M/S. JAYANTILAL KHANDWALA & SONS PVT. LTD, MUMBAI V. THE ACIT 4(3), MUMBAI

ITA 4931/MUM/2007

• Counselvise Citation: 493119914 RSA 2007
• Duration Of Justice: 4 year(s) 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 28-05-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 11-07-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH
• Assessee Lawyers: D BHASKARA RAO
• Keywords: Unexplained cash credit; Depreciation; Business expenditure; Additional evidence; Cost of acquisition
• Section: 68

Judgement Text

ITA NOS 4162 3707 4931 AND 6044 JAYANTILAL KHANDWAL A & SONS-J BENCH PAGE 1 OF 25 IN THE INCOME TAX APPELLATE TRIBUNAL 'J' BENCH, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER ITA NO. 3707/MUM/2011 ( ASSESSMENT YEARS: 2000-01) ACIT 4(3) 6 TH FLOOR, ROOM NO.649 AAYAKAR BHAVAN, MK ROAD MUMBAI 400020 VS JAYANTILAL KHANDWALA & SONS PVT. LTD, 201,STOCK EXCHANGE, DALAL STREET. FORT, MUMBAI 400023 PAN NO. AACJ 9403 D (APPELLANT) (RESPONDENT) ITA NO.4931/MUM/2007 (ASSESSMENT YEAR: 2003-04) JAYANTILAL KHANDWALA & SONS PRIVATE LIMITED 201,STOCK EXCHANGE, DALAL STRT. FORT, MUMBAI 400023 VS ACIT 4(3), 6 TH FLOOR AAYAKAR BHAVAN, MK ROAD MUMBAI 400020 PAN NO. AACJ 9403 D (APPELLANT) (RESPONDENT) ITA NO.6044/MUM/2008 ( ASSESSMENT YEAR: 2003-04) ACIT 4(3) 6 TH FLOOR, ROOM NO.649 AAYAKAR BHAVAN, MK ROAD MUMBAI 400020 VS JAYANTILAL KHANDWALA & SONS PVT. LTD, 201,STOCK EXCHANGE, DALAL STREET. FORT, MUMBAI 400023 PAN NO. AACJ 9403 D (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI D. BHASKARA RAO, DEPARTMENT BY: SHRI D.S.SUNDER SINGH, DR DATE OF HEARING: 28/05/2012 DATE OF PRONOUNCEMENT: 06/06/2012 ITA NOS 4162 3707 4931 AND 6044 JAYANTILAL KHANDWAL A & SONS-J BENCH PAGE 2 OF 25 O R D E R PER B. RAMAKOTAIAH, A.M. THESE ARE THE CROSS APPEALS FILED BY BOTH REVENUE A ND ASSESSEE ON VARIOUS GROUNDS. ITA NO. 3707/MUM/2011 A.Y 2000-01. 2. THIS IS A REVENUE APPEAL AGAINST THE ORDERS OF THE CIT (A)-10 MUMBAI DATED 28.02.2011 FOR AY 2000-01. THE REVENUE HAS RAISED THE FOLLOWING FOUR GROUNDS FOR CONSIDERATION: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) ERRED IN DELETING THE DISALLOWANCE OF ` .62,75,916/- ON ACCOUNT OF INTEREST PAID. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT (A) ERRED IN DELETING THE DISALLOWANCE TOWARDS FINANCE BROKERAGE AND CONSULTI NG CHARGES OF ` .6,00,412/- MADE BY AO. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) ERRED IN DELETING THE DISALLOWANCE MADE BY AO IN RESPECT OF SUB-BROKERAGE PAID TO SHRI MADHUSUDAN KELA AMOUNTING TO ` .1,19,00,000/-. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT (A) ERRED IN DELETING THE ADDI TION OF SERVICE CHARGES OF ` .1,83,750/-, MADE BY AO . 3. WE HAVE HEARD THE LEARNED DR AND THE LEARNED COUNSE L FOR ASSESSEE IN DETAIL. AFTER CONSIDERING THE SUBMISSIO NS AND EXAMINING THE PAPER BOOK PLACED ON RECORD, WE DECIDE THE ISSU ES AS UNDER: 4. GROUND NO.1 PERTAINS TO THE ISSUE OF DISALLOWANCE O F INTEREST OF ` .62,75,916/-. AO DISALLOWED THE INTEREST CLAIM ON T HE GROUND THAT ASSESSEE BORROWED INTEREST BEARING LOANS AMOUN TING TO ` .6,89,16,040/- AND ADVANCED LOANS TO THE FOLLOWING CONCERNS WITHOUT CHARGING ANY INTEREST. A) M/S JAYANTILAL KHANDWALA & SONS ` .27,68,30,295/- (PEAK DEBIT BALANCE AS ON 23-3-2002). ITA NOS 4162 3707 4931 AND 6044 JAYANTILAL KHANDWAL A & SONS-J BENCH PAGE 3 OF 25 B) TRIUMPH SECURITIES PVT. LTD ` .2,75,00,000/- (PEAK DEBIT BALANCE) AS ON 22-3-2002. 5. IT WAS SUBMITTED BEFORE THE CIT (A) THAT THE ACCOUN TS OF THE ABOVE TWO CONCERNS IN ASSESSEES BOOKS OF ACCOUNT S HOWED DEBIT BALANCE AS THE TWO CONCERNS ARE THE CONSTITUENTS OF ASSESSEE AND HAD RUNNING ACCOUNTS WITH ASSESSEE. BOTH THE CONCER NS HAD SHARE TRANSACTIONS THROUGH ASSESSEE. ASSESSEE THEREFORE, CLAIMED THAT IT DID NOT CHARGE ANY INTEREST ON THE DEBIT BALANCES I N THE CURRENT ACCOUNTS. IT WAS CLAIMED THAT INTEREST-BEARING LOAN S AMOUNTING TO ` .6,89,16,040/- WERE TAKEN BY ASSESSEE FOR ITS BUSIN ESS PURPOSES AND THE RELEVANT AMOUNTS WERE ALSO UTILIZED IN THE BUSINESS OF ASSESSEE. WITHOUT PREJUDICE TO THE ABOVE, ASSESSEE CLAIMED THAT EVEN IF INTEREST FREE LOANS WERE ADVANCED, NO DISAL LOWANCE OF INTEREST CAN BE MADE AS ASSESSEE HAD OWN FUNDS MORE THAN BOR ROWALS. ON THIS POINT, ASSESSEE RELIED UPON THE FOLLOWING DECI SIONS: (A) D&H ELECTRONICS PVT. LTD. VS. CIT (142 ITR 528) (MP ) (B) CIT VS. H.P. LOHIA (203 ITR 928) (CAL.) 6. D U R ING THE COURSE OF APPELLATE PROCEEDINGS BEFORE CIT( A) ASSESSEE VID E LETT E R DATED 21 - 05 - 2 00 9 HAS FURNISHED DETAILS OF COPY OF LEDGER ACCOUNTS AS APPEARING IN ASSESSEE ' S BOOK SHOWING THE PAYMENTS AND REC E IPT TO M/S. JAYANTILAL KHANDWALA & SO N S A ND TR I UMPH SECURITIES PVT . LTD. TH E REFORE, THE THEN CIT(A)- X IV, MUMB A I HAS CALLED FOR REMAND REPORT VIDE LETTER DATED 05-06-2009. IN R E SPON SE TO W HICH TH E AO HAS SUBMITTED HIS REMAND REPORT VIDE L E TTER DATED 03 - 08 - 2009 A N D AG A IN REMAND REPORT DATED 11-02-2011 WHEREIN THE AO STATED THAT ASSESSEE HAS DEBIT BALANCE OF ` 2,22,03,196/- AS ON 31-03-2000. IT APPEARS THAT THE ASSESSEE HAS PURCHA SED AND SOLD SHARES ON BEHALF OF JAYANTILAL KHANDWALA & SONS AND THE BILLS RAISED ENTERED INTO LEDGER ON DEBIT AND CREDI T SIDE. THE LEDGER ALSO CONSISTING OF ENTRY OF PAYMENTS MADE/RE CEIVED OF THE AMOUNT CREDITED AND DEBITED FROM JAYANTILAL KHA NDWALA & ITA NOS 4162 3707 4931 AND 6044 JAYANTILAL KHANDWAL A & SONS-J BENCH PAGE 4 OF 25 SONS. THE AO FURTHER STATED THAT CONSIDERING THE TR ANSACTION IN SHARES, IT IS SEEN THAT ASSESSEE HAS SOLD SHARES OF ` 33,07,10,040/- AND PURCHASED SHARES OF ` .22,66,41,308/- ON BEHALF OF JAYANTILAL KHANDWALA & SONS. ON THE OTHER HAND THERE IS A CREDIT BALANCE OF RS.L0,40,68,731/-. THEREFORE , IT CAN BE CONCLUDED THAT ASSESSEE HAS NOT ONLY PAID THIS AMOU NT TO JAYANTILAL KHANDWALA & SONS BUT THERE IS A PAYMENT OVER AND ABOVE THE CREDIT BALANCE WHICH HAS RESULTED IN THE OVERALL DEBIT BALANCE OF ` 2,22,03,196/-. THE PAYMENT MADE IS EXCESS WHICH HAS RIGHTLY BEEN CONSIDERED AS LOAN ADVANCED FOR NO N BUSINESS PURPOSE. AS REGARDS TRIUMPH SECURITIES PVT. LTD., T HE AO STATED THAT THERE ARE FIVE ENTRIES, TWO ENTRIES ON CREDIT SIDE INDICATING THE BILL RAISED AMOUNTING TO ` 5,25,OO,OOO/-.THE TOTAL ENTRIES ON DEBIT SIDE IS ` 5,25,OO,OOO/-. SINCE THE AMOUNTS ARE SQUARED UP IT CANNOT BE SAID THAT THERE WAS ANY LOA N GIVEN FOR NON BUSINESS PURPOSE. 7. IN THE REJOINDER TO THE REMAND REPORT, ASSESSEE VID E LETTER DATED 28-02- 2011 SUBMITTED THAT M/S. JAYANTILAL KH ANDWALA & SONS IS THEIR CLIENT FOR WHICH THEY PURCHASED AND S OLD SHARES AS DIRECTED BY THEM WHICH HAS BEEN ALSO ADMITTED BY THE AO IN HIS REMAND REPORT DATED 11-02-2011. IT WAS SUBMITTE D THAT ASSESSEE IS FOLLOWING TRADING PRACTICE IN THE BUSIN ESS THAT NO INTEREST IS CHARGED IN THE BALANCES IN THE ACCOUNT OF SUNDRY DEBTORS AND SIMILARLY NO INTEREST IS PAID ON THE BA LANCES IN THE ACCOUNT OF SUNDRY CREDITORS. THEREFORE, FOLLOWING T HE BUSINESS PRACTICE, NO INTEREST WAS CHARGED ON THE DEBIT BALA NCE IN ITS ACCOUNT AS ON 31-03-2000. THE AO ASSUMED THAT ASSES SEE HAS TAKEN INTEREST BEARING LOANS WHICH WERE ADVANCED BY ASSESSEE FOR MAKING INTEREST FREE ADVANCES TO JAYANTILAL KHA NDWALA & SONS BY RELYING ON THE OBSERVATION OF THE SPECIAL AUDITOR. HOWEVER, THE AO HAS FAILED TO ESTABLISH THE NEXUS BETWEEN INTEREST BEARING LOAN TAKEN AND INTER EST FREE ITA NOS 4162 3707 4931 AND 6044 JAYANTILAL KHANDWAL A & SONS-J BENCH PAGE 5 OF 25 ADVANCE GIVEN BY ASSESSEE. IT FURTHER PLACED RELIAN CE IN THE CASE OF CIT VS. RADICO KHAITAN LTD. (274 ALLAHABAD) WHER EIN IT WAS HELD THAT IF THE ASSESSEE HAS SUFFICIENT FUNDS ON A CCOUNT OF SHARE CAPITAL AND SHARE APPLICATION MONEY, RESERVES AND SURPLUS TO ADVANCE INTEREST FREE LOAN, NO DISALLOWA NCE COULD BE MADE ON INTEREST FREE LOANS. SIMILARLY, IT ALSO REL IED IN THE CASE OF CIT RELIANCE UTILITIES & POWER LTD. (313 ITR 340) (BOM),WHEREIN IT WAS HELD THAT IF INTEREST FREE FUN D WAS AVAILABLE TO THE ASSESSEE AND AT THE SAME TIME THE ASSESSEE HAS RAISED A LOAN IT CAN BE PRESUMED THAT INVESTMENT IS MADE OUT OF INTEREST FREE FUNDS AVAILABLE WITH ASSESSEE. IT WAS CONTENDED THAT THE INTEREST FREE FUND IS AVAILABLE WITH THE A SSESSEE AS ON 31-03-2000 WERE AMOUNTED TO ` 9,83,04,632/- AS AGAINST THE DEBIT BALANCE OF ` 2,17,41,681/-. THEREFORE, IT WILL BE PRESUMED THAT THE INTEREST FREE ADVANCES WERE GIVEN OUT OF I NTEREST FREE FUNDS AVAILABLE WITH ASSESSEE. WITH REGARD TO TRIUM PH SECURITIES PVT. LTD., IT WAS SUBMITTED THAT ASSESSEE H AS ONLY THREE TRANSACTIONS WITH THIS CONCERN AND THE ACCOUNTS WITH THE CONCERN IS SQUARED UP DURING THE YEAR HAS ALSO STAT ED BY THE AO IN THE REMAND REPORT, THEREFORE, NO INTEREST FREE LOANS WERE ADVANCED TO THIS CONCERN. 8. BASED ON THE PREDECESSORS REMAND REPORT VIDE LETTE R DATED 5.6.2009 AND ASSESSEES SUBMISSIONS AND EXAMINING T HE FACTS AND AFTER CONSIDERING THE REJOINDER TO THE REMAND REPOR T, THE CIT (A) DELETED THE ADDITION BY STATING AS UNDER: 2.3 I HAVE CONSIDERED THE FACTS. I FIND FROM THE DETAILS OF ACCOUNTS PLACED BEFORE ME THAT THE ABOVE TWO CONCERNS HAD SHARE TRANSACTIONS THROUGH THE APPELLANT. THEREFORE THE APPELLANT HAS MAINTAINED RUNNING ACCOUNTS OF THESE CONCERNS. ON SOME DATES THESE CURRENT/RUNNING ACCOUNTS SHOWED DEBIT BALANCES. FROM THE ACCOUNTING DETAILS, I HAVE ALSO NOTED THAT THE ENTIRE TRANSACTIONS ARE ROUTINE AND DAY-TO-DAY COMMERCIAL TRANSACTION OF PURCHASE AND ITA NOS 4162 3707 4931 AND 6044 JAYANTILAL KHANDWAL A & SONS-J BENCH PAGE 6 OF 25 SALE OF SHARES. THE AO HAS NOT ESTABLISHED ANY NEXUS BETWEEN THE INTEREST - BEARING LOANS AMOUNTING TO ` .6,89,16,040/- TAKEN BY THE APPELLANT AND THE DEBIT BALANCES IN THE NAME OF ABOVE TWO ACCOUNTS. IT IS ALSO SEEN THAT THE INTERE ST PAID APPROXIMATELY BY A SUM OF ` 3,30,OOO/- AND THE RELEVANT BORROWALS MADE ARE REFLECTED IN THE INCREA SE IN VOLUME OF BUSINESS AND CURRENT ASSETS. THE AR RELIED IN THE CASE OF RELIANCE UTILITY & POWER LTD (2009) 313 ITR 340(BOM), WHEREIN IT WAS HELD THAT I F THERE ARE FUNDS AVAILABLE BOTH INTEREST FREE AND OVERDRAFT OR LOAN TAKEN THEN A PRESUMPTION WOULD ARISE THAT INVESTMENT WOULD BE OUT OF INTEREST FREE FUNDS GENERATED OR AVAILABLE W ITH THE COMPANY, IF THE INTEREST FREE FUNDS WERE SUFFIC IENT TO MEET THE INVESTMENT. 2.3.1 I AM, THEREFORE, UNABLE TO HOLD THAT INTEREST BEARING LOANS TAKEN BY THE APPELLANT WERE UTILIZED BY IT IN ADVANCING ANY INTEREST FREE LOANS. FURTHER TH E ACCOUNTS MAINTAINED WERE RUNNING ACCOUNTS AND NOT REPRESENTED LOAN TRANSACTION. IN CASE OF TRIUMPH SECURITIES, THE AO HAS CLEARLY STATED IN THE REMAND REPORT DATED 11- 02-2011 THAT IT CANNOT BE SAID THA T THEE WAS ANY LOAN GIVEN FOR NON BUSINESS PURPOSE. I N VIEW OF THESE, NO DISALLOWANCE OF INTEREST CAN BE MADE. THE DECISIONS RELIED UPON BY THE APPELLANT AR E ALSO SUPPORTS ITS CASE. THE AO WAS THEREFORE, NOT CORRECT IN DISALLOWING INTEREST OF ` 62,75,916/-. THIS DISALLOWANCE IS DELETED. ACCORDINGLY THIS GROUND OF APPEAL IS ALLOWED. 9. THE LEARNED DR REFERRING TO THE ORDER OF AO SUBMITT ED THAT LARGE FUNDS ARE DIVERTED TO THE SISTER CONCERN AND ACCORDINGLY AO WAS CORRECT IN DISALLOWING THE INTEREST CLAIMED AS INTEREST ON BORROWED FUNDS BUT NOT UTILIZED IN ASSESSEES BUSIN ESS. IT WAS THE SUBMISSION OF THE LEARNED AR FOR THE ASSESSEE THAT THE FUNDS WERE UTILIZED ON THE BUSINESS AND THOSE DEBIT BALANCES W ERE TRADING BALANCES AND ACCORDINGLY SUPPORTED THE ORDER OF THE CIT (A). 10. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE FACTS ON RECORD. THERE IS A FINDING BY THE CIT (A), WHICH IS NOT CONTROVERTED BEFORE US, THAT THE DEBIT BALANCES WITH THE TWO CON CERNS ARE ITA NOS 4162 3707 4931 AND 6044 JAYANTILAL KHANDWAL A & SONS-J BENCH PAGE 7 OF 25 RUNNING ACCOUNTS IN THE COURSE OF PURCHASE AND SALE OF SHARES AND ARE BUSINESS TRANSACTIONS. SINCE THERE IS NO DIVERS ION OF BORROWED FUNDS FOR NON BUSINESS PURPOSES, WE HAVE TO HOLD TH AT THERE IS NO NEXUS BETWEEN THE INTEREST BEARING FUNDS TAKEN BY A SSESSEE AND THE DEBIT BALANCES IN THE NAME OF TWO ACCOUNTS WHICH CA N BE CONSIDERED AS DIVERSION OF FUNDS. MOREOVER, FOLLOWI NG THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF S A BUILDERS AND OTHER VS CIT 288 ITR 1, IT IS TO B E HELD THAT THE FUNDS ADVANCED ARE FOR BUSINESS PURPOSES. ACCORDING LY THERE IS NO NEED FOR DISALLOWANCE OF ANY INTEREST. IT IS ALSO S EEN THAT AO IN THE ASSESSMENT ORDER COMPARED THE DEBIT BALANCE AS ON 2 2.03.2002 WHICH DOES NOT PERTAIN TO THE YEAR UNDER ASSESSMENT . THEREFORE, HIS COMPARISON ON FACTS IS ALSO NOT CORRECT AS HE HAS T AKEN THE DEBIT BALANCES OF LATER YEAR FOR DISALLOWING THE INTEREST THIS YEAR. THESE ASPECTS WERE EXAMINED BY THE CIT (A) ON FACTUAL BAS IS AS WELL. HENCE, WE UPHOLD THE ORDER OF THE CIT (A) AND DISMI SS REVENUE GROUND. 11. GROUND NO.2 PERTAINS TO DISALLOWANCE OF FINANCE BRO KERAGE AND CONSULTING CHARGES OF ` .6,00,412/-. CONSEQUENT TO THE DISALLOWANCE OF INTEREST CLAIM ON BORROWED FUNDS, A O DISALLOWED THE BROKERAGE AND CONSULTING CHARGES PAID FOR OBTAINING THE LOANS AS NOT FOR THE PURPOSE OF BUSINESS. THE CIT (A) FOLLOW ING HIS FINDINGS THAT THE BORROWED FUNDS ARE UTILIZED FOR THE PURPOS E OF BUSINESS AND INTEREST IS ALLOWABLE AS DEDUCTION ALLOWED THE BROK ERAGE AND COMMISSION CHARGES. SINCE THERE IS NO DISPUTE WITH REFERENCE TO THE GENUINENESS OF THE PAYMENT MADE TO THE ABOVE THREE CONCERNS, WE ARE OF THE VIEW THAT THE CIT (A) IS CORRECT IN ALLO WING THE BROKERAGE AND CONSULTING CHARGES CLAIMED BY ASSESSEE FOR OBTA INING VARIOUS LOANS. THEREFORE, THE GROUND OF REVENUE IS DISMISSE D. 12. GROUND NO.3 PERTAINS TO DISALLOWANCE OF SUB-BROKERA GE PAID TO SHRI MADHUSUDAN KELA AMOUNTING TO ` .1,19,00,000/-. ASSESSEE ITA NOS 4162 3707 4931 AND 6044 JAYANTILAL KHANDWAL A & SONS-J BENCH PAGE 8 OF 25 CLAIMED PAYMENT OF ` .1,19,00,000/- AS BROKERAGE PAID TO SHRI MADHUSUDAN KELA. AO DISALLOWED THIS EXPENDITURE ON THE GROUND THAT THIS PERSON WAS NOT PRODUCED PERSONALLY FOR EX AMINATION THOUGH ASSESSEE WAS ASKED TO DO SO. AO HAS ALSO STA TED THAT THE DETAILS OF SERVICES RENDERED BY SHRI MADHUSUDAN KEL A WERE NOT FURNISHED TO AO. IT WAS SUBMITTED BEFORE CIT(A) THAT CONFIRMATION LETTER DATED 27-03-2001 ADDRESSED TO SRI MADHUSUDAN KELA AND ACKNOWLEDGED BY HIM WAS FURNISH ED TO THE AO. DURING THE COURSE OF HEARING, IT WAS EXPLAINED, THAT THE SERVICES RENDERED BY SRI MADHUSUDAN KELA WERE MENTIO NED TO THE AO. IN PARTICULAR IT WAS STATED BEFORE THE AO THAT THIS SUB BROKER PROCURED BUSINESS FROM NRI CLIENTS AND OTHER CORPORATIONS LIKE CAN BANK OFF SHORE MUTUAL FUND, A LLIANCE CAPITAL MUTUAL FUNDS, LLOYD GEORGE MUTUAL FUNDS, M/S. FR - MANN LTD., MR. SHYAN BHATIA, MR. HARSHAD DHAKKAN AN D SEVERAL OTHERS. SRI MADHUSUDAN KELA COULD NOT BE PER SONALLY PRODUCED BEFORE THE AO AS THE FORMER WAS OUT OF MUMBA I AT THE RELEVANT TIME AND THE TIME ALLOWED TO ASSESSEE BY AO F OR PRODUCING THIS PERSON WAS INSUFFICIENT. THE ASSESSEE HOWEVER SUBMITTED THAT THE FULL ADDRESS AND THE INCOME TAX PAN WERE FURNISHED TO THE AO. THE BYE-LAWS AND REGULATIONS OF THE BOMBAY STOCK EXCHANGE LAY DOWN THE MAXIMUM BROKERAG E PAYABLE TO SUB-BROKERS. ALL THE RELEVANT PAYMENT AM OUNTING TO ` L,19,OO,OOO/- WERE PAID BY ASSESSEE BY ISSUING ACCOUNT PAYEE CHEQUES TO THIS PERSON. THE NAMES OF CLIENTS INTROD UCED BY THIS SUB BROKER WERE ALSO MENTIONED TO THE AO IN THE COURSE OF ASSESSMENT PROCEEDINGS. IT WAS SUBMITTED THAT EVEN THE AO DID NOT MAKE ANY ENQUIRIES OR INVESTIGATION BEFORE CONCLU DING THAT THE BROKERAGE PAID TO SRI MADHUSUDAN KELA APPEARED T O BE NON- GENUINE. IT WAS SUBMITTED THAT SRI MADHUSUDAN KELA I S A WELL KNOWN FUND MANAGER IN MUMBAI, AND HE IS PRESENTLY WORKING AS FUND MANAGER WITH RELIANCE MUTUAL FUND. IT IS ITA NOS 4162 3707 4931 AND 6044 JAYANTILAL KHANDWAL A & SONS-J BENCH PAGE 9 OF 25 STATED THAT SRI KELA WAS RANKED AS NO.1 FUND MANAGER BY 'BUSINESS STANDARD' A DAILY PAPER. 13. AFTER CONSIDERING THE SUBMISSIONS, THE CIT (A) DEL ETED THE ADDITIONS BY STATING AS UNDER: 4.3 I HAVE CONSIDERED THE FACTS. ON CONSIDERATION OF THE FACTS, IT IS SEEN THAT THE APPELLANT HAS FILED PAN, CONFIRMATION LETTER ENDORSING OF RECEIPT OF LETTER AND CLAIMED THAT SHRI MADHUSUDAN KELA HAS PROCURED NRI, CAN BANK, MUTUAL FUNDS LIKE CAN BANK OFF SHOW MUTUA L FUND ETC. I ALSO FIND THAT THE ISSUE ON THIS GROUND ALREADY DECIDED BY ME PREDECESSOR CIT (A) WHILE DECIDING OR IGINAL APPEAL. THE FINDINGS OF CIT (A) ARE AS FOLLOWS: I FIND THAT DURING THE COURSE OF ASSESSMENT PROCEE DINGS THE APPELLANT HAD FURNISHED INFORMATION OF SHRI MADHUSUDAN KELA, THOUGH THOSE WERE NOT TREATED SUFFICIENT BY THE AO TO CONSIDER GENUINENESS OF THE PERSON AS WELL AS THE PAYMENT OF SUB-BROKERAGE. THOU GH THE APPELLANT HAD FURNISHED A LETTER OF CONFIRMATION OF THIS PAYMENT TO THE AO VIDE FORWARDING LETTER DATED 8 TH SEPTEMBER, 2004, MATERIALS ON RECORD DID NOT SUGGEST ENOUGH INDICATION THAT SUCH DETAILS LIKE PAN / ADDRESS ETC . WERE BEFORE THE AO FOR PROPER VERIFICATION. UNDER T HE CIRCUMSTANCES, THE AO IS DIRECTED TO VERIFY FROM MATERIALS AVAILABLE AND LT. RETURNS OF SHRI MADHUSUDAN KELA, WHETHER THE ALLEGED SUB- BROKERAGE WAS SHOWN BY SHRI MADHUSUDAN KELA IN HIS RESPECTIVE LT. RETURNS. IF SO, THEN SUB-BROKERAGE PAID BY THE APPELLANT IS TO BE ALLOWE D. WITH THIS DIRECTION, I DISPOSE OF THIS GROUND.' BEF ORE ME, ALSO, THE AR REITERATED HIS ORIGINAL SUBMISSION AS MADE BEFORE MY PREDECESSOR CIT(A). THE AR FURTHER FILED A COPY OF LEDGER ACCOUNT AS APPEARING IN HIS BANK ACCOUNTS AND A COPY OF BANK ACCOUNT EVIDENCING PAYMENTS MADE BY CHEQUES AND ENCASHED BY SHRI MADHUSUDAN KELA. THEREFORE, CONSIDERING THE FINDING OF MY PREDECESSOR CIT(A), T HE AO IS DIRECTED TO VERIFY THE RECEIPTS OF PAYMENTS SHOWN BY SHRI MADHUSUDAN KELA, IN HIS I T RETURN AND IF FOUND CORRECT THEN ALLOW THE CLAIM. THIS GRO UND IS THEREFORE, TREATED AS ALLOWED SUBJECT TO VERIFICATION. ITA NOS 4162 3707 4931 AND 6044 JAYANTILAL KHANDWAL A & SONS-J BENCH PAGE 10 OF 25 14. EVEN THOUGH THE LEARNED DR VEHEMENTLY ARGUED THAT A SSESSEE HAS NOT FILED ANY CONFIRMATION EITHER DURING THE SP ECIAL AUDIT OR BEFORE AO, IN VIEW OF THE FACTUAL FINDINGS GIVEN BY THE CIT (A), WE HAVE NO OTHER OPTION THAN TO ACCEPT HIS FINDINGS IN THE ABSENCE OF ANY CONTRARY EVIDENCE PLACED BY THE REVENUE. THE RE VENUE HAS ALSO NOT RAISED ANY GROUND WITH REFERENCE TO ADMISSION O F ANY ADDITIONAL EVIDENCE WHICH INDICATE THAT THE FACTUAL ASPECT THA T ASSESSEE FILED CONFIRMATION LETTERS BEFORE AO IN THE COURSE OF THE ASSESSMENT PROCEEDINGS ARE TO BE ACCEPTED. IT IS ALSO SEEN THA T THE LEARNED CIT (A) DIRECTED TO VERIFY THE RECEIPT OF PAYMENTS GIVE N TO SHRI MADHUSUDAN KELA AND AFTER EXAMINATION DIRECTED AO T O ALLOW THE CLAIM. WE DO NOT SEE ANY REASON TO INTERFERE WITH T HE FINDINGS OF THE CIT (A) ON THIS ISSUE. IT IS FOR AO TO EXAMINE THE FACTUAL ASPECTS AND ALLOW THE CLAIM AS THE MATTER WAS RESTORED TO HIM B Y THE CIT (A). IN OUR VIEW THE GROUND ITSELF IS INFRUCTUOUS. ACCORDIN GLY THE SAME IS REJECTED. 15. GROUND NO.4 PERTAINS TO THE ISSUE OF DELETION OF SE RVICE CHARGES ` .1,83,750/-, MADE BY AO WHO DISALLOWED THIS ON THE BASIS THAT THE SAME WAS DEBITED TWICE TO THE PROFIT AND L OSS ACCOUNT. ON THE OTHER HAND IT WAS SUBMITTED BEFORE CIT(A) THAT SERVICE CHARGES WERE PAID ON THE PURCHASE OF SHARES WHICH WERE FINA NCED BY KOTAK MAHINDRA FINANCE LTD BY ASSESSEE AS INVESTMENT AND THAT THIS SERVICE CHARGE OF ` .1,83,750/- WAS ALSO ADDED TO THE COST OF SHARES PURCHASED. IT WAS FURTHER EXPLAINED THAT THERE WAS NO DOUBLE DEBIT OF THIS EXPENDITURE. ASSESSEE FILED COPY OF SHARES PURCHASE ACCOUNT OF POLARIS SOFTWARE SHARES AND CLAIMED THAT THERE I S NO DOUBLE CLAIM. 16. THE CIT (A) CONSIDERED THE ABOVE FACTS. IT HAS BEEN OBSERVED BY HIM THAT THE SERVICE CHARGES WERE DEBITED TO COS T OF SHARES, A COPY OF INVESTMENT IN SHARES ACCOUNT HAS ALSO FILED . IT WAS CLAIMED THAT THE SERVICE CHARGES WAS NOT SHOWN IN PROFIT & LOSS A/C AND IN ITA NOS 4162 3707 4931 AND 6044 JAYANTILAL KHANDWAL A & SONS-J BENCH PAGE 11 OF 25 ANY OTHER HEAD. THEREFORE, THE CLAIM APPEARS TO BE IN ORDER. ACCORDINGLY THE CIT (A) DELETED THE DISALLOWANCE. 17. SINCE THESE ARE FACTUAL ASPECTS WHICH WERE EXAMINED BY THE CIT (A) AND NOTHING CONTRARY TO THE ABOVE WERE BROU GHT ON RECORD BY THE REVENUE, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDERS OF THE CIT (A). THEREFORE, THE GROUND IS REJECTED. 18. IN THE RESULT, THE REVENUE APPEAL IS DISMISSED. ITA NO.4931/MUM/2007 A.Y 2003-04 19. THIS IS AN ASSESSEES APPEAL AGAINST THE ORDERS OF THE CIT (A)- 14 MUMBAI DATED 04.05.2007. ASSESSEE HAS RAISED FIV E GROUNDS ON VARIOUS ISSUES. WE HAVE HEARD THE LEARNED COUNSEL A ND THE LEARNED DR IN DETAIL. 20. GROUND NO.1 PERTAINS TO DISALLOWANCE OF ` .90,64,896/- OUT OF ` .95,23,575/- CLAIMED ON ACCOUNT OF FINANCE CHARGES PAID BY ASSESSEE ON THE REASON THAT THE BORROWED FUNDS ARE DIVERTED. BRIEFLY STATED THE FACTS ARE THAT AO NOTICED THAT ASSESSEE HAD INCURRED FINANCE EXPENSES OF ` .95,23,575/-. IT WAS SEEN THAT IT HAD ADVANCED LOANS TO SISTER CONCERNS TO THE TUNE OF ` .31,60,73,887/- AS AGAINST UNSECURED/SECURED LOANS OUTSTANDING AT ` .19,88,10,884/- AS ON 31-03-2003. AO HELD THAT ASSESSEE HAD DIVERTED AND UTILIZED THE BORROWED FUNDS FOR NON BUSINESS PURPOSES AND THEREF ORE FINANCE EXPENSES INCURRED AT ` .95,23,575/- WERE DISALLOWED AS HAVING BEEN INCURRED FOR NON BUSINESS PURPOSES. 21. BEFORE THE CIT (A) IT WAS CONTENDED THAT THE FOLLOW ING SISTER CONCERNS WERE HAVING DEBIT BALANCES IN THE BOOKS OF ASSESSEE AS ON 31-03-2003: 1 M/S KHANDWALA SHARES & BROKERS PVT LTD ` .2,50,01,566/- 2 NIRJAY SECURITIES PVT. LTD `.27,47,80,331/- 3 M/S JAYANTILAL KHANDWALA & SONS `.1,62,91,990/- ITA NOS 4162 3707 4931 AND 6044 JAYANTILAL KHANDWAL A & SONS-J BENCH PAGE 12 OF 25 IT WAS EXPLAINED THAT ALL THE ACCOUNTS IN THE ABOVE CASES WERE RUNNING ACCOUNTS; ALL THE THREE CONCERNS WERE CONSTITUENTS OF ASSESSEE AND THE DEBIT BALANCES HAD ARISEN IN THE C OURSE OF THE BUSINESS OF ASSESSEE. IT WAS FURTHER SUBMITTED THAT THE DEBIT BALANCE IN THE CASE OF THE THIRD CONCERN M/S JAYANTILAL KHANDWALA & SONS HAD COME DOWN FROM ` 8,33,18,432/- AS ON 1-04-02 TO ` 1,62,91,990/ - AS ON 31-03-03. IT WAS STATED THAT THE INTEREST BEARING LOANS TAKEN BY ASSESSEE WERE FULLY UTILIZED IN ITS BUSINESS AND WERE NOT UTILIZED FOR GIVING INTEREST FREE ADVA NCES. IT WAS SUBMITTED THAT THE AO HAD NOT FOUND THAT INTEREST B EARING LOANS TAKEN BY THE ASSESSEE WERE USED AS ADVANCES TO THE ABOVE THREE CONCERNS. IT WAS ARGUED THAT UNLESS INTEREST BEARIN G LOANS WERE FOUND TO HAVE BEEN ADVANCED AS INTEREST FREE LOANS BY ASSESSEE, NO INTEREST CLAIM COULD BE DISALLOWED BY THE AO. RELIA NCE WAS PLACED ON THE JUDGMENT IN THE CASE OF D&H ELECTRODES PVT L TD. VS. CIT, 142 ITR 528 (MP) AND CIT VS. H.P. LOHIA, 203 ITR 928 (C AL.). IT WAS ALSO SUBMITTED THAT THE CIT(A) HAD ALLOWED THE APPEAL OF THE ASSESSEE ON THE SIMILAR POINT IN A.Y. 2000-01. 22. DURING THE COURSE OF THE APPELLATE PROCEEDINGS BEFO RE CIT(A), THE AR WAS ASKED TO EXPLAIN THE NATURE OF ENTRIES I N THE THREE ACCOUNTS. IT WAS SUBMITTED THAT IN THE CASE OF THE FIRST TWO CONCERNS I.E. M/S KHANDWALA SHARES & BROKERS PVT. LTD. & M/S NIRJAY SHARES PVT. LTD., THE ASSESSEE HAD SOLD AND PURCHAS ED THE SHARES FOR THEM AND THESE ACCOUNTS REPRESENTED A MIXTURE O F BUSINESS TRANSACTIONS AS WELL AS OF LOANS AND ADVANCES. WITH THIRD CONCERN VIZ. JAYANTILAL KHANDWALA & SONS, NO BUSINESS WAS CARRIED OUT DURING THE YEAR AND A MAJOR PART OF THE AMOUNTS DUE FROM THIS CONCERN WAS REALIZED. CONSEQUENTLY THE DEBIT BALANC E DUE AS ON 31- 03-03 CAME DOWN TO ` 1,62,91,9901- ONLY AS AGAINST ` 8,33,18,432/- DUE AS ON 01-04-02. ITA NOS 4162 3707 4931 AND 6044 JAYANTILAL KHANDWAL A & SONS-J BENCH PAGE 13 OF 25 23. THE CIT (A) AFTER EXAMINING THE ISSUE UPHELD THE DI SALLOWANCE OF FINANCE EXPENSES. SUMMARY OF HIS FINDINGS IN PAR A NO.6 ARE AS UNDER: 6.. THEREFORE, I HOLD THAT THE APPELLANT HAD DIVERTED ITS FUNDS TO THESE TWO SISTER CONCERNS FOR NON BUSINESS PURPOSES. EVEN IN THE CASE OF THE THIR D CONCERN, NAMELY KHANDWALA SHARES & STOCK BROKERS LTD., IT WAS VERY ABNORMAL AND UNUSUAL THAT THE APPELLANT HAD ALLOWED THIS CONCERN TO PURCHASE SHARES WITHOUT MAKING ANY PAYMENT WHICH IS NOT A NORMAL BUSINESS POLICY WITH ANY OF SHARE BROKER. THUS, RESPECTFULLY RELYING ON THE AFORESAID JUDGMENT OF PUNJAB & HARYANA HIGH COURT, I HOLD THAT THE BORROWINGS MADE BY THE APPELLANT AT ` .19,88,10,884/- WERE NOT REQUIRED AT ALL IN CASE THE APPELLANT HAD NOT DIVERTED ITS FUND S TO ITS SISTER CONCERNS NAMELY M/S JAYANTILAL KHANDWALA & SONS AND M/S NIRJAY SECURITIES PVT. LTD TO THE TUNE OF ` .29,10,72,321/-. IN THE CIRCUMSTANCES, I HOLD THAT THE INTEREST AND FINANCE EXPENSES AT ` .90,64,896/- (EXCLUDING BANK CHARGES AND COMMISSION AT ` .4,58,829/-) WERE NOT ALLOWABLE UNDER SECTION 36(1)(III) FOR THE REASON THAT THE BORROWED FUNDS WERE NOT USED FOR PURPOSES OF BUSINESS BUT DIVERTED TO THE SISTER CONCERNS. IN VI EW OF THE AFORESAID DISCUSSION, THE DISALLOWANCE MADE AT ` .95,23,575/- IS RESTRICTED TO ` .90,64,896/-. ACCORDINGLY THIS GROUND OF APPEAL IS PARTLY ALLOWED. 24. BEFORE US THE LEARNED COUNSEL SUBMITTED THAT THESE TWO ACCOUNTS ARE RUNNING TRADING ACCOUNTS AND IN ONE AC COUNT THERE WAS REDUCTION OF OLD CREDIT BALANCES. IT WAS SUBMIT TED THAT ASSESSMENT YEAR 2000-01 WAS RELIED BY AO WHILE DISA LLOWING THE AMOUNT, WHICH WERE ALLOWED BY THE CIT (A) IN THAT Y EAR (WHICH WAS CONSIDERED IN THE REVENUE APPEAL AT GROUND NO.1 IN ABOVE APPEAL). IT WAS SUBMITTED THAT SINCE ASSESSEE HAS UTILIZED T HE FUNDS IN THE COURSE OF BUSINESS, THESE AMOUNTS ARE ALLOWABLE AS BUSINESS EXPENDITURE. THE LEARNED DR HOWEVER, RELIED ON THE ORDERS OF AO AND THE CIT (A). ITA NOS 4162 3707 4931 AND 6044 JAYANTILAL KHANDWAL A & SONS-J BENCH PAGE 14 OF 25 25. WE HAVE EXAMINED THE ISSUE AND THE PAPER BOOK PLACE D ON RECORD WITH REFERENCE TO THIS ASSESSMENT YEAR. IN O UR OPINION BOTH AO AND THE CIT (A) DID NOT EXAMINE THE ISSUE ON FAC TUAL BASIS BUT CARRIED AWAY BY THE FINDINGS IN EARLIER YEARS WITH REFERENCE TO THE SAME ISSUE. AS SEEN FROM THE BALANCE SHEET AND THE PROFIT & LOSS A/C PARTICULARLY SCHEDULES PLACED IN THE PAPER BOOK AT PAGE 34, ASSESSEE HAD NO SECURED LOAN AS ON 31-03-2002, BUT HAD A TERM LOAN FROM BANK OF INDIA, STOCK EXCHANGE BRANCH TO T HE TUNE OF ` .2,07,38,318/- AS ON 31.3.2003. SINCE THERE ARE NO SECURED LOANS IN EARLIER YEARS, OBTAINING SECURED LOAN DURING THE YEAR SHOULD HAVE EXAMINED AFRESH BY AO. WITH REFERENCE TO THE UNSECU RED LOAN IN SCHEDULE 4, ASSESSEE HAD ` .18.50 CRORES AS INTER CORPORATE DEPOSITS WHICH WAS REDUCED TO ` .17.30 CRORES DURING THE YEAR. FURTHER AS AGAINST ` .82.97 LAKHS OF OTHER UNSECURED LOANS, THE YEAR END ING UNSECURED LOAN UNDER THE HEAD OTHERS WAS ` .50.65 LAKHS. AS SEEN FROM THE FINANCE CHARGES IN SCHEDULE-13, AN AMOUNT OF ` .18,14,291/- WAS PAID AS INTEREST TO OTHERS ON UNSE CURED LOANS. AN AMOUNT OF ` .27,82,939/-WAS PAID TO THE BANK AS INTEREST AND AN AMOUNT OF ` .44,67,666/- WAS PAID AS FINANCIAL BROKERAGE. WHEN INQUIRED WHY SO MUCH FINANCIAL BROKERAGE WAS PAID O N INTER CORPORATE DEPOSIT OF ` .17.30 CRORES AVAILABLE, WHICH ITSELF WAS REDUCED WHEN COMPARED TO EARLIER YEARS, IT WAS THE SUBMISSION THAT THIS FINANCIAL BROKERAGE WAS PAID FOR EARNING INTER CORPORATE DEPOSITS. THESE ASPECTS HAVE NOT BEEN EXAMINED BY A O AND THE CIT (A) AT ALL. THERE IS NO DISPUTE TO THE FACT THAT TH E THREE ACCOUNTS WHICH WERE MAINTAINED BY ASSESSEES SISTER CONCERNS ARE FOR THE PURPOSE OF BUSINESS AND INTEREST WAS ALLOWED IN ASS ESSMENT YEAR 2000-01 ON EXAMINATION BY THE CIT (A) FACTUALLY, TH E ORDER OF WHICH WAS CONFIRMED IN GROUND NO.1 ABOVE IN THAT YEAR. S INCE THE FACTS IN THIS YEAR ARE AT VARIANCE MORE SO WITH REFERENCE TO FINANCIAL CHARGES PAID TO BANK WHICH IS ONE OF THE MAJOR COMP ONENT AND ALSO BROKERAGE PAID FOR ARRANGING INTER CORPORATE DEPOSI TS ASPECT OF ITA NOS 4162 3707 4931 AND 6044 JAYANTILAL KHANDWAL A & SONS-J BENCH PAGE 15 OF 25 WHICH WERE NEITHER DISCUSSED NOR VERIFIED, WE ARE O F THE OPINION THAT THE ISSUE REQUIRE FRESH EXAMINATION BY AO KEEPING I N VIEW THE ABOVE OBSERVATIONS. THE ISSUE IN THIS GROUND IS THEREFORE , RESTORED TO THE FILE OF AO TO EXAMINE THE NATURE OF FUNDS OBTAINED BY ASSESSEE AND ITS UTILIZATION AFRESH WITHOUT GETTING CARRIED AWAY BY THE OBSERVATIONS IN EARLIER YEARS. IT IS ALSO SUBMISSIO N THAT IN THE TRADING ACCOUNT NO INTEREST WAS CHARGED OR PAID ON THE DEBIT/CREDIT BALANCE WITH THE CLIENTS. THEREFORE, THIS ASPECT AL SO HAS TO BE CONSIDERED BY AO WHILE CONSIDERING THE ALLOWANCE OF INTEREST CLAIMED BY ASSESSEE. THE MATTER IS ACCORDINGLY REST ORED TO THE FILE OF AO FOR FRESH EXAMINATION AND DECISION. GROUND IS CO NSIDERED ALLOWED FOR STATISTICAL PURPOSES. 26. GROUND NO.2 PERTAINS TO ISSUE OF DISALLOWANCE OF DE PRECIATION ON BSE MEMBERSHIP CARD. FOR CLARITY ON THE ISSUE, T HE GROUNDS RAISED BY ASSESSEE ARE EXTRACTED AS UNDER: 2(A) THE CIT (A) ERRED IN CONFIRMING DISALLOWANCE OF DEPRECIATION ON THE BSE MEMBERSHIP CARD OWNED BY TH E APPELLANT AND UTILIZED BY IT IN ITS BUSINESS. (B) THE FIRST APPELLATE AUTHORITY FAILED THAT THE R EGISTRAR OF COMPANIES WAS INFORMED BY THE APPELLANT THAT BSE MEMBER SHIP CARD WAS ACQUIRED FROM ONE OF THE DIREC TORS OF THE APPELLANT FOR A SUM OF ` .1,30,00,000/- BY ISSUING 13,00,000 EQUITY SHARES OF THE APPELLANT COMPANY AT ` .10/-PER SHARE. THE AUDITED STATEMENTS OF ACCOUNT FURNISHED BY THE APPELLANT TO AO ALSO CONFIRM THIS POSITION. (C) THE CIT (A) ERRED IN OBSERVING THAT THE BSE MEM BERSHIP CARD OWNED BY THE APPELLANT WAS NOT USED IN THE REL EVANT ACCOUNTING YEAR IN THE APPELLANTS BUSINESS. THIS I S PERHAPS BASED ON THE PRESUMPTION THAT AO FOUND THAT THE MEMBERSHIP CARD OF THE APPELLANT WAS SUSPENDED. THI S IS FACTUALLY NOT CORRECT AS THE APPELLANT CARRIED ON B USINESS AS A MEMBER OF THE BSE IN THE YEAR ENDED 31-3-2003 AND EARNED SUBSTANTIAL COMMISSION. 27. BRIEFLY STATED, AO DID NOT ALLOW DEPRECIATION ON TH E MEMBERSHIP CARD ON THE REASON THAT THE MEMBERSHIP C ARD IS NOT AN ASSET FOR THE PURPOSE OF DEPRECIATION AND ALSO O N THE REASON THAT ITA NOS 4162 3707 4931 AND 6044 JAYANTILAL KHANDWAL A & SONS-J BENCH PAGE 16 OF 25 ASSESSEE BSE CARD HAS ALSO BEEN SUSPENDED AND CONSE QUENTLY NO BUSINESS WAS CARRIED OUT. ON THE ABOVE REASONS, THE CLAIM OF DEPRECIATION OF ` .10,28,320/- ON BSE MEMBERSHIP CARD WAS DISALLOWED. THE CIT (A) ON NOTICING THAT THE CARD W AS EARLIER OWNED BY SHRI ASHOK KHANDWALA AND IT WAS TRANSFERRED TO A SSESSEE AND FURTHER ON THE REASON THAT THE BASIS OF VALUATION O F MEMBERSHIP CARD HAS NOT BEEN EXPLAINED AND FURTHER THE MEMBERS HIP CARD HAS NOT BEEN USED FOR THE PURPOSE OF BUSINESS, CONFIRME D AOS ORDER. 