M/s. Frick India Ltd., New Delhi V. DCIT, New Delhi

ITA 4902/DEL/2010

• Counselvise Citation: 490220114 RSA 2010
• Duration Of Justice: 1 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 30-11-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 10-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ROHIT GARG
• Assessee Lawyers: V S RASTOGI; MANEESH UPREJA
• Keywords: Earning of tax free income; Additional evidence; Avoidance of tax; Revised return
• Section: 14A; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: B NEW DELHI BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI K.G.BANSAL , ACCOUNTANT MEMBER ITA NO: 4902/DEL/2010 A.Y. : 2005-06 M/S FRICK INDIA LTD. VS. DCIT, CIRCLE 11(1) 809, SURYA KIRAN BLDG. 312, C.R.BLDG., I .P.ESTATE 19, KASTURBA GANDHI MARG NEW DELHI 2 NEW DELHI 1 PAN/GIR NO: AAACF 0410 C A N D ITA NO: 4662/DEL/2010 A.Y. : 2005-06 DY.CIT, CIRCLE 11 (1) VS. M/S FRICK INDIA LTD. NEW DELHI NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SH.V.S.RASTOGI, A.R. & SH. MANEESH UPRE JA, C.A. DEPARTMENT BY : SH. ROHIT GARG, SR.D.R. O R D E R PER DIVA SINGH, JUDICIAL MEMBER THESE ARE CROSS APPEALS FILED BY THE ASSESSEE A ND THE REVENUE AGAINST THE ORDER DT. 10.09.2010 OF CIT(A)-XIII, N EW DELHI PERTAINING TO A.Y. 2005-06 WHEREIN THE ASSESSEE HAS RAISED THE F OLLOWING GROUNDS. ITA 4902/DEL/2010 & PAGE 2 OF 17 ITA 4662/DEL/2010 M/S FRICK INDIA LTD. A.Y. 2005-2006 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF LOSS OF RS. 18,47,960/- U/S 94(7) OF THE INCOME TAX ACT, 1961. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE U/S 14A OF THE INCOME TAX ACT, 1961 TO THE EXTENT OF 10% OF THE DIVIDEND INCOME. 2.1. THAT THE CIT(A) HAVING RECORDED THAT THE DISA LLOWANCE U/S 14A OF THE INCOME TAX ACT, 1961 OUGHT TO BE BASED O N THE RATIO LAID DOWN IN THE JUDGEMENT DT. 12.8.2010 OF THE MUM BAI HIGH COURT IN GODREJ & BOYCE MFG. CO.LTD. VS DCIT, WHICH HAD DIRECT SUPPORT OF THE JUDGMENT DT. 6.7.2010 OF THE SUPREME COURT IN M/S WALFORT SHARE AND STOCK BROKERS P.LTD. YET DECLINED TO FOLLOW THE SAME AND INSTEAD CHOSE TO CONFIRM THE DISALLOWANCE BY ADOPTING AN ADHOC PERCENTAGE I.E. 10% OF THE DIVIDEND INCOME THAT THE ORDER OF THE CIT(A) BEING IN DEROGATION TO THE RULE LAID DOWN BY THE APEX COURT IS NOT SUSTAINABLE. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN REJECTING THE CONTENTION OF THE APPELLANT THAT NO INTEREST WAS PAYABLE U/S 234B/234C ON SHORT PAYMEN T OF ADVANCE TAX DUE TO DIFFERENCE OF RS. 60,01,947/- I N THE VALUATION OF CONTRACT-JOBS-IN PROGRESS BETWEEN THE APPELLANT AND THE REVENUE. 4. THAT THE ORDER PASSED IS BAD IN LAW AND VOID A B-INITIO. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AME ND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. 2. THE GROUNDS OF THE DEPARTMENT READ AS UNDER. 1. THE ORDER OF LD.CIT(A) IS WRONG, PERVERSE, ILLEGAL AND AGAINST THE PROVISIONS OF LAW, LIABLE TO BE SET ASIDE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 71,55 ,947/- MADE BY THE A.O. U/S 94(7) OF THE ACT. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.25,55, 412/- MADE BY THE A.O. U/S 14A OF THE ACT. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.48,937 /- MADE BY THE A.O. ON ACCOUNT OF INTEREST ON INVESTMENT. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 7,09, 754/- MADE BY THE A.O. ON ACCOUNT OF COMMISSION. ITA 4902/DEL/2010 & PAGE 3 OF 17 ITA 4662/DEL/2010 M/S FRICK INDIA LTD. A.Y. 2005-2006 6. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND A NY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. 3. IT WAS A COMMON STAND OF THE PARTIES BEFORE THE BENCH THAT GROUND NO.2 OF THE DEPARTMENT IS LINKED WITH GROUND NO.1 O F THE ASSESSEE. THE RELEVANT FACTS QUA THE ISSUE AS PER THE ASSESSMENT ORDER ARE, THAT THE ASSESSEE COMPANY WHO IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF AIR-CONDITIONING AND REFRIGERATION EQUIPMENTS IN TH E YEAR UNDER CONSIDERATION RECEIVED DIVIDEND OF RS. 1,03,49,863/ - AND OTHER EXEMPT INCOME TO THE EXTENT OF RS. 22,63,725/-. 3.1. THE A.O. OBSERVED THAT THE DIVIDEND HAD BEEN R ECEIVED FROM INVESTMENT IN MUTUAL FUNDS AND SHARES AND THE ASSES SEE HAD ALSO SHOWN SHORT TERM CAPITAL LOSS OF RS. 71,55,947/- AS PER T HE ORIGINAL RETURN WHICH WAS REVISED TO LOSS OF RS.72,04,884/-. THE A .O. WAS OF THE VIEW THAT THE LOSS IS REQUIRED TO BE SET OFF AGAINST THE DIVIDEND INCOME IN VIEW OF THE PROVISIONS OF S.94(7) OF THE INCOME TAX ACT , 1961. THE LOSS ON SALE OF SHARES AND INVESTMENTS IN MUTUAL FUNDS ON W HICH THE DIVIDEND HAS BEEN EARNED WAS DISALLOWED. 3.2. AGGRIEVED BY THIS THE ASSESSEE WENT IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY BEFORE WHOM IT WAS ARGUED THAT FOR APPLYING S.94(7) IT WAS INCUMBENT UPON THE A.O. TO HAVE CONSIDERED T HE DATE OF ACQUISITION OF THE UNITS/SECURITIES, THE RELEVANT RECORD DATE, THE DATE OF SALE THEREOF, THE DIVIDEND DECLARED THEREON AND THE CORRESPONDING LOSS INCURRED. IT WAS SUBMITTED THAT NO SUCH EXERCISE W AS DONE AND THE ITA 4902/DEL/2010 & PAGE 4 OF 17 ITA 4662/DEL/2010 M/S FRICK INDIA LTD. A.Y. 2005-2006 ENTIRE LOSS WAS IGNORED U/S 94(7) IN A BLANKET MAN NER WITHOUT ASCERTAINING WHETHER ANY SUCH DISALLOWANCE WAS CALL ED FOR ON FACTS AND IF SO ITS QUANTIFICATION. 3.3. RELIANCE WAS PLACED UPON THE ORDER OF THE TRIB UNAL IN THE CASE OF ITO VS. SHAMBHU MERCANTILE LTD. 304 ITR (AT) 36 (DE LHI) ON THE BASIS OF WHICH IT WAS CONTENDED THAT THE CONDITIONS LAID DOW N IN CLAUSE (A), (B) & (C ) OF S.94(7) HAVE TO BE CUMULATIVELY FULFILLED. ACCORDINGLY OUT OF THE TOTAL LOSS OF RS. 72,04,884/- IT WAS STATED BASED ON STATEMENT FILED BEFORE THE CIT(A) THAT LOSS ONLY TO THE EXTENT OF RS. 18,47,960 COULD BE DISALLOWED U/S 94(7) BECAUSE IN RESPECT OF REMAININ G LOSS OF RS. 53,56,924/- THE THREE CONDITIONS WERE NOT CUMULATIV ELY FULFILLED. THE STATEMENT FILED BEFORE THE CIT(A) WAS INCLUDED AS ANNEXURE A TO THE IMPUGNED ORDER. 3.4. IT WAS FURTHER ARGUED THAT EVEN THE LOSS OF R S. 18,47,960/- COULD NOT BE DISALLOWED. RELIANCE WAS PLACED ON THE MEM O EXPLAINING THE PROVISIONS IN THE FINANCE BILL, 2001 WHEREBY NEW S UB-SECTION (7) WAS INSERTED IN S.94 W.E.F. 1.4.2002 (248 ITR ((STATUT E) 183)). BASED ON THE SAME IT WAS ARGUED THAT INSERTION WAS INTRODUCED A S A MEASURE TO CURB CREATION OF SHORT TERM LOSSES BY CERTAIN TRANSACTIO NS IN SECURITIES AND UNITS. THE OBJECT WAS TO PREVENT FLOWING OF UNIN TENDED BENEFITS TO THE TAX PAYERS WHO ENTER INTO PURCHASE AND RESALE OF S ECURITIES WITH THE INTENTION OF CREATING SHORT TERM LOSSES AND SET-O FF THOSE LOSSES AGAINST ITA 4902/DEL/2010 & PAGE 5 OF 17 ITA 4662/DEL/2010 M/S FRICK INDIA LTD. A.Y. 2005-2006 OTHER INCOMES. IT WAS SUBMITTED THAT IN THAT CASE OF THE ASSESSEE THERE WAS NO INTENTION TO CREATE SHORT TERM LOSSES AND ON THE OTHER HAND RECEIVE EXEMPT INCOME SINCE THE EXEMPT INCOME IN MO ST OF THE CASES WAS RECEIVED PERIODICALLY I.E. DAILY, WEEKLY, MONTHLY E TC. AS WOULD BE EVIDENT FROM STATEMENT ON ACCOUNT OF THE MUTUAL FUNDS/SCHEM ES PLACED IN THE PAPER BOOK AND THE SALE OF THE UNITS AT ANY POINT O F TIME WOULD HAVE FALLEN WITHIN THE PRESCRIBED PERIOD OF 9 MONTHS. T HE UNITS WERE TRANSFERRED BY THE ASSESSEE AT A LOSS IN THE APP REHENSION THAT MORE LOSS WOULD HAVE BEEN INCURRED IF THE UNITS WERE NOT TRANSFERRED AT THE TIME THESE WERE TRANSFERRED. THUS THERE WAS AVOID ANCE OF MORE LOSS WHEREAS THE PROVISIONS OF S.94(7) ARE APPLICABLE WH ERE THERE IS INTENTIONAL OR DELIBERATE ACT OF AVOIDANCE OF TAX . 