT DETAILS OF THE BORROWED FUNDS AS WELL AS THE AMOUNT OF BORR OWED FUNDS USED FOR INVESTMENT IS NOT AVAILABLE. HOWEVER, THE ASSES SEE HAS CLAIMED THAT ONLY RS. 75, 58,200/- WERE USED BY THE ASSESSEE AS BORROWED FUNDS FOR MAKING INVESTMENT. IN VIEW OF THE ABOVE FACTS AND C IRCUMSTANCES OF THE CASE, WE SET ASIDE THIS ISSUE TO THE RECORD OF THE ASSESSING OFFICER TO VERIFY THE FACTS REGARDING THE USE OF BORROWED FUND S FOR MAKING CURRENT INVESTMENT AND AVAILABILITY OF ASSESSEES OWN INTER EST FREE FUNDS AND ITA NO. 392/JP/2017 M/S ANUP INSULATION PVT. LTD. VS. ITO 11 THEN DECIDE THIS ISSUE AS PER LAW. NEEDLESS TO SAY THE ASSESSEE BE GIVEN AN OPPORTUNITY OF HEARING. 7. GROUND NO. 3 IS REGARDING DISALLOWANCE OF COMMIS SION EXPENDITURE. THE ASSESSING OFFICER NOTED THAT THE A SSESSEE HAS PAID COMMISSION OF RS. 10,62,231/- TO VARIOUS RELATED PA RTIES. THE AO FURTHER OBSERVED THAT NO SUPPORTING EVIDENCE TO SHO W THAT THESE PARTIES HAD ACTUAL RENDERED THE SERVICES TO JUSTIFY THE PAY MENT OF COMMISSION WHICH IS HIGHER THAN THE EARLIER YEAR. ACCORDINGLY, THE AO APPLIED THE RATE OF COMMISSION AT 1.40% OF THE TOTAL SALE AS PA ID FOR THE ASSESSMENT YEAR 2011-12 AND CONSEQUENTLY DISALLOWAN CE A SUM OF RS. 6,78,288/- OUT OF THE TOTAL COMMISSION OF RS. 10,62 ,231/- PAID TO THE RELATED PARTIES. THE ASSESSEE CHALLENGED THE ACTION OF THE AO BEFORE THE LD. CIT(A) BUT COULD NOT SUCCEED. 8. BEFORE US, THE LD. AR OF THE ASSESSEE HAS SUBMI TTED THAT THE RATE OF COMMISSION PAID TO THE RELATED PARTIES IS EQUIVA LENT TO THE PAYMENT MADE IN THE EARLIER YEARS AND THEREFORE, THE ASSESS ING OFFICER IS NOT RIGHT IN MAKING THE DISALLOWANCE BY TAKING THE PERC ENTAGE OF COMMISSION AGAINST THE TOTAL SALES AND IGNORING THE COMMISSION PAID TO THE RELATED PARTIES AGAINST THE SALE OF THE RESPECT IVE RELATED PARTIES. THE LD. AR HAS FURTHER CONTENDED THAT THE COMMISSION PA ID TO THE RELATED ITA NO. 392/JP/2017 M/S ANUP INSULATION PVT. LTD. VS. ITO 12 PARTIES FOR THE YEARS UNDER CONSIDERATION IS EQUIVA LENT IN TERM OF PERCENTAGE TO THE RESPECTIVE SALES AS PAID IN THE A .Y. 2011-12. HE HAS FURTHER SUBMITTED THAT DURING THE YEAR UNDER CONSID ERATION THE ASSESSEE HAS ALSO PAID COMMISSION TO UNRELATED PARTIES @ 6% OF THE SALE MADE BY THE SAID UNRELATED PARTIES WHEREAS THE COMMISSIO N PAID TO THE RELATED PARTIES IS FROM 2 TO 5% WHICH IS LESS THAN THE COMMISSION PAID TO UNRELATED PARTIES. WHEN THE INTERNAL COMPARABLE PRICE IS AVAILABLE THEN APPLYING THE WRONG PERCENTAGE OF COMMISSION BY THE AO IS NOT JUSTIFIED. 9. ON THE OTHER HAND, THE LD. DR HAS RELIED UPON TH E ORDERS OF THE AUTHORITIES BELOW. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS THE RELEVANT MATERIAL ON RECORD. WE NOTE THAT THE ASSESSEE HAS P AID COMMISSION OF RS. 10,62,231/- TO 7 RELATED PARTIES WHICH ARE COMM ON AS IN THE EARLIER ASSESSMENT YEARS. FOR THE ASSESSMENT YEAR 2011-12 T HE COMMISSION WAS PAID TO THESE RELATED PARTIES @ 2%, 4% AND 5% W HICH IS EQUIVALENT TO THE RATE OF COMMISSION PAID BY THE AS SESSEE DURING THE YEAR UNDER CONSIDERATION. HOWEVER THE AO HAS WORKED OUT THE FAIR MARKET RATE OF COMMISSION BY CONSIDERING THE TOTAL COMMISSION PAID BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2011-12 AGAINS T THE TOTAL SALES ITA NO. 392/JP/2017 M/S ANUP INSULATION PVT. LTD. VS. ITO 13 WHEREAS THE SALES AFFECT BY THE RELATED PARTIES IN THE SAID ASSESSMENT YEAR IS ONLY RS. 3,14,26,896/- AS AGAINST THE TOTAL SALE OF RS. 8,37,60,982/-. THUS THE AO HAS APPLIED A WRONG BENC H MARK/ PARA METER FOR MAKING DISALLOWANCE OF COMMISSION PAID TO THE RELATED PARTIES. THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT PROVIDES DISALLOWANCE OF EXPENDITURE IF IN THE OPINION OF TH E AO SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING RECORD TO THE F AIR MARKET VALUE OF SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MAD E. IN THE CASE IN HAND, THE AO HAS NOT COMPARED COMMISSION PAID TO TH E RELATED PARTIES WITH THE FAIR MARKET PRICE OF THE SERVICES RENDERED BY THE RELATED PARTIES. RATHER THE AO HAS APPLIED IMPROPER METHOD OF COMPUTING THE COMPARABLE RATE OF COMMISSION AND INSTEAD OF COMPAR ING THE RATE OF COMMISSION TO THE RELATED PARTIES FOR THE EARLIER Y EAR THE, AO APPLIED THE AVERAGE RATE OF COMMISSION AGAINST TOTAL SALES. EVEN IF SUCH RATE WAS APPLIED BY THE AO THEN, THE SAID RATE OF COMMIS SION HAS TO BE COMPARED WITH THE AVERAGE RATE OF COMMISSION AGAINS T THE TOTAL SALES FOR THE YEAR UNDER CONSIDERATION INSTEAD OF RATE OF COMMISSION PAID TO EACH INDIVIDUAL PARTIES. THE RELEVANT DETAILS OF TH E COMMISSION PAID FOR THE YEAR UNDER CONSIDERATION AND FOR ASSESSMENT YEA R 2011-12 ARE AS UNDER:- ITA NO. 392/JP/2017 M/S ANUP INSULATION PVT. LTD. VS. ITO 14 NAME OF PERSON FY 2012 - 13 (AY 2013 - 14) (RELEVANT AY) COMMISSION (IN RS. (A) RATE OF COMMISSION% SALES ON WHICH COMMISSION HAS BEEN PAID (IN RS.) KR BHANUKA & SONS RELATED PARTY 1,27,506 4.00% 31,87 661 DHANUKA ENTERPRISES RELATED PARTY 2,03,406 4.00% 50,85,142 ANUP ELECTRICALS RELATED PARTY 2,52,411 5.00% 50,48,235 ALOK ELECTRICAL RELATED PARTY 2,80,803/ - 5.00% 56,16,045 PALAK ENTERPRISES RELATED PARTY - 0.00% - DHRUV ENTERPRISES RELATED PA RTY 56,712 4.00% 14,17,803 SMT. NISHA DHANUKA RELATED PARTY 1,41,393 2.00% 70,69,625 SUB - TOTAL (RELATED PARTY) 10,62,231 2,74,24,511 CABLE SALES AGENCY UNRELATED PARTY 2,31,483 6.00% 38,58,058 TOTAL 12,93,714 3,12,82,569 NAME OF PERSON FY 2010 - 11 (AY 2011 - 12) COMMISSION (IN RS. (A) RATE OF COMMISSION% SALES ON WHICH COMMISSION HAS BEEN PAID (IN RS.) ITA NO. 392/JP/2017 M/S ANUP INSULATION PVT. LTD. VS. ITO 15 KR BHANUKA & SONS RELATED PARTY 2.88,600 4.00% 78,09,862 DHANUKA ENTERPRISES RELATED PARTY 4,93,300 4.00% 1,16,23,5 67 ANUP ELECTRICALS RELATED PARTY 94,860 5.00% 18,97,190 ALOK ELECTRICAL RELATED PARTY 1,56,065 5.00% 31,21,297 PALAK ENTERPRISES RELATED PARTY DHRUV ENTERPRISES RELATED PARTY SMT. NISHA DHANUKA RELATED PARTY 1,39,500 2.00% 69,74,980 SUB - TOTAL (RELATED PARTY) 11,72,324 3,14,26,896 CABLE SALES AGENCY UNRELATED PARTY - - TOTAL 11,72,324 3,14,26,896 THE AO HAS WORKED OUT THE COMPARABLE RATE BY CONSI DERATION THE TOTAL SALE DIVIDED BY TOTAL COMMISSION PAID FOR THE ASSES SMENT YEAR 2011- 2012 AND SUCH RATE OF 1.40% WAS APPLIED FOR MAKING DISALLOWANCE. WHEREAS THE AO DID NOT DISPUTE THE FACT THAT FOR TH E EARLIER YEAR THE COMMISSION PAID TO THE RELATED PARTIES WAS AT THE S AME RATE AS PAID ITA NO. 392/JP/2017 M/S ANUP INSULATION PVT. LTD. VS. ITO 16 DURING THE YEAR UNDER CONSIDERATION. ACCORDINGLY, I N VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, WHEN THE COMMI SSION PAID BY THE ASSESSEE IS AT SAME RATE AND IS LESS THAN THE RATE OF COMMISSION PAID TO THE UNRELATED PARTIES THEN, THE DISALLOWANCE MADE B Y THE AO IS UNCALLED FOR HENCE, THE SAME IS DELETED. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18/06/2018. SD/- SD/- HKKXPAN FOT; IKY JKO (BHAGCHAND) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 18/06/2018. * SANTOSH. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S ANUP INSULATION PVT. LTD., JAIPU R. 2. IZR;FKHZ@ THE RESPONDENT - ITO, WARD-6(2), JAIPUR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 392/JP/2017} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR