ACIT, Patiala V. M/s H.K. Associates, Patiala

ITA 398/CHANDI/2011

• Counselvise Citation: 39821514 RSA 2011
• Duration Of Justice: 1 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 19-11-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 18-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Assessee Lawyers: K P BAJAJ
• Keywords: Depreciation; Notional interest; Commercial expediency
• Section: 43B; 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO.398/CHD/2011 (ASSESSMENT YEAR : 2006-07) THE A.C.I.T., VS. M/S H.K.ASSOCIATES, CIRCLE PATIALA. 1-KHANDARI VILLA, BHUPINDRA R OAD, PATIALA. PAN: AACFH3275N AND C.O.NO.54/CHD/2011 ARISING OUT OF ITA NO.398/CHD/2011 (ASSESSMENT YEAR : 2006-07) M/S H.K.ASSOCIATES, VS. THE A.C.I.T., 1-KHANDARI VILLA, BHUPINDRA ROAD, CIRCLE PATIALA . PATIALA. PAN: AACFH3275N (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K.P.BAJAJ DEPARTMENT BY : SHRI N.K.SAINI, DR DATE OF HEARING : 21.11.2012 DATE OF PRONOUNCEMENT : 29.11.2012 O R D E R PER SUSHMA CHOWLA, J.M, : THE APPEAL FILED BY THE REVENUE IS AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME-TAX(APPEALS), PATIALA DATED 07.02.2011 RELATING TO ASSESSMENT YEAR 2006-07 AGAINST THE ORDER PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). THE ASS ESSEE HAS FILED CROSS OBJECTIONS AGAINST THE APPEAL FILED BY THE REVENUE. 2. THE APPEAL OF THE REVENUE AND THE CROSS OBJECTIO NS FILED BY THE ASSESSEE WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2 3. THE REVENUE IN ITA NO.398/CHD/2011 HAS RAISED FO LLOWING GROUNDS OF APPEAL: 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.6,02,769/- OUT OF THE TOTAL OF ? 9,16,5207-, MADE BY THE AO ON A/C OF INT EREST ON DELAYED PAYMENTS, WITHOUT APPRECIATING THE FACT THA T THE ASSESSEE HAD FAILED TO CREDIT INTEREST @ 12% ON DELAYED PAYM ENTS OF COMMISSION AS PER CLAUSE 7 OF THE AGREEMENT WITH K ANDHARI BEVERAGES PVT. LTD. AND HAD, THUS, FAILED TO BOOK T HE SAME IN ACCORDANCE WITH THE MERCANTILE SYSTEM OF ACCOUNTING . 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.13,84,230-, MA DE BY THE AO ON A/C OF DISALLOWANCE U/S 36(L)(III),WITH OUT APPRECIATING THE FACT THAT THE DISALLOWANCE HAD BEE N MADE IN VIEW OF THE VIOLATION OF PARA 6 OF THE AGREEMENT WITH KANDHARI BEVERAGES PVT. LTD. 3. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.18,38,000/-, M ADE BY THE AO ON A/C OF DISALLOWANCE OF EXPENSES, WITHOUT APPR ECIATING THE FACT THAT THE ASSESSEE HAD CLAIMED THE SAME IN CONT RAVENTION OF CLAUSE 6 OF THE AGREEMENT WITH KANDHARI BEVERAGES P VT. LTD. AND HAD, THUS, FAILED TO BOOK THE SAME IN ACCORDANCE WI TH THE MERCANTILE SYSTEM OF ACCOUNTING. 4. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.1,43,760/-, MA DE BY THE AO ON A/C OF DISALLOWANCE OF EXPENSES TO THE EXTENT OF PERSONAL USE, WITHOUT APPRECIATING THE FACT THAT TH E ADDITION HAD BEEN MADE AFTER DUE CONSIDERATION OF THE RELEVANT F ACTS. 5. IT IS PRAYED THAT THE ORDER OF LD. CIT(A) BE SE T ASIDE AND THAT OF THE AO RESTORED. 6. THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GROUNDS OF APPEAL BEFORE THE APPEAL IS HEARD AND FINALLY DISPO SED OF. 4. THE ASSESSEE IN C.O.NO.54/CHD/2011 HAS RAISED FO LLOWING GROUNDS OF APPEAL: 1. THAT THE LD. CIT(A) IS NOT JUSTIFIED IN HOLDING THAT NOTIONAL INTEREST ON ACCOUNT OF LATE PAYMENT OF THE COMMISSI ON IS CHARGEABLE TO TAX. 2. THAT THE LD. CIT(A) IS NOT JUSTIFIED IN UPHOLDIN G THE DISALLOWANCE OF SALARY PAID TO SHRI HARMEET SINGH, PARTNER AT RS.4,80,000/-. 3 3. THAT THE LD. CIT(A) IS NOT JUSTIFIED IN UPHOLDIN G THE CHARGING OF NOTIONAL INTEREST ON LOANS ADVANCED AT LOWER RATE OF INTEREST. 4. THAT THE LD. CIT(A) IS NOT JUSTIFIED IN UPHOLDIN G THE DISALLOWANCE OUT OF INTEREST; RS.4,15,520/- UNDER T HE PROVISIONS OF SECTION 43B AND RS.13,84,230/- OUT OF THE BALANCE PAYMENT OF INTEREST. 5. THAT THE LD. CIT(A) IS NOT JUSTIFIED IN RESTRICT ING THE ALLOWANCE ON ACCOUNT OF SALARIES PAID TO FAMILY MEM BERS OF THE PARTNERS OF THE APPELLANT FIRM. 5. THE GROUND NO.1 RAISED BY THE REVENUE AND GROUND NO.1 OF THE CROSS OBJECTION ARE ON THE ISSUE OF ADDITION MADE B Y THE ASSESSING OFFICER ON ACCOUNT OF INTEREST OF DELAYED PAYMENTS. 6. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E WAS AGENT OF M/S KANDHARI BEVERAGES PVT. LTD. AND WAS UNDERTAKING MA RKETING AND SALES OF PRODUCTS OF THE SAID PRINCIPAL KBPL IN THE TERRI TORY OF PUNJAB AND HARYANA. THE ASSESSEE WAS ENTITLED TO COMMISSION @ 3% OF THE SALES EFFECTED BY IT. DURING THE YEAR UNDER CONSIDERATIO N THE ASSESSEE HAD FURNISHED THE RETURN OF INCOME ON 30.3.2007 DECLARI NG TOTAL INCOME OF RS.2,75,31,155/-. THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH ITS PRINCIPAL AND IT HAD BEEN PROVIDED IN THE SAID AGRE EMENT THAT THE ASSESSEE WAS ENTITLED TO THE COMMISSION @ 3% OF THE SALES AFFECTED. IT WAS ALSO PROVIDED IN THE SAID AGREEMENT THAT WHERE COMMISSION WAS OUTSTANDING FROM THE PRINCIPAL, INTEREST WAS TO BE RECEIVED @12% ON DELAYED PAYMENTS. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT A SUM OF RS.2.39 CRORES ON ACCOUNT OF COMMISSION WAS OUTSTANDING OUT OF TOTAL COMMISSION OF RS.3.91 CRORES. THE ASSESSEE WAS SHOW CAUSED TO EXPLAIN WHY SAID IN TEREST ON DELAYED PAYMENTS SHOULD NOT BE ADDED TO ITS INCOME. THE AS SESSEE FURNISHED VARIOUS EXPLANATIONS AND VIDE ITS REPLY DATED 10.11 .2008 IT WAS POINTED OUT THAT DEBIT BALANCE OF RS.2.39 CRORES WAS INCLUS IVE OF THE COMMISSION FOR THE 4 TH QUARTER ENDING ON 31.3.2006 AT RS.1.16 CRORES, PAY MENT OF 4 WHICH WAS DUE ON 7.4.2006. IT WAS ALSO EXPLAINED T HAT IN THE PRECEDING YEARS THERE WERE HUGE CREDIT BALANCES OF THE PRINCI PAL WITH THE ASSESSEE COMPANY, ON WHICH NO INTEREST WAS GIVEN BY THE ASSE SSEE AND HENCE NO INTEREST WAS CHARGED DURING THE YEAR. THE STATEMEN T OF THE OFFICIALS OF THE SAID PRINCIPAL WAS RECORDED BY THE ASSESSING OF FICER DURING THE ASSESSMENT PROCEEDINGS IN WHICH THEY CONFIRMED OF H AVING PAID NO INTEREST ON THE DELAYED PAYMENTS. THE SHOW CAUSE N OTICES ISSUED AND THE REPLIES FILED BY THE ASSESSEE ARE REPRODUCED BY THE ASSESSING OFFICER AT PAGES 3 TO 12 OF THE ASSESSMENT ORDER. THE ASSESSI NG OFFICER WAS OF THE VIEW THAT BY VIRTUE OF CLAUSE (VII) OF AGREEMENT, T HE INTEREST @ 12% ON DELAYED PAYMENTS BECAME ACCRUED TO THE ASSESSEE ONC E THE PRINCIPAL FAILED TO MAKE THE PAYMENT ON ACCOUNT OF COMMISSION BY 7 TH DAY FROM THE END OF THE QUARTER. THE ASSESSING OFFICER ACCO RDINGLY COMPUTED THE INTEREST RECEIVABLE ON DELAYED PAYMENTS AT RS.9,16, 520/- AS PER THE COMPUTATION AT PAGE 11 OF THE ASSESSMENT ORDER. TH E CIT (APPEALS) HELD THAT THE INTEREST ON DELAYED PAYMENTS IS INCLUDIBLE AS INCOME OF THE ASSESSEE. HOWEVER, THE CIT (APPEALS) CONSIDERED TH E SUBMISSIONS OF THE ASSESSEE THAT THE CALCULATION OF INTEREST ON SUCH D ELAYED PAYMENTS WAS INCORRECT. 7. THE CIT (APPEALS) VIDE PARA 4.4 AT PAGES 4 AND 5 OF THE APPELLATE ORDER CONSIDERED THE PLEA OF THE ASSESSEE VIS--VIS CREDIT BALANCE OF THE COMPANY AT RS.94,49,552/- AT THE START OF THE YEAR, THE CREDIT FOR WHICH WAS TO BE ALLOWED, BEFORE COMPUTING THE AMOUNT RECE IVABLE FROM THE PRINCIPAL BY THE ASSESSEE IN THE FIRST QUARTER AND FURTHER ADJUSTMENT IN THE SECOND QUARTER. THE CIT (APPEALS) CAME TO A FI NDING THAT THE ASSESSING OFFICER HAD CHARGED THE INTEREST IN EXCES S BY RS.6,02,769/- AND RESTRICTED THE DISALLOWANCE AT RS.3,13,747/-. 5 8. THE REVENUE IS IN APPEAL AGAINST THE ORDER OF TH E CIT (APPEALS) IN DELETING THE ADDITION OF RS.6,02,769/- AND THE ASSE SSEE HAD FILED CROSS OBJECTION AGAINST THE ADDITION OF RS.3,13,747/-. 9. SHRI K.P.BAJAJ APPEARED FOR THE ASSESSEE AND SHR I N.K.SAINI PUT IN APPEARANCE ON BEHALF OF THE REVENUE AND PUT FORWARD THEIR CONTENTIONS. 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE IS AN AGENT OF M/S KANDHARI BEVERAGES PVT. LTD. AND IS UNDERTAKING BOTH MARKETING AND SALES OF THE PRODUCT S OF THE SAID COMPANY. THE ASSESSEE HAD ENTERED INTO AN AGREEMEN T WITH THE PRINCIPAL FOR CARRYING ON THE SAID BUSINESS ACTIVITY. AS PER THE TERMS OF THE AGREEMENT THE ASSESSEE WAS ENTITLED TO COMMISSION @ 3% ON THE SALES OF THE PRODUCTS OF THE PRINCIPAL AFFECTED BY IT. THE ASSESSING OFFICER NOTED THAT DURING THE COURSE OF PRESENT FINANCIAL YEAR TH E ASSESSEE HAD NOT ACCOUNTED FOR THE INTEREST DUE ON THE DELAYED PAYME NTS RECEIVABLE FROM THE PRINCIPAL AND AS PER THE CALCULATION AT PAGE 11 COMPUTED SUCH INTEREST ON DELAYED PAYMENTS AT RS.9,16,520/-. 