3.5. CONSIDERING THE SUBMISSIONS THE CIT(A) AGREED THAT THE SUBMISSIONS ON BEHALF OF THE ASSESSEE TO THE EXTENT THAT FOR INVOKING PROVISIONS OF S.94(7) ALL THE THREE CONDITIONS SET OUT IN CLAUSES (A), (B) & (C ) WERE HELD TO BE CUMULATIVELY FULFILLED. H E TOOK NOTE OF THE FACT THAT THE ORDER OF TRIBUNAL RELIED UPON BY ASSESSEE STOOD CONFIRMED BY THE JURISDICTIONAL HIGH COURT IN CIT VS. SHAMBHU MERCAN TILE LTD. 224 CTR 499 DELHI. ON FACTS ALSO HE PARTIALLY AGREED WITH THE ASSESSEE IN REGARD TO THE DISALLOWANCE OF LOSS OF RS.53,56,924/- U/S 9 4(7). HOWEVER REGARDING THE LOSS AMOUNTING TO RS. 18,47,960/- THE EXPLANATION OF ASSESSEE WAS NOT ACCEPTED. ITA 4902/DEL/2010 & PAGE 6 OF 17 ITA 4662/DEL/2010 M/S FRICK INDIA LTD. A.Y. 2005-2006 3.6. THE REASONING ADOPTED BY THE CIT(A) ON FACTS I S FOUND RECORDED AT PAGE 6 OF THE IMPUGNED ORDER. FOR READY REFERENCE WE REPRODUCE THE SAME. IN THE PRESENT CASE THE A.O. DID NOT LOOK INTO THE BASIC FACTS AS TO WHETHER IN RESPECT OF EACH TRANSACTION OF ACQ UISITION AND SALE OF SHARES/UNITS THE MATTER FELL U/S 94(7). TH E APPELLANT HAS FILED NECESSARY DETAILS ACCORDING TO WHICH THER E WERE CERTAIN TRANSACTIONS WHICH WERE OUTSIDE THE PURVIEW OF SECTION 94(7). FOR EXAMPLE IN THREE CASES WHERE LOSS OF RS . (37,21,362+16,808+10,450/-) AGGREGATING TO RS. 37,4 8,620/- RESULTED, NO DIVIDEND WAS RECEIVED. SUCH LOSS COUL D NOT BE DISALLOWED U/S 94(7) AS THESE TRANSACTIONS, BEING D EVOID OF ANY EXEMPT DIVIDEND OR INCOME, DO NOT PRIMA FACIE F ALL WITHIN THE PURVIEW OF S.94(7) ITSELF. BESIDES IN CERTAIN OTHER CASES DETAILS HAVE BEEN FURNISHED TO SHOW THAT LOSS AGGR EGATING RS. 16,08,304/- RESULTED BUT ONE OF THE CONDITIONS OF A CQUISITION WITHIN THREE MONTHS PRIOR TO THE RECORD DATE IS NOT FULFILLED AND THEREBY ALL THE THREE CONDITIONS AS PER SECTION 94( 7) WERE NOT FULFILLED. THE CASE OF THE APPELLANT THUS IS THAT LOSS TO THE EXTENT OF RS. (37,48,620+16,08,304) I.E. OF RS. 53, 56,924/- COULD NOT BE DISALLOWED U/S 94(7). I HAVE LOOKED INTO THE DETAILS FURNISHED. THE CON TENTION OF THE APPELLANT WITH REGARD TO THE ALLOWABILITY OF LOSS TO THE EXTENT OF RS.53,56,924/- IS PRINCIPALLY ACCEPTABLE. ACCORDINGLY PROVISIONS OF SECTION 94(7) WOULD NOT A PPLY TO THIS LOSS. AS A RESULT THE ADDITION TO THE EXTENT OF R S.53,56,924/- SHALL BE DELETED, SUBJECT HOWEVER TO THE VERIFICATI ON OF APPELLANTS CLAIM AS PER DETAILS FILED BY HIM DURING THE APPELLATE PROCEEDINGS. IN THIS REGARD THE CHART OF THE APPELLANT AT ANNEXURE A TO THIS ORDER MAY BE EXAMIN ED. AS REGARDS THE BALANCE LOSS OF RS.18,47,960/- THE APPELLANTS CONTENTION IS NOT ACCEPTABLE. IT IS AD MITTED THAT IN SUCH TRANSACTIONS ALL THE THREE CONDITIONS AS ABOVE ARE FULFILLED. THE PROVISION OF SECTION 94(7) HAS BEEN ENACTED AS A MEASURE TO CURB TAX AVOIDANCE VIA DIVIDEND AND BONU S STRIPPING AND THEREFORE ARE REQUIRED TO BE STRICTLY AND OBJECTIVELY IMPLEMENTED. SECTION 94(7) DOES NOT PERMIT ANY DISCRETION TO BE EXERCISED BY THE TAXING AUTHORITI ES IN THE MATTER AND TO TRAVEL BEYOND THE PARAMETERS FIXED BY SUB SECTION (7). THUS THERE CAN BE NO SCOPE TO EXAMINE WHETHER THE ASSESSEE HAD ANY INTENTION FOR AVOIDANCE OF TAX , AS BEING ITA 4902/DEL/2010 & PAGE 7 OF 17 ITA 4662/DEL/2010 M/S FRICK INDIA LTD. A.Y. 2005-2006 CONTENDED BY THE APPELLANT. THUS ONCE ALL THE THRE E CLAUSES OF S.94(7) ARE FULFILLED LOSS HAS TO BE NECESSARILY DI SALLOWED. THE CONTENTION OF THE APPELLANT IS ACCORDINGLY REJECTED IN SO FAR AS RS.18,47,960/- IS CONCERNED. 3.7. AGGRIEVED BY THIS BOTH THE ASSESSEE AND THE DE PARTMENT ARE IN APPEAL BEFORE THE TRIBUNAL. 3.8. WE HAVE HEARD THE LD.A.R. WHO HAS RELIED UPON THE SUBMISSIONS ADVANCED BEFORE THE CIT(A) AND LD.D.R. PLACES RELIA NCE ON THE ASSESSMENT ORDER. 3.9. HAVING CONSIDERED THE SAME AND DISCUSSED THE TWO ORDERS IN THE EARLIER PART OF THE ORDER, WE ARE OF THE VIEW THAT THERE IS NO LEGAL INFIRMITY ARRIVED AT IN THE IMPUGNED ORDER AS THE VIEW TAKEN FINDS SUPPORT FROM THE DECISION OF THE JURISDICTIONAL HIGH COURT AS RE PORTED IN 325 ITR 535 (DELHI). ON FACTS ALSO SINCE THE DATES OF ACQUISIT ION, SALE ETC. HAVE NOT BEEN ASSAILED BY THE DEPARTMENT AND THE ASSESSEE AS TAKEN INTO CONSIDERATION BY THE CIT(A) NO FACTUAL ERROR HAS BE EN ADDRESSED BY THE PARTIES. ACCORDINGLY BEING SATISFIED BY THE REASON S AND THE FINDING ARRIVED AT IN THE IMPUGNED ORDER GROUND NO.2 OF TH E DEPARTMENT AND GROUND 1 OF THE ASSESSEE ARE DISMISSED AND THE IMPU GNED ORDER IS UPHELD. 4. THE RELEVANT FACTS PERTAINING TO GROUND NO.3 OF THE DEPARTMENT AND GROUND NO.2 READ WITH GROUND NO. 2.1 OF THE ASSESSE E ARE FOUND RECORDED AT PAGES 2 TO 4 OF THE ASSESSMENT ORDER IN PARAS 4 TO 4.3. A PERUSAL OF ITA 4902/DEL/2010 & PAGE 8 OF 17 ITA 4662/DEL/2010 M/S FRICK INDIA LTD. A.Y. 2005-2006 THE SAME SHOWS THAT THE A.O. TOOK COGNIZANCE OF THE FACT THAT THE ASSESSEE HAD SUBSTANTIAL DIVIDEND INCOME AND EXEMP T INCOME U/S 10(34) AND 10(35) OF THE INCOME TAX ACT AS SUCH HE REQUIRED THE ASSESSEE TO EXPLAIN WHY THE EXPENSES PERTAINING TO EXEMPT INCOME SHOULD NOT BE DISALLOWED U/S 14A OF THE ACT. IN RE SPONSE TO THIS IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT HARDLY ANY EXPENSES HAVE BEEN INCURRED FOR EARNING DIVIDEND INCOME. IT WAS ALSO SUBMITTED THAT RS. 100/- HAD BEEN DISALLOWED IN THE ORIGINAL RETURN A ND IN THE REVISED RETURN THE DISALLOWANCE HAD BEEN MADE TO THE EXTENT OF RS. 1,04,772/-. 4.1. THE A.O. DID NOT ACCEPT THE ASSESSEES SUBMISS IONS OF ALLOCATING RS. 1,04,772/- IN VIEW OF THE FACT THAT HE WAS OF THE VIEW THAT THERE HAVE TO BE ADMINISTRATIVE AS WELL AS FINANCIAL EX PENSES FOR EARNING DIVIDEND. HE FURTHER HELD THAT NO EVIDENCE FOR THE CLAIM THAT NO EXPENSES HAD BEEN EARNED FOR EARNING DIVIDEND WAS F ILED. TAKING NOTE OF THE FACT THAT TOTAL TURNOVER OF ASSESSEE WAS RS. 40 ,76,27,000/-. CONSIDERING THE PERSONAL EXPENSES, ADMINISTRATIVE E XPENSES AND FINANCIAL EXPENSES WHICH NECESSARILY WOULD HAVE BE EN INCURRED FOR EARNING OF THE INCOME WHETHER IT IS EXEMPT OR ALLOW ABLE HE WAS OF THE VIEW THAT PROPORTIONATE DISALLOWANCE HAS TO BE MADE . HE FURTHER OBSERVED THAT THE NET PROFIT OF ASSESSEE AS PER P& L ACCOUNT IS RS. 2,55,51,000/- WHICH INCLUDES DIVIDEND AND OTHER EXE MPT INCOME TO THE EXTENT OF RS. 1,26,13,588/- THUS IT WAS CONCLUDED T HAT IT CLEARLY ITA 4902/DEL/2010 & PAGE 9 OF 17 ITA 4662/DEL/2010 M/S FRICK INDIA LTD. A.Y. 2005-2006 INDICATED THAT THE MAJOR COMPONENT OF THE INCOME SH OWN BY THE ASSESSEE IS EXEMPTED INCOME I.E. DIVIDEND FROM OTHER COMPANI ES AS SUCH ASSESSEES ARGUMENTS WERE HELD TO BE NOT ACCEPTAB LE AND THE EXPENSES WERE ALLOCATED AS UNDER. I. PERSONAL EXPENSES 6905400 0 II. ADMN. EXPENSES 9262000 III. FINANCIAL EXP. 4266000 TOTAL EXPENSES TO BE ALLOCATED : RS. 8,25,82,000/ - THE TOTAL TURN OVER AS POINTED OUT ABOVE IS RS. 40, 76,27,000/-THE PROPORTIONATE EXPENSES IN RESPECT OF DIVIDEND INCO ME COMES TO RS. 25,55,412/- (RS. 12613588 X 82582000 / 407627000). THE EXPENSES TO THE EXTENT OF RS. 25,55,412/- ARE DISALLOWED U/S 14 A OF THE ACT. PENALTY PROCEEDINGS U/S 271(1)(C ) OF THE I.T.ACT ARE INITI ATED ON THIS POINT FOR SUBMITTING INACCURATE PARTICULARS OF INCOME. 4.2. AGGRIEVED BY THIS THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). CONSIDERING THE ARGUMENTS ADVANCED ON BEHALF OF THE ASSESSEE THE CIT(A) WAS IN AGREEMENT TO THE EXTENT THAT THE ISSUE HAS T O BE DECIDED IN TERMS OF THE JUDGEMENT OF HONBLE BOMBAY HIGH COURT IN TH E CASE OF GODREJ & BOYCE MFG. CO. LTD. 328 ITR 81 (BOM.). HOWEVER C ONSIDERING THE ASSESSEES OWN CASE CONSIDERED BY THE TRIBUNAL IN 2 001-02 A.Y. HE HELD THAT IT WOULD BE APPROPRIATE TO RESTRICT THE DISALL OWANCE TO 10% OF THE DIVIDEND INCOME. 4.3. AGGRIEVED BY THIS BOTH THE ASSESSEE AND THE DE PARTMENT ARE IN APPEAL BEFORE THE TRIBUNAL. WHEREAS LD.D.R. PLACED RELIANCE UPON THE ASSESSMENT ORDER, LD.A.R. OF THE ASSESSEE CONTENDED THAT ALTHOUGH THE CIT(A) HAS AGREED WITH THE SUBMISSIONS ADVANCED ON BEHALF OF THE ASSESSEE THAT THE ISSUE HAS TO BE DECIDED IN TERMS OF JUDGEMENT OF ITA 4902/DEL/2010 & PAGE 10 OF 17 ITA 4662/DEL/2010 M/S FRICK INDIA LTD. A.Y. 2005-2006 MUMBAI HIGH COURT IN THE CASE OF GODREJ AND BOYCE 3 28 ITR 81 (MUM). HAVING SO HELD IT WAS ARGUED HE STILL FOLLOWS PAST HISTORY OF THE ASSESSEE. IT WAS ARGUED THAT THE TRIBUNALS ORDER IN ASSESS EES CASE FOR A.Y. 2001- 02 WAS RENDERED I.E. ON 14.3.2008 THE BENEFIT OF TH E MUMBAI HIGHCOURT JUDGEMENT WAS NOT AVAILABLE AS IT WAS RENDERED ON 1 2 TH AUGUST, 2010 AS SUCH IT WAS ARGUED THAT CIT(A) HAS ERRED IN RELYING ON THE SAME. IT WAS ALSO CONTENDED THAT BEFORE THE CIT(A) RELIANCE HAD BEEN PLACED UPON THE JUDGEMENT OF THE P&H HIGH COURT IN CIT VS. HERO CYC LES LTD. 328 ITR 518 (P&H) AND ORDER OF THE TRIBUNAL IN THE CASE OF MINDA INDUSTRIES LTD. VS CIT. ON THE BASIS OF THE JUDGEMENT AND THE ORDE R RESPECTIVELY, IT WAS HIS SUBMISSION THAT IN THE FACTS OF THE ASSESSEES OWN CASE THE ASSESSEE IS A CASH RICH COMPANY AND HAS INVESTED ITS OWN F UNDS AND NO BORROWED FUNDS HAVE BEEN UTILIZED FOR THIS PURPOSE AND IT IS ONE OF THE RARE CASES WHERE THE ASSESSEE HAS WORKED OUT SCIENT IFICALLY AS TO HOW MUCH SALARY IS PAID TO EMPLOYEES AND HOW MUCH TIME IN NUMBER OF HOURS HAS BEEN DEVOTED TO THIS ACTIVITY AND NEITHE R A.O. NOR CIT(A) HAS ADDRESSED THIS SCIENTIFIC CALCULATION AVAILABLE ON RECORD AND NO COGENT REASONS HAVE BEEN GIVEN AS TO WHY THIS CANNOT BE B ELIEVED. RELIANCE WAS ALSO PLACED UPON THE JUDGEMENT OF JURISDICTIONA L HIGH COURT DELIVERED IN ITA 687/2009 ON 18.11.2011 IN THE CASE OF MAXOPP INVESTMENTS P.LTD. VS CIT, NEW DELHI ON THE BASIS O F WHICH IT WAS HIS SUBMISSION THAT THE ISSUE MAY GO BACK TO THE A.O. A ND THE DIRECTIONS OF ITA 4902/DEL/2010 & PAGE 11 OF 17 ITA 4662/DEL/2010 M/S FRICK INDIA LTD. A.Y. 2005-2006 HONBLE HIGH COURT RENDERED IN THE SAID CASE I.E. M AXOPP INVESTMENTS LTD. MAY BE APPLIED. 