11. THE CLAIM OF THE ASSESSEE BEFORE THE CIT (APPEA LS) WAS TWO FOLD I.E. A) AS IT HAD NOT RECEIVED ANY INTEREST ON THE DELAYED PAYMENTS, NO SUCH INTEREST INCOME WAS INCLUDIBLE IN ITS HANDS AN D FURTHER THERE WAS A MISTAKE IN THE CALCULATION OF INTEREST ON DELAYED P AYMENTS BY NOT CONSIDERING THE CREDIT BALANCE AT THE START OF THE YEAR OF THE SAID COMPANY IN THE BOOKS OF THE ASSESSEE AT RS.94,,49,5 52/-. THE CIT (APPEALS) IN RESPECT OF THE FIRST PROPOSITION FORWA RDED BY THE ASSESSEE VIDE PARA 4.5 HELD AS UNDER: 4.5 IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE WHERE THEAPPELLANT HAD ENTERED IN TO A CONTRACT WITH THE PRINCIPAL COMPANY TO PAY INTEREST, THEN THE INTEREST AMOUNT I TSELF BECOMES A PART OF THE DEBT. AS IN THE PRESENT CASE, WHEN THER E IS A CONTRACT BY WAY OF AN AGREEMENT TO PAY INTEREST UP TO THE TIME STIPULATED FOR 6 PAYMENT OF THE COMMISSION THEN ANY INTEREST BEYOND THAT DATE WOULD HAVE TO BE CONSIDERED AS A PAYMENT DUE UNDER AN AGREEMENT, EXPRESS OR IMPLIED. THOUGH, THE APPELLANT DID NOT GET THE MONEY ON THE DUE DATE BUT STILL THE SAME HAS TO BE TREATED A S INCOME IN HIS HANDS. THIS WOULD REPRESENT THE PROFIT HE MIGHT HAV E EARNED IF HE HAD THE USE OF THE MONEY IN TIME. THE EXTENT TO WHICH A PPELLANT HAS BEEN DEPRIVED OF THE USE OF SUCH MONEY (I.E. INTEREST) S HOULD BE HELD TO BE THE INCOME OF THE APPELLANT AND TAXED ACCORDINGLY. THE A.O. HAS RIGHTLY HELD THAT INTEREST IS CHARGEABLE ON THE DEL AYED PAYMENTS BECAUSE THERE IS A LEGAL RIGHT TO RECOVER THE INCOM E/ INTEREST. HOWEVER, THE A.O. IS DIRECTED TO VERIFY THE CONTENT ION OF THE COUNSEL FOR THE APPELLANT IN PARA 4.4 SUPRA AND DO THE NECESSARY RECTIFICATION OF THE AMOUNT OF INTEREST TO BE CHARG ED ON THE DELAYED PAYMENTS. 12. IN RESPECT OF THE ALTERNATE PLEA OF THE ASSESSE E THE OBSERVATION OF THE CIT (APPEALS) VIDE PARA 4.4 WERE AS UNDER: 4. FURTHER HE SUBMITTED THAT THE CALCULATION OF INTEREST ON DISALLOWANCE WAS INCORRECT. A STATEMEN T OF CORRECT AMOUNT OF ALLEGED INTEREST PAYABLE ON DELAY ED PAYMENT FILED BEFORE THE A.O. SHOWED THAT THERE WAS A CREDIT BALANCE OF THE COMPANY AT RS.94,49,552/- BROUGHT FORWARD FROM THE PRECEDING YEAR. THE NET COMMISSION FOR THE FIRST QUARTER WAS AT RS.53,60,75 7!- (THE ACTUAL AMOUNT OF RS.1,50,53,838/- MINUS RS.94,49,552/-) WHICH ACCORDING TO CLAUSE 7 OF THE AGREEMENT WAS PAYABLE BY 08.07.2005. THIS WAS ACTUALLY PAID AT RS.1,50,00,000- ON 20.09.2005 WITH A DELAY OF 2M 13D AND INTEREST ON SUCH DELAY WORKED O UT TO RS.1,3O,445/- ONLY. THE COMMISSION FOR SECOND QUARTER WAS RS. 15,17,510/- (ACTUAL AMOUNT OF RS.1,03,51,836/- MINUS RS. 95,93,381/-) AND FOR DEL AY OF 4M 5D THE INTEREST CALCULATED WORKED OUT TO RS.62,230/-. SUCH INTEREST FOR 1 ST & 2 ND QRS. WAS CHARGED BY THE A.O. AT RS.3,65,808/- & RS.4,30,636/ - RESPECTIVELY, ALTOGETHER IGNORING THAT THE OPENING CREDIT BALANCE OF THE COMPANY AT THE START OF F.Y. 2005- 06 WAS RS.94,49,552/-AND THE TERMS AND CONDITIONS PROVIDED ESSENTIALLY CHARGING OF INTEREST BY THE AG ENT ON DELAYED PAYMENTS BY THE PRINCIPAL BECAUSE THE FORMER IS THE SERVICE PROVIDER AND THE LATER IS THE SERVICE RECEIVER. THE AGREEMENT HAS RIGHTLY VISUALI ZED PAYMENTS BY THE PRINCIPAL TO THE AGENT IN LIEU OF S ERVICE PROVIDED BY IT AND THIS WAS THE REASON FOR NOT CHAR GING ANY INTEREST ON THE CREDIT BALANCE OF THE PRINCIPAL COMPANY BUT THIS IS NOT SO ON THE DEBIT BALANCES OF THE COMPANY. ACCORDING TO HIM THE A.O. HAD HELD THAT TH E PRINCIPAL WAS ALWAYS UNDER AN OBLIGATION TO PAY INTEREST ON DELAYED PAYMENTS BUT IT HAD NO RIGHT TO CHARGE INTEREST ON HUGE AMOUNT OF ADVANCES RELEASED TO THE AGENT AGAINST COMMISSION INCOME FOR WHICH IT WA S OBLIGATED TO RELEASE THE SAME. AS PER ABOVE STATEME NT HAD THE COMPANY CHARGED INTEREST ON RELEASE OF HUGE 7 CREDIT BALANCES IN LAST THREE ASSESSMENT YEARS, THE INTEREST AMOUNT SO PAYABLE WOULD HAVE BEEN A WHOPPI NG FIGURE OF RS.22,45,531/- AS COMPARED TO SMALL AMOUN T OF INTEREST ACCRUING OF RS.3,13,747/-, PAYABLE ON T HE ALLEGED DELAYED PAYMENTS AFTER DEDUCTING THE OPENIN G CREDIT BALANCE. THE INTEREST, THEREFORE, CHARGED IN EXCESS BY RS. 6,02,769/- (RS.9,16,516/- MINUS RS.3,13,747/-) NEEDS TO BE REDUCED ACCORDINGLY. 13. WE FIND FAVOUR WITH THE OBSERVATIONS OF THE CIT (APPEALS) ON BOTH THE ACCOUNTS. THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. FURTHER AS PER THE TERMS OF AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND ITS PRINCIPAL, AS PER CLAUSE (VII) , THE ASSESSEE IS ENTITLED TO RECEIVE INTEREST @ 10% ON THE DELAYED PAYMENTS. CONSEQUENTLY, WHERE THE PAYMENTS HAD BEEN RECEIVED BY THE ASSESSE E AFTER STIPULATED DATE OF PAYMENT, SUCH INTEREST IS DUE TO BE INCLUDE D IN THE HANDS OF THE ASSESSEE AS INCOME OF THE YEAR. WE FIND NO MERIT I N THE STAND OF THE LEARNED A.R. FOR THE ASSESSEE THAT HUGE CREDIT BALA NCES OF THE PRINCIPAL WERE DUE WITH THE ASSESSEE IN THE PRECEDING YEAR/S ON WHICH NO INTEREST WAS PAID BY THE ASSESSEE. THERE IS NO SUCH PROVISI ONS OF PAYMENT OF INTEREST AS PER TERMS OF THE AGREEMENT ENTERED INTO BETWEEN THE PARTIES. ACCORDINGLY, WE UPHOLD THE INCLUSION OF INTEREST IN COME IN THE HANDS OF THE ASSESSEE. FURTHER WE FIND MERIT IN THE RECOMPU TATION OF INTEREST ON DELAYED PAYMENTS MADE BY THE CIT (APPEALS) AFTER CO NSIDERING THE PLEA OF THE ASSESSEE OF THE CREDIT BALANCE OF THE COMPAN Y AVAILABLE WITH THE ASSESSEE AT RS.94,49,552/- AT THE START OF THE YEAR . IN VIEW THEREOF, WE UPHOLD THE ADDITION OF RS.3,13,747/- AS INTEREST ON THE DELAYED PAYMENTS AND ALSO UPHOLD THE DELETION OF INTEREST OF RS.6,02 ,769/- BEING WRONG CALCULATION COMPUTED BY THE ASSESSING OFFICER. THU S BOTH THE GROUND NO.1 RAISED BY THE REVENUE AND GROUND NO.1 RAISED I N THE CROSS OBJECTION ARE DISMISSED. 8 14. THE ISSUE IN GROUND NO.2 RAISED BY THE REVENUE AND GROUND NO.4 IN THE CROSS OBJECTION RAISED BY THE ASSESSEE ARE AGAI NST THE DISALLOWANCE OF INTEREST. 15. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSING OFFICER NOTED THE ASSES SEE TO HAVE ADVANCED LOANS TO THE CONNECTED PERSONS TOTALING RS.1,11,65, 000/- AS TABULATED AT PAGE 25 OF THE ASSESSMENT ORDER. THE ASSESSEE, ON THE OTHER HAND, HAD PAID INTEREST TOTALING RS.23,39,917/- TO THE BANK I .E. INTEREST ON OBC LOAN TOTALING RS.4,56,187 AND INTEREST ON OD OF RS. 18,83,730/-. THE ASSESSING OFFICER SHOW CAUSED THE ASSESSEE TO EXPLA IN AS TO WHY THE INTEREST OF RS.23,39,917/- SHOULD NOT BE DISALLOWED IN VIEW OF THE RATIO LAID DOWN BY THE JURISDICTIONAL HIGH COURT IN CIT V S. ABHISHEK INDUSTRIES [286 ITR 1(P&H)]. THE EXPLANATION OF TH E ASSESSEE IS INCORPORATED AT PAGES 26 TO 28 OF THE ASSESSMENT OR DER UNDER WHICH THE ASSESSEE EXPLAINED THAT IT HAD SURPLUS FUNDS OF THE BUSINESS WHICH WERE PARKED IN THE SHAPE OF BANK FDR AND INTEREST INCOME WAS EARNED ON THE SAME. THE ASSESSEE FURTHER EXPLAINED THAT OD LIMIT WAS RAISED AGAINST THE SAID FDR. IN RESPECT OF THE VARIOUS ADVANCES M ADE BY THE ASSESSEE, IT WAS CLAIMED THAT THE SAID ADVANCES WERE FOR CARR YING OF THE BUSINESS OF THE ASSESSEE FIRM THOUGH THROUGH INDIVIDUAL PART IES. THE ASSESSING OFFICER REJECTING THE CLAIM OF THE ASSESSEE AND APP LYING THE RATIO LAID DOWN BY THE JURISDICTIONAL HIGH COURT HELD THE ASSE SSEE TO HAVE DIVERTED THE INTEREST BEARING FUNDS TO INTEREST FREE ADVANCE S. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD PAID HUGE INTER EST ON OVER DRAFTS AMOUNTING TO RS.23,39,917/-. HOWEVER, AS PER THE A SSESSING OFFICER THE AMOUNT OF INTEREST PAID BY THE ASSESSEE AS CONFIRME D BY THE MANAGER OF THE RESPECTIVE BANKS AS PER INFORMATION CALLED FOR UNDER SECTION 133(6) OF THE ACT TOTALED TO RS.19,24,357/-. THE ASSESSIN G OFFICER THUS 9 OBSERVED THE ASSESSEE TO HAVE CLAIMED EXCESS EXPEND ITURE ON ACCOUNT OF INTEREST PAID TO OBC BANK AND CANARA BANK AGGREGATI NG TO RS.4,15,560/- WHICH WAS DISALLOWED. 16. THE SECOND ADDITION MADE BY THE ASSESSING OFFIC ER UNDER THE HEAD INTEREST WAS ON ACCOUNT OF DIVERSION OF INTEREST BEARING LOANS TO INTEREST FREE ADVANCES AGGREGATING TO RS.1.97 CRORE S AND THE INTEREST ATTRIBUTABLE TO THE SAME AMOUNTING TO RS.13,84,230/ - WAS DISALLOWED UNDER SECTION 36(1)(III) OF THE ACT. THE CIT (APPE ALS) DELIBERATING UPON THE ISSUE UNDER PARAS 7 TO 7.6 AT PAGES 11 TO 15 OF THE APPELLATE ORDER UPHELD THE ADDITION OF RS.4,15,560/- UNDER SECTION 43B OF THE ACT I.E. NON PAYMENT OF INTEREST TO THE BANKS. IN RESPECT O F THE SECOND ADDITION THE CIT (APPEALS) VIDE PARA 7.6 OBSERVED AS UNDER: 8.5 IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND RIVAL SUBMISSIONS OF THE BOTH THE A.O. AND COUNSEL IT IS SEEN THAT THE PAYMENTS OF RS. 18,38,0007- HAUE BEEN DISAVOWED PRIMARILY ON THE GROUND THAT THE SAID PAYMENTS WERE NOT WARRANTED BY VIRTUE OF AN AGREEMENT MADE BETWEEN THE APPELLANT AND THE PRINCIPAL COMPA NY M/S KBPL. SUCH PAYMENTS CAN NOT BE TERMED TO BE ILLEGAL IN AS MUCH AS THEY CONTRAVENE SOME CLAUSE OF AN AGREEMENT BETWEEN THE PARTIES. THE A.O. HAS NOWHERE DOUBTED THE VALIDITY OF THE PAYMENT AND WHE THER SUCH SUMS WERE ACTUALLY PAID. HE HAS DOUBTED THE EXISTENCE OF CO MMERCIAL EXPEDIENCY ON THE BASIS OF AN AGREEMENT. THE REASONS OF THE A. O. IN HIS ORDER THAT PAYMENTS HAVE BEEN WRONGLY MADE BECAUSE OF THE POSS IBILITY OF RECOVERING THE SAME FROM M/S KBPL CAN NOT BE THE BA SIS FOR SUCH DISALLOWANCE. THE A.O. HAS NOT BEEN ABLE TO ESTABLI SH THE TEST OF COMMERCIAL EXPEDIENCY IN JUDGING WHETHER THE EXPEND ITURE INCURRED IN PURSUANCE OF AGREEMENT IS FOR BUSINESS NEEDS OR NOT. THE A.O. HAS NO WHERE MADE OUT A CASE THAT THE PAYMENTS SUFFER FROM THE 'VICE OF COLLUSIVENESS OR COLOURABLE DEVICE' AND THEREFORE S HOULD BE DISALLOWED AS HELD IN CIT V. DALMIA CEMENT ( BHA RAT) LTD. (2002 ) 254ITR 377 (DEL). FURTHER ALSOFKEA.0. HAS NOT BEEN ABLE TO BUILD A CASE THAT THE PAYMENTS MADE ARE NOT WHOLLY AND EXCLUSIVE LY FOR THE PURPOSES OF BUSINESS. AFTER HAVING MADE REFERENCE TO THE EXIST ENCE TO AN AGREEMENT BETWEEN THE APPELLANT AND M/S KBPL AND TO VARIOUS C LAUSES FOR THE AGREEMENT, THE A.O. IS REQUIRED TO PROVE THAT THE S AID EXPENDITURE WAS NOT GENUINELY AND EXCLUSIVELY INCURRED FOR THE BUSINESS PURPOSES AND WAS NOT OUT OF COMMERCIAL EXPEDIENCY. THERE IS NO CONCLUSI VE EVIDENCE FOR MAKING THE DISALLOWANCE. REGARDING THE APPORTIONMENT OF T HE EXPENDITURE TO THE TERMS OF THE AGREEMENT THE A.O. HAS NOT BEEN ABLE T O ESTABLISH THEIR FALSENESS AND NON-BUSINESS USE. IN THE ABSENCE OF THE SAME IT CAN BE SAFELY HELD THAT THE PAYMENTS HAVE BEEN MADE WHOLLY AND EX CLUSIVELY FOR THE PURPOSE OF BUSINESS NEEDS OF THE APPELLANT. THE AD DITION ON THIS ACCOUNT IS, THEREFORE, DELETED. 10 17. THE CIT (APPEALS) VIDE PARA 7.6 HAD DIRECTED TH E ASSESSING OFFICER TO VERIFY THE ACTUAL DISALLOWANCE MADE IN VIEW OF T HE FINDINGS IN PARA 8.5 OF ORDER OF THE CIT (APPEALS). IN VIEW OF TH E SAME, WE FIND NO MERIT IN GROUND NO.2 RAISED BY THE REVENUE IN ITS A PPEAL IN OBSERVING THAT THE CIT (APPEALS) HAD DELETED THE ADDITION OF RS.13,84,230/-; IN FACT THE CIT (APPEALS) HAD RESTORED THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO REALLOCATE THE SAME. IN VIEW THEREOF, THE GROUND NO.2 RAISED BY THE REVENUE IS DISMISSED. 18. THE ASSESSEE VIDE GROUND NO.4 HAS AGITATED THE ISSUE OF DISALLOWANCE OF RS.4,15,560/- UNDER SECTION 43B OF THE ACT. THE LEARNED A.R. FOR THE ASSESSEE POINTED OUT THAT THE ASSESSIN G OFFICER AT PAGE 24 HAD CORRECTLY NOTED THAT THE BANK INTEREST WAS PAID TOTALING RS.23,39,917/-, WHICH WAS ON ACCOUNT OF FOLLOWING: SR . NO . NAME OF THE PARTY AMOUNT 1. INTEREST ON OBC LOAN 4,56,187/- 2. IN ON OD 18,83,730/- TOTAL 23,39,917/- 19. THE LEARNED A.R. FOR THE ASSESSEE POINTED OUT T HAT AS AGAINST THE CLAIM OF RS.23.39 LACS THE ASSESSING OFFICER DISALL OWED A SUM OF RS.4,15,560/- AS BANK INTEREST NOT PAID AND HENCE C OVERED BY THE PROVISIONS OF SECTION 43B OF THE ACT. THE CONTENTI ON OF THE LEARNED A.R. FOR THE ASSESSEE IN THIS REGARD WAS THAT THE ASSESS ING OFFICER HAD ONLY CONSIDERED THE INTEREST PAID ON OD ACCOUNT AND NOT CONSIDERED THE INTEREST PAID ON FDRS. THE LEARNED A.R. FOR THE AS SESSEE MADE REFERENCE TO CERTIFICATE ISSUED BY THE BANK AT PAGE 12 OF THE PAPER BOOK AND COMPUTATION OF INTEREST PAID ON OD ACCOUNT AT PAGES 13 AND 14 OF THE PAPER BOOK. IN THE ENTIRETY OF THE FACTS AND CIRCUMSTANCES OF THE PRES ENT CASE WE FIND MERIT IN THE CLAIM OF THE ASSESSEE THAT THE ASSESSEE HAS CLAIMED INTEREST EXPENDITURE ON ACCOUNT OF INTEREST DUE ON OD LIMIT AND INTEREST ON LOANS RAISED AGAINST TH E FIXED DEPOSITS. AS PER THE CERTIFICATE 11 OF THE OBC PLACED AT PAGE 12 OF THE PAPER BOOK A SU M OF RS.4,56,187/- HAD BEEN CHARGED ON ACCOUNT OF INTEREST ON SUCH LOA NS RAISED AGAINST FDRS FOR THE FINANCIAL YEAR 2005-06. FURTHER SUM O F RS.15,07,867/- WAS CHARGED AS INTEREST ON OD ACCOUNT. IN ADDITION, TH E ASSESSEE HAD RAISED OD LIMIT FROM CANARA BANK WHICH HAD CHARGED INTERES T OF RS.4,46,275/- AGAINST WHICH EXCESS INTEREST CHARGED BY CANARA BAN K WAS ADJUSTED AT RS.70,412/- AND BALANCE INTEREST OF RS.3,75,863/- W AS INCLUDED IN THE INTEREST DUE ON OD LIMIT RAISED FROM OBC. THE DETA ILS OF INTEREST PAID TO THE BANK ON OD LIMIT IS AS UNDER: H.K. ASSOCIATES DETAIL OF INTEREST PAID TO BANKS IN A. Y. 2006-2007 DATE OBC CANARA BANK 29-04-2005 122631 38784 31-05-2005 147118 39612 30-06-2005 135004 40991 29-07-2005 127576 53096 31 - 08 - 2005 98050 129510 30-09-2005 93786 54753 31-10-2005 105546 59809 29-11-2005 122185 29720 31-12-2005 146274 31-01-2006 149249; 2S-02-2006 115396 31-03-2006 145052 1507867 446275 EXCESS INTEREST CHARGED B Y CANARA BANK ADJUSTED ; 70412 . . 1507867 375863 . 1507867 375863 1883730 20. IN ADDITION TO THE ABOVE SAID, THE OBC HAD CHAR GED A SUM OF RS.4,56,187/- ON ACCOUNT OF INTEREST ON LOANS RAISE D AGAINST FDRS. THE DISALLOWANCE OF RS.4,15,560/- HAS BEEN MADE IN THE HANDS OF THE ASSESSEE 12 IN VIEW OF THE PROVISIONS OF SECTION 43B OF THE ACT . WE FIND MERIT IN THE CLAIM OF THE ASSESSEE THAT THE INTEREST OF OD LIMIT IS TO BE ALLOWED AT RS.18,83,730/- AND THE BALANCE SUM OF RS.4,56,187/- IS ALLOWABLE IN THE HANDS OF THE ASSESSEE IN CASE THE SAID INTEREST HAS BEEN PAID TO THE BANK BY THE ASSESSEE BEFORE THE DUE DATE OF FILING THE R ETURN OF INCOME. THE ASSESSEE HAS FURNISHED ON RECORD THE PARTICULARS OF EACH LOAN TAKEN AGAINST FDRS FROM THE OBC BANK. AS PER THE DETAILS FURNISHED BY THE ASSESSEE, THE SAID LOANS ALONGWITH INTEREST WERE AD JUSTED AGAINST THE RESPECTIVE FDRS ON 29.11.2005. CONSEQUENTLY, THE I NTEREST DUE ON THE LOANS TAKEN AGAINST THE FDRS HAD BEEN PAID DURING T HE FINANCIAL YEAR ITSELF. CONSEQUENTLY, THE SAID CLAIM OF THE ASSESS EE TOTALING RS.4,56,187/- IS TO BE ALLOWED IN THE HANDS OF THE ASSESSEE. GROUND NO.4 OF CROSS OBJECTION IS THUS ALLOWED. 21. THE ISSUE IN GROUND NO.3 RAISED BY THE ASSESSEE IS AGAINST THE DELETION OF ADDITION MADE ON ACCOUNT OF DISALLOWANC E OF EXPENSES TOTALING RS.18,38,000/-. THE ASSESSING OFFICER NOT ED THE ASSESSEE TO HAVE DEBITED EXPENDITURE OF RS.14,76,200/- ON ACCOU NT OF SALARY, RS.12,000/- ON ACCOUNT OF OFFICE RENT AND RS.3,49,8 00/- ON ACCOUNT OF ADVERTISEMENT EXPENSES TOTALING RS.18,38,000/- TO T HE PROFIT & LOSS ACCOUNT. THE ASSESSING OFFICER SHOW CAUSED THE ASS ESSEE AS TO WHY THE SAID EXPENSES SHOULD NOT BE DISALLOWED AS THE SAID EXPENDITURE HAD TO BE BORNE BY THE PRINCIPAL IN VIEW OF THE AGREEMENT ENT ERED INTO BETWEEN THE PARTIES. THE EXPLANATION OF THE ASSESSEE BEFORE TH E ASSESSING OFFICER WAS THAT IT WAS CARRYING ON TWO LINES OF BUSINESS I .E. ONE OF PROMOTING THE BUSINESS OF MARKETING, SERVER-SHIP AND COMMISSI ON AGENCY IN SOFT DRINKS AND ALSO SECOND OF COMMISSION EARNED ON SALE OF PRODUCTS OF THE PRINCIPAL M/S KBPL. IN RESPECT OF THE FIRST LINE O F BUSINESS THE EXPENDITURE WAS INCURRED BY THE ASSESSEE AND CLAIME D IN ITS PROFIT & 13 LOSS ACCOUNT. THE SAID EXPENDITURE WAS INDEPENDENT OF THE EXPENSES INCURRED ON THE DISPATCH OF GOODS DIRIECTLY BY THE PRINCIPAL TO THE PURCHASER. THE ASSESSING OFFICER REJECTING THE EXP LANATION OF THE ASSESSEE DISALLOWED SUM OF RS.18,38,000/-. 22. THE CIT (APPEALS) OBSERVED THAT THE ASSESSING O FFICER HAD NOT DOUBTED THE VALIDITY OF THE PAYMENT AND THE ONLY DO UBT WAS THE COMMERCIAL EXPEDIENCY ON THE BASIS OF AN AGREEMENT. THE CIT (APPEALS) HELD THAT JUST BECAUSE THERE WAS POSSIBILITY OF REC OVERING THE SAID EXPENDITURE FROM THE PRINCIPAL, COULD NOT THE BASIS FOR SUCH DISALLOWANCE. THE EXPENDITURE BEING INCURRED FOR T HE PURPOSE OF BUSINESS WAS ALLOWED AS EXPENDITURE. 