4.4. LD.D.R. HAD NO OBJECTION IF THE ISSUE IS RESTO RED BACK. 4.5. IN THE LIGHT OF THE AFORE MENTIONED PECULIAR F ACTS AND CIRCUMSTANCES THE ASSESSMENT ORDER AND THE IMPUGNED ORDER ON THE ISSUE ARE SET ASIDE AND THE ISSUE IS RESTORED BACK TO THE FILE OF A.O. WITH THE DIRECTION TO DECIDE THE ISSUE AFRESH CONSIDERI NG THE FACTS, CIRCUMSTANCES AVAILABLE ON RECORD AND THE PRINCIPLE S LAID DOWN BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF MAXOPP INV ESTMENTS LTD. THE A.O. SHALL PASS A SPEAKING ORDER IN ACCORDANCE WIT H LAW AND AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEAR D. IN THE RESULT GROUND NO.2, 2.1 OF THE ASSESSEE AND GROUND NO.3 OF THE DEPARTMENT ARE ALLOWED FOR STATISTICAL PURPOSES. 5. QUA GROUND NO.3 OF THE ASSESSEE NO ARGUMENTS WER E ADVANCED AS SUCH THE SAME IS REJECTED AS NOT PRESSED. 6. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PART LY ALLOWED FOR STATISTICAL PURPOSES. 7. VIDE GROUND NO.4 THE REVENUE HAS AGITATED THE DE LETION OF THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF INTERES T ON INVESTMENTS. THE RELEVANT FACTS ARE FOUND RECORDED AT PAGE 4 PAR A 5 OF THE ASSESSMENT ORDER. A PERUSAL OF THE SAME SHOWS THAT THE A.O. O BSERVED THAT THE ASSESSEE HAD INVESTED IN FRANKLIN TEMPLETON INDIA LTD. WHEREFROM IN ITA 4902/DEL/2010 & PAGE 12 OF 17 ITA 4662/DEL/2010 M/S FRICK INDIA LTD. A.Y. 2005-2006 THE MONTH OF MAY AND JUNE, 2004 THE ASSESSEE HAD EA RNED INTEREST OF AN AMOUNT OF RS.48,937/-. IN VIEW OF THE FACT THAT TH E SAID INTEREST WAS NOT OFFERED FOR TAXATION , ADDITION OF THE SAID AMOUNT WAS MADE. 7.1. THE CIT(A) IN APPEAL CONSIDERING THE ARGUMEN TS ADVANCED ON BEHALF OF THE ASSESSEE NAMELY THAT THE SUM WAS DIVI DEND RECEIVED FROM FRANKLIN TEMPLETON INDIA LTD MONTHLY INCOME PLAN A OF FRANKFIN MUTUAL FUND WHICH WAS REINVESTED HELD THAT NO DOUBT THAT IT WAS INCUMBENT ON ASSESSEE TO SHOW THAT HE HAD RECEIVED THE AMOUNT AND THEN CLAIMED EXEMPTION U/S 10(35) OF THE INCOME TAX ACT, 1961. HOWEVER HOLDING THAT THE SAME BEING DIVIDEND FROM MUTUAL FUND SINCE IS TAX EXEMPT AS SUCH CANNOT BE INCLUDED IN THE TO TAL INCOME OF THE ASSESSEE. 7.2. AGGRIEVED BY THIS THE DEPARTMENT IS IN APPEAL BEFORE US.THE LD.D.R. RELYING UPON THE ASSESSMENT ORDER CONTENDED THAT TH E FACT HAS NOT BEEN VERIFIED BY THE CIT(A). 7.3. LD.A.R. RESPONDED THAT HE HAD NO OBJECTION IF THE ISSUE IS RESTORED FOR VERIFICATION TO THE FILE OF A.O. 7.4. IN THE LIGHT OF THE PECULIAR FACTS AND CIRCUMS TANCES AND THE ARGUMENTS ADVANCED BY THE PARTIES BEFORE THE BENCH, WE ARE OF THE VIEW THAT IT WOULD BE APPROPRIATE TO RESTORE THE ISSUE B ACK TO THE FILE OF A.O. WITH A DIRECTION TO VERIFY WHETHER THE SAID INCOME WAS EXEMPT U/S 10(35) ITA 4902/DEL/2010 & PAGE 13 OF 17 ITA 4662/DEL/2010 M/S FRICK INDIA LTD. A.Y. 2005-2006 ON FACTS OR NOT. ACCORDINGLY GROUND NO.4 OF THE D EPARTMENT IS ALLOWED FOR STATISTICAL PURPOSES. 8. THE NEXT ISSUE AGITATED BY THE DEPARTMENT IS PE RTAINING TO DISALLOWANCE OF RS.7 LAKHS ODD MADE BY THE A.O. ON ACCOUNT OF COMMISSION. 8.1. THE RELEVANT FACTS ARE FOUND RECORDED AT UNNUM BERED PAGE 4 PARA 6 TO 6.4 OF THE ASSESSMENT ORDER. A PERUSAL OF T HIS SHOW THAT THE ASSESSEE HAD DEBITED PAYMENT OF COMMISSION TO THE EXTENT OF RS.32,91,943/- WHICH INCLUDED COMMISSION PAID IN IN DIA AS WELL AS ABROAD. THE A.O. SENT NOTICES U/S 133(6) TO THE P ERSONS TO WHOM IT WAS SHOWN THAT COMMISSION HAD BEEN PAID. FROM THE NOTI CES SO SENT 7 RETURNED UNSERVED WITH THE REMARK NO SUCH PERSON . THE NAMES OF THE PARTIES AND HOW MUCH COMMISSION WAS CLAIMED TO HAVE BEEN PAID DETAILS ETC. ARE SET OUT IN UNNUMBERED PAGE 5 OF THE A.O. THE ASSESSING OFFICER REQUIRED THE ASSESSEES REPRESENTATIVE TO EXPLAIN THE SAME. IN RESPONSE IT WAS STATED THAT THE PAYMENTS HAVE BEEN MADE BY WAY OF ACCOUNT PAYEE CHEQUES. HOWEVER SINCE NO CONFIRMATION FROM THE SAID PERSONS WERE FILED TO THE EXTENT OF RS. 2,68,000/- WAS DISA LLOWED BY THE A.O. 8.2. APART FROM THAT IN RESPONSE TO NOTICES ISSUE D U/S 133(6) OF THE INCOME TAX ACT, 1961 WHICH WERE SERVED CONFIRMATI ON FROM 11 PARTIES MENTIONED IN PARA 6.2 WERE NOT RECEIVED BY THE A.O. AS SUCH THE ASSESSEE WAS REQUIRED TO SUBSTANTIATE ITS CLAIM OF COMMISSION PAYMENT. ITA 4902/DEL/2010 & PAGE 14 OF 17 ITA 4662/DEL/2010 M/S FRICK INDIA LTD. A.Y. 2005-2006 SIMILARLY EXPLANATION NAMELY PAYMENT HAVING BEEN MA DE BY ACCOUNT PAYEE CHEQUE WAS MADE HERE ALSO. HOWEVER CONFIRMAT ION FROM THE SAID PARTIES WAS NOT FILED. IN THE CIRCUMSTANCES THE A. O. WAS OF THE VIEW THAT THE ASSESSEE HAS NOT BEENB ABLE TO FURNISH EVIDENCE TO SUBSTANTIATE THE CLAIM OF PAYMENT OF COMMISSION. ACCORDINGLY DISALL OWANCE WAS MADE TO THE EXTENT OF COMMISSION CLAIMED TO HAVE BEEN PAID TO THESE PARTIES AMOUNTING TO RS.4,41,754/- THEREBY RESULTING IN THE TOTAL ADDITION OF RS.7,09,754/- (RS.4,41,754+2,68,000). 8.3. AGGRIEVED BY THIS THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A) BEFORE WHOM THE FOLLOWING ARGUMENTS REPRODUCED AT P AGE 16 AND 17 OF THE IMPUGNED ORDER, WERE ADVANCED:- THE APPELLANT HAD CLAIMED DEDUCTION OF RS. 32,91,9 43/- BY WAY OF COMMISSION ON SALES. NECESSARY DETAILS IN R ESPECT OF THE COMMISSION WERE FURNISHED VIDE LETTER DT. 5.9.2 007 BEARING PAGE NOS. 224-370. ALONG WITH THE DETAILS, THE AP PELLANT ALSO FURNISHED COPIES OF THE AGREEMENT WITH THE AGENTS. VIDE LETTER DT. 18.12.2007, SERVED ON 20.12.2007, THE A.O. INFO RMED THE APPELLANT THAT VERIFICATION OF COMMISSION WAS MADE BY ISSUE OF LETTERS U/S 133(6) OF THE ACT BUT LETTERS SENT TO SEVEN PERSONS, WHOSE NAMES WERE STATED AND TO WHOM AGGREGATE COMMI SSION OF RS. 2,68,000/- WAS PAID, WERE RETURNED UNSERVED WITH THE REMARK NO SUCH PERSONS. IT WAS ALSO INFORMED THA T NO CONFIRMATION HAD BEEN RECEIVED FROM ELEVEN PERSONS, WHOSE NAMES WERE ALSO STATED, TO WHOM NOTICES U/S 133(6) WERE SERVED AND TO WHOM AGGREGATE COMMISSION OF RS. 4,41 ,754/- WAS PAID. VIDE REPLY DT. 24.12.2007, IT WAS STATED THAT TIME OF TWO DAYS ONLY FOR COMPLIANCE WAS NOT SUFFICIENT. T HE A.O. INSISTED FOR COMPLIANCE ADJOURNING THE CASE TO 28.1 2.2007. ON THAT DATE THE APPELLANT FURNISHED THE COPIES OF REL EVANT PAGES OF BANK STATEMENTS SHOWING THE REALIZATION OF CHEQUES BY THE COMMISSION AGENTS ALONG WITH ONE MORE RECEIPT OF C OMMISSION AGENT. DESPITE THE AFORESAID SUBMISSIONS, THE A.O . DISALLOWED THE SUM OF RS. 7,09,754/-. ITA 4902/DEL/2010 & PAGE 15 OF 17 ITA 4662/DEL/2010 M/S FRICK INDIA LTD. A.Y. 2005-2006 6.3. AS ADEQUATE OPPORTUNITY WAS NOT GIVEN AN APPL ICATION UNDER RULE 46A OF THE INCOME TAX RULES, 1962 WAS FI LED FURNISHING THE ADDITIONAL EVIDENCE WHICH ACCORDING TO THE APPELLANT COULD NOT BE FURNISHED BECAUSE OF INADEQU ATE OPPORTUNITY. THE ADDITIONAL EVIDENCE CONSISTED OF: - AFFIDAVITS OF SOME AGENTS AFFIDAVITS OF BRANCH MANAGERS OF APPELLANT COMPANY PROOF OF IDENTITY OF THE AGENTS IN THE FORM OF RATI ON CARD/PAN CARD/PASSPORT/ELECTION CARD/DRIVIN G LICENCE RECEIPT FROM THE AGENTS THE ADDITIONAL EVIDENCE WAS FORWARD TO THE AO, WHOS E MAIN OBJECTION STILL IN THAT IS MOST OF THE CASES EVEN A T THIS STAGE THE ASSESSEE HAS NOT BEEN ABLE TO FURNISH THE EVIDE NCE OF SERVICES RENDERED. 8.4. CONSIDERING THE RIVAL STANDS THE CIT(A) CAME T O THE FOLLOWING CONCLUSION. 