23. THE REVENUE IS IN APPEAL AGAINST THE SAID ORDER OF THE CIT (APPEALS). 24. WE ARE IN CONFORMITY WITH THE ORDER OF THE CIT (APPEALS) THAT WHER THE NATURE OF THE EXPENDITURE ESTABLISHES THE SAME TO HAVE BEEN INCURRED FOR THE PURPOSE OF CARRYING ON THE BUSINESS OF THE ASSESSEE, AND THE FACTUM OF THE ASSESSEE HAVING CARRIED ON TWO LINES OF BUSINESS BEING ESTABLISHED, THERE IS NO MERIT IN ANY DISALLOWANCE OUT OF THE SAID EXPENSES. GROUND NO.3 RAISED BY THE REVENUE IS THU S DISMISSED. 25. GROUND NO.4 RAISED BY THE REVENUE AND GROUND NO .6 RAISED BY THE ASSESSEE IN ITS CROSS OBJECTION ARE IN RELATION TO THE DISALLOWANCE OUT OF CAR AND TELEPHONE EXPENSES FOR PERSONAL USE. THE A SSESSING OFFICER HAD DISALLOWED 1/5 TH OUT OF CAR, TELEPHONE EXPENSES AND DEPRECIATION ON CAR. THE PLEA OF THE ASSESSEE BEFORE THE ASSESSING OFFIC ER AND ALSO BEFORE THE CIT (APPEALS) WAS THAT NO DISALLOWANCE WAS WARRANTE D AS FRINGE BENEFIT TAX WAS PAID FOR SUCH EXPENDITURE. THE CIT (APPEAL S) HAD REMITTED THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FO R VERIFICATION AND IT 14 HAS BEEN HELD THAT IF THE POSITION IS CORRECT THEN SUCH EXPENDITURE MERITS TO BE ALLOWED. 26. THE REVENUE IS IN APPEAL BEFORE US AGAINST THE DELETION OF ADDITION BY THE CIT (APPEALS) ON ACCOUNT OF DISALLOWANCE OF EXPENSES FOR PERSONAL USE. THE ASSESSEE IN CROSS OBJECTION HAS ALSO OBJECTED TO THE UPHOLDING OF PARTIAL DISALLOWANCE OUT OF VARIOUS EX PENSES. HOWEVER, WE FIND NO MERIT IN THE GROUNDS OF APPEAL RAISED BY TH E REVENUE AND ALSO IN THE CROSS OBJECTION RAISED BY THE ASSESSEE,WHERE TH E MATTER HAS BEEN REMITTED BACK TO THE ASSESSING OFFICER FOR VERIFICA TION AND WITH THE DIRECTION THAT IN CASE FRINGE BENEFIT TAX HAS BEEN PAID ON SUCH EXPENSES THEN SUCH EXPENDITURE IS TO BE ALLOWED AS A DEDUCTION. THE EXPENDITURE BEING FOR THE PURPOSE OF BUSINESS STAND S PROVED WHERE FRINGE BENEFIT TAX IS CHARGED ON THE EXPENDITURE. WE FIND NO INFIRMITY IN THE DIRECTIONS OF CIT (APPEALS) IN THIS REGARD A ND CONSEQUENTLY THE GROUND OF APPEAL RAISED BY THE REVENUE BEING MISPLA CED IS REJECTED AND ALSO GROUND NO.6 RAISED BY THE ASSESSEE IN CROSS OB JECTION DISMISSED. 27. THE ISSUE IN GROUND NO.2 RAISED BY THE ASSESSE E IN CROSS OBJECTION IS AGAINST SALARY PAID TO S.HARMEET SING H, PARTNER OF RS.4,80,000/-. THE ASSESSEE FIRM WAS CONSTITUTED B Y PARTNERSHIP DEED DATED 1.4.1999 IN WHICH S.JOGINDER SINGH, S.HARMEET SINGH AND SMT.GULDEEP KAUR WERE PARTNERS. AS PER PARTNERSHIP DEED, THE SAID PARTNERS WERE WORKING PARTNERS AND SALARY @ RS.75,0 00/- PER MONTH TO S.JOGINDER SINGH AND S.HARMEET SINGH EACH WAS PROVI DED AND RS.50,000/- PER MONTH TO SMT.GULDEEP KAUR. THE DEM ISE OF S,JAGINDER SINGH TOOK PLACE ON 17.9.2003 AND CONSEQUENTLY ANOT HER DEED OF PARTNERSHIP WAS EXECUTED ON 15 TH DAY OF OCTOBER, 2003 BETWEEN SMT.GULDEEP KAUR AND S.HARMEET SINGH. AS PER CLAUS E (VIII) OF THE AGREEMENT, SALARY OF RS.30,000/- PER MONTH WAS PAID TO THE PARTNER 15 SMT.GULDEEP KAUR AND RS.40,000/- TO S.HARMEET SINGH . HOWEVER, THE CLAIM OF PARTNERS SALARY WAS REJECTED BY THE ASSES SING OFFICER AS S.HARMEET SINGH WAS RESIDING AT NEW DELHI. THE CIT (APPEALS) UPHELD THE DISALLOWANCE OF RS.4,80,000/-. 28. THE LEARNED A.R. FOR THE ASSESSEE POINTED OUT T HAT IN VIEW OF THE FACT THAT S.HARMEET SINGH HAD STARTED OPERATING FRO M DELHI, THE SALARY WAS REDUCED FROM RS.75,000/- PER MONTH TO RS.40,00 0/- PER MONTH . IT WAS ALSO POINTED OUT BY THE LEARNED A.R. FOR THE AS SESSEE THAT THE SAID INCOME WAS INCLUDED IN THE HANDS OF S.HARMEET SINGH AND BOTH THE ASSESSEE FIRM AND PARTNERS ARE PAYING TAXES @ 30% A ND THERE WAS NO LOSS TO THE REVENUE. 29. THE LEARNED D.R. FOR THE REVENUE PLACED RELIANC E ON THE ORDER OF THE CIT (APPEALS). 30. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE SALARY PAID TO THE PARTNER S.HARMEET SINGH IS PROVI DED IN THE PARTNERSHIP DEED EXECUTED BETWEEN THE PARTNERS OF THE ASSESSEE FIRM. THE CONDITION FOR ALLOWANCE OF THE PARTNERS SALARY IN THE HANDS OF THE PARTNERSHIP FIRM IS THAT THE SAME SHOULD BE PROVIDED IN THE ARTICLE OF PARTNERSHIP DEED AND CERTIFIED COPY OF THE DEED SHOULD BE FURNISHED ON RECORD. THE SAID REMUNERATION BY THE ASSESSEE FIRM IS ALLOWABLE TO A WORKING PARTNER. IN THE MODERN DAYS OF COMMUNICATION AND TRANSPORTATION , WHERE THE BUSINESS WAS SET UP AT PATIALA AND EVEN IF THE PERS ON WAS RESIDING AT DELHI, IT COULD NOT BE HELD THAT THE PERSON WAS NOT TAKING CARE OF THE BUSINESS, SPECIALLY IN THE CIRCUMSTANCES WHERE THE PARTNERSHIP WAS CONSTITUTED ONLY TWO PERSONS I.E. SMT.GULDEEP KAUR AND S.HARMEET SINGH. WE FIND NO MERIT IN THE ORDER OF THE AUTHOR ITIES BELOW IN THIS REGARD AND DIRECT THE ASSESSING OFFICER TO ALLOW SA LARY PAID TO THE 16 PARTNER S.HARMEET SINGH AT RS.4,80,000/-. GROUND N O.2 RAISED IN CROSS OBJECTION IS THUS ALLOWED. 31. THE ISSUE IN GROUND NO.3 RAISED BY THE ASSESSEE IN CROSS OBJECTION IS IN RESPECT OF NOTIONAL CHARGING OF INTEREST ON T HE ADVANCES MADE BY THE ASSESSEE TO ITS SISTER CONCERN. THE ASSESSEE H AD RAISED LOANS FROM DIFFERENT PARTIES ON WHICH IT WAS PAYING INTEREST @ 12% AND IN TURN HAD GIVEN LOAN TO ITS SISTER CONCERN @ 6%. THE ASSESSI NG OFFICER WAS OF THE VIEW THAT THE SAID INTEREST SHOULD BE CHARGED AT 12 % AND CONSEQUENTLY ADDITION OF RS.3,39,600/- WAS MADE BY THE ASSESSING OFFICER WHICH WAS CONFIRMED BY THE CIT (APPEALS). WE ARE INCONFORMIT Y WITH THE ORDERS OF THE AUTHORITIES BELOW IN DISALLOWING THE DEDUCTI ON ON ACCOUNT OF EXCESS RATE OF INTEREST PAID ON BORROWED FUNDS WHEN COMPARED WITH THE RATE OF INTEREST CHARGED BY THE ASSESSEE ON THE ADV ANCES MADE TO ITS SISTER CONCERN. UPHOLDING THE ADDITION OF RS.3,39, 600/- WE DISMISS GROUND OF CROSS OBJECTION NO.3 RAISED BY THE ASSESS EE. 32. THE GROUND NO.5 RAISED BY THE ASSESSEE IN THE C ROSS OBJECTION IS AGAINST THE DISALLOWANCE OF SALARY PAID TO MRS.MAMT A SHARAF AND MRS.HARPREET KAUR. THE ASSESSEE DURING THE YEAR UN DER CONSIDERATION HAD PAID SALARY OF RS.90,000/- TO MRS.MAMTA SHARAF AND RS.2,04,000/- TO MRS.HARPREET KAUR. THE ASSESSING OFFICER WAS OF TH E VIEW THAT THE SALARY PAID TO THEM DID NOT COMMENSURATE WITH THE D UTY ASSIGNED TO THEM AND FOLLOWING THE ORDER RELATING TO ASSESSMENT YEAR 2005-06 A SUM OF RS.30,000/- AND RS.84,000/- AGGREGATING TO RS.1,14, 000/- WAS DISALLOWED BY THE ASSESSING OFFICER, WHICH WAS CONFIRMED BY TH E CIT (APPEALS). 33. THE LEARNED A.R. FOR THE ASSESSEE POINTED OUT T HAT MRS.MAMTA SHARAF WAS AN MBA, WHO LEFT THE JOB AFTER FIVE MONT HS DURING THE RELEVANT YEAR AND SMT.HARPREET KAUR A COMMERCE GRAD UATE AND WAS WITH 17 THE FIRM FOR THE PAST SIX YEARS. THE LEARNED A.R. FOR THE ASSESSEE FURTHER POINTED OUT THAT SIMILAR DISALLOWANCE MADE IN THE E ARLIER YEAR WAS RESTRICTED BY THE TRIBUNAL. THE LEARNED A.R. FOR T HE ASSESSEE PLACED RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW. 34. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE RAISED VIDE THIS GROUND IS AGAINST THE ALLOWA NCE OF SALARY PAID TO MRS.MAMTA SHARAF WHO IS QUALIFIED MBA WORKING FOR T HE ASSESSEE FIRM SINCE 2001. IN ASSESSMENT YEAR 2002-03 SALARY OF R S.10,000+ CONVEYANCE ALLOWANCE OF RS.1000/- PER MONTH WAS HEL D TO BE ALLOWABLE. TAKING IN TO CONSIDERATION THE MARKET CONDITIONS, T HE SALARY OF RS.18,000/- PER MONTH PAID TO A QUALIFIED MBA CANNO T BE SAID TO BE EXCESSIVE. ACCORDINGLY, WE DIRECT THE ASSESSING OF FICER TO ALLOW THE CLAIM IN ENTIRETY. THE SECOND ASPECT OF THE ISSUE IS THE SALARY PAID @ RS.17,000/- PER MONTH TO ONE SMT.HARPREET KAUR, WHO WAS GRADUATE IN COMMERCE AND WAS LOOKING AFTER THE BUSINESS AT CHAN DIGARH AND PATIALA. IN VIEW OF THE MARKET CONDITION, WE ARE OF THE VIEW THAT THE SAID SALARY PAID TO SMT.HARPREET KAUR WAS REASONABLE AND IS ALL OWABLE DEDUCTION IN THE HANDS OF THE ASSESSEE. NO DISALLOWANCE OUT OF THE SAID SALARY EXPENDITURE IS MERITED IN THE HANDS OF THE ASSESSEE . ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM IN ENTIRETY. 35. IN THE RESULT, BOTH THE APPEAL OF THE REVENUE A ND THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH DAY OF NOVEMBER, 2012. SD/- SD/- (MEHAR SINGH) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 29 TH NOVEMBER, 2012 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. 18