6.4. I HAVE CONSIDERED THE SUBMISSIONS MADE ON BEH ALF OF THE APPELLANT AND LOOKED INTO THE ADDITIONAL EVIDENCE. IN SO FAR AS THE ADMISSION OF ADDITIONAL EVIDENCE IS CONCERNED, I AG REE THAT THE APPELLANT WAS NOT GIVEN ADEQUATE OPPORTUNITY. ALL THE COMMISSION AGENTS WERE OUTSIDE PARTIES AND IT WAS NOT POSSIBLE TO COLLECT THE INFORMATION IN A SHORT PERIOD OF FEW DAYS. THE AD DITIONAL EVIDENCE FURNISHED BY THE APPELLANT IS, THEREFORE, ADMITTED. THE ADDITIONAL EVIDENCE FURNISHED SHOWS THAT THE I DENTITY OF THE COMMISSION AGENTS HAD BEEN PROVED BY EITHER FIL ING THE AFFIDAVITS OR FURNISHING PAN NO./DRIVING LICENCE/EL ECTION CARD/PASSPORT/RATION CARD ETC. THE OBJECTION OF T HE A.O. THAT EVIDENCE OF SERVICES HAS NOT BEEN FURNISHED, IS INC ORRECT. IN THE AFFIDAVITS, IT HAS BEEN MENTIONED THAT THE COMMISSI ON WAS PAID FOR SERVICES LIKE PROCUREMENT OF ORDER OF REFRIGERATION MACHINERY AND CHASING THE RECOVERY OF PAYMENTS. THE BRANCH MANAG ERS OF THE APPELLANT COMPANY HAVE ALSO FILED AFFIDAVITS STATIN G THAT THE SERVICES WERE PERFORMED IN RESPECT OF RESPECTIVE JO BS SUCH AS PROCUREMENTS OF ORDERS PROVIDING ASSISTANCE IN EXEC UTION OF ORDERS AT ALL STAGES, GETTING PAYMENT RELEASED AGAINST INV OICES, GETTING SALES TAX DECLARATION FORM, TDS CERTIFICATES ETC. IT HAS ALSO BEEN POINTED OUT THAT IT IS FOR THE FIRST TIME, ;THE DI SALLOWANCE AHS BEEN MADE OUT OF COMMISSION. IT IS GIVEN OUT THAT IN TH E PRECEDING YEAR ITA 4902/DEL/2010 & PAGE 16 OF 17 ITA 4662/DEL/2010 M/S FRICK INDIA LTD. A.Y. 2005-2006 I.E. IN A.Y. 2004-05 OUT OF TOTAL COMMISSION PAYMEN T FOR RS. 12,19,219/- NO DISALLOWANCE WAS MADE AND IN THE SUB SEQUENT YEAR I.E. A.Y. 2006-07 ALSO ONLY FROM A TOTAL COMMISSIO N OF RS. 46,46,267/- DISALLOWANCE IN THE CASE OF ONE COMMISS ION AGENT FOR RS. 36,874/- HAS BEEN MADE, WHICH IS PENDING IN APP EAL. AFTER LOOKING TO THE EVIDENCE FURNISHED, I AM INCL INED TO ACCEPT THAT THE APPELLANT HAS SATISFACTORILY EXPLAINED THE CLAIM OF COMMISSION PAID TO EIGHTEEN PARTIES. CONSIDERING THE FACTS AND CIRCUMSTANCES DISCUSSED ABOVE, THE DISALLOWANCE OF RS. 7,09,754/- IS DELETED. 8.5. AGGRIEVED BY THIS THE REVENUE IS IN APPEAL BEF ORE THE TRIBUNAL, WHEREAS THE LD.D.R. PLACES RELIANCE UPON THE ASSESS MENT ORDER, LDAR VEHEMENTLY RELIED UPON PARA 6.3 OF THE IMPUGNED ORD ER SO AS TO CONTEND THAT THE A.O. HAS NOT AFFORDED SUFFICIENT OPPORTUNI TY THE TRANSACTION IS GENUINE, NONE OF THESE PERSONS ARE COMING WITHIN TH E PROVISIONS OF S.40A(2) AS SUCH HEAVY RELIANCE WAS PLACED ON THE I MPUGNED ORDER. THE EVIDENCES RELIED UPON BY THE ASSESSEE IT WAS SUBMIT TED FILED IN THE PAPER BOOK HAVE NOT BEEN ASSAILED. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON A CAREFUL CONSIDERATION OF THE SAME WE FIND OURSELVES UNABLE TO COME TO ANY OTHER FINDING THAN THE ONE ARRIVED AT BY THE CIT(A). THE EVIDENCES TAKEN INTO CONSIDERATION HAVE NOT BEEN FAULTED WITH BY THE DEPARTMENT LOOKING AT THE NATURE OF WOR K AND THE MANNER IN WHICH THE BUSINESS IS CONDUCTED BY THE ASSESSEE FRO M THE EVIDENCES TAKEN INTO CONSIDERATION NO CONTRARY VIEW CAN BE TA KEN. ACCORDINGLY BEING SATISFIED WITH THE REASONING AND FINDING OF T HE CIT(A), THE DEPARTMENTAL GROUND IS DISMISSED. ITA 4902/DEL/2010 & PAGE 17 OF 17 ITA 4662/DEL/2010 M/S FRICK INDIA LTD. A.Y. 2005-2006 10. IN THE RESULT THE APPEALS OF THE ASSESSEE AND T HE REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 3 RD FEBRUARY, 2012. SD/- SD/- (K.G. BANSAL) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 3 RD FEBRUARY, 2012 *MANGA COPY OF THE ORDER FORWARDED TO: 1. APPELLANT; 2.RESPONDENT; 3.CIT; 4.CI T(A); 5.DR; 6.GUARD FILE BY ORDER ASST. REGISTRAR // C O P Y //