28. IT WAS THE SUBMISSION OF THE LEARNED COUNSEL THAT T HERE IS NO SUSPENSION OF MEMBERSHIP CARD AT ANY POINT OF TIME AND HAS EARNED SUBSTANTIAL PROFITS BY TRANSACTING IN THE ST OCK EXCHANGE AND THEREFORE, THE FINDINGS OF AO AND THE CIT (A) ARE N OT CORRECT. IT IS ALSO SUBMITTED THAT THIS ISSUE OF DEPRECIATION IS N OW DECIDED IN FAVOUR OF ASSESSEE BY THE HON'BLE SUPREME COURT IN THE CASE OF TECHNOSHARES & STOCKS LTD. AND OTHERS VS CIT (327 I TR 323) THAT THE MEMBERSHIP CARD IS ELIGIBLE FOR DEPRECIATI ON. LEARNED DR HOWEVER, RELIED ON THE FACTS AS STATED BY AO AND TH E CIT (A). 29. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE MATTE R. EVEN THOUGH ON LEGAL PRINCIPLES, THE ISSUE IS IN FAVOUR OF ASSESSEE AS DECIDED BY THE HON'BLE SUPREME COURT IN THE CASE OF TECHNOSHARES & STOCKS LTD. AND OTHERS VS CIT (327 ITR 323) THAT MEMBERSHIP CARD IS ELIGIBLE FOR DEPRECIATION, WE CANNOT ALLOW THE DEPRECIATION PER SE ON THE REASON THAT THERE WAS A FINDING THAT THE MEMBERSHIP CARD HAS BEEN SUSPENDED DURING THE YEAR. WE DID NOT FIND ANY BASIS FOR GIVING THIS FINDING BY AO AND THE CIT (A) . AS SUBMITTED, ASSESSEE HAS EARNED SUBSTANTIAL PROFITS BY DOING TR ANSACTIONS IN THE STOCK EXCHANGE. THEREFORE IT IS A CONTRADICTORY STA ND TAKEN BY AO THAT WHILE ACCEPTING ASSESSEES INCOME IS FROM STOC K BROKING, HE ALSO GIVES FINDING THAT THE MEMBERSHIP CARD OF ASSE SSEE WAS SUSPENDED. IN VIEW OF THIS, WE RESTORE THIS ISSUE B ACK TO THE FILE OF AO TO EXAMINE WHETHER THE MEMBERSHIP CARD WAS SUSPE NDED ITA NOS 4162 3707 4931 AND 6044 JAYANTILAL KHANDWAL A & SONS-J BENCH PAGE 17 OF 25 DURING THE YEAR OR NOT. IN OUR VIEW, CONFUSION WOUL D HAVE ARISEN BECAUSE OF THE CERTIFICATE PLACED ON RECORD AT PAGE NO.118 OF THE PAPER BOOK ISSUED BY THE STOCK EXCHANGE OF INDIA TH AT M/S JAYANTILAL KHANDWALA & SONS (P) LTD WILL START DOIN G THE BUSINESS IN THE MARKET W.E.F. 6.4.1998 AND IN THE SAME DAY M/S JAYANTILAL KHANDWALA & SONS WILL CEASE TO DO THE BUSINESS IN T HE MARKET ON 6.4.1998 . AS PER THE ABOVE, THE STOCK EXCHANGE HAS CERTIFIE D THAT M/S JAYANTILAL KHANDWALA & SONS, A SEPARATE PARTNER SHIP CONCERN OF ASSESSEE GROUP CEASED TO DO BUSINESS W.E.F. 6.4. 1998, WHEREAS BUSINESS IS CONTINUED IN THE NAME OF JAYANTILAL KHA NDWALA & SONS (P) LTD. HOWEVER, THIS CERTIFICATE WAS ISSUED ON 21 ST MARCH 1998 W.E.F. 6.4.1998 I.E. ASSESSMENT YEAR 1999-2000. EXC EPT THIS DOCUMENT WHICH COULD HAVE LED TO ABOVE FINDING, WE DO NOT FIND ANY EVIDENCE ON RECORD TO SUPPORT THE FINDINGS OF AO TH AT ASSESSEES MEMBERSHIP CARD WAS SUSPENDED. THEREFORE, IN THE IN TEREST OF JUSTICE, WE RESTORE THE ISSUE TO THE FILE OF AO TO EXAMINE THIS ASPECT AND GIVE A CLEAR FINDING WHETHER ASSESSEES MEMBERS HIP CARD WAS SUSPENDED IN THE YEAR UNDER CONSIDERATION. IF THE C ARD IS NOT USED FOR THE PURPOSE OF BUSINESS, THE QUESTION OF ALLOWI NG DEPRECIATION DOES NOT ARISE. HOWEVER, IF THE CARD IS USED FOR TH E PURPOSE OF BUSINESS, FOLLOWING THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF TECHNOSHARES & STOCKS LTD. AND OTHERS (327 ITR 323), ASSESSEE IS ELIGIBLE FOR DEPRECIATION. MO REOVER, THE COST FOR THE PURPOSE OF VALUATION OF MEMBERSHIP CARD IS TO B E EXAMINED AFRESH BY AO AS CIT (A) HAS OPINED THAT ASSESSEE DI D NOT SUBSTANTIATE THE COST OF ACQUISITION. THESE ASPECTS REQUIRE FRESH EXAMINATION BY AO. ACCORDINGLY THE ISSUE IN GROUND NO.2 WITH REFERENCE TO THE CLAIM OF DEPRECIATION IS RESTORED TO THE FILE OF AO FOR FRESH EXAMINATION AND DECISION. IN CASE THE CARD WA S ACQUIRED IN AN EARLIER YEAR AND ASSESSEES COST WAS ACCEPTED AS SUCH, WE ALSO MAKE IT CLEAR THAT THE ISSUE OF COST CAN NOT BE EXA MINED IN THE YEAR OF CONSEQUENTIAL CLAIM OF DEPRECIATION. WITH THESE OBSERVATIONS AND ITA NOS 4162 3707 4931 AND 6044 JAYANTILAL KHANDWAL A & SONS-J BENCH PAGE 18 OF 25 DIRECTIONS, THE ISSUE IS RESTORED TO THE FILE OF AO FOR FRESH ADJUDICATION. GROUND IS CONSIDERED ALLOWED FOR STA TISTICAL PURPOSES. 30. GROUND NO.3 PERTAINS TO THE ISSUE OF DISALLOWANCE O F 20% ADMISSIBLE DEPRECIATION ON VEHICLE OWNED AND USED B Y ASSESSEE IN THE BUSINESS. 31. AO FOLLOWING HIS ORDER IN ASSESSMENT YEAR 2000-01 A ND 2001- 02, DISALLOWED 20% OF THE DEPRECIATION ON MOTOR CAR AS THE CAR WAS REGISTERED IN THE NAME OF ONE OF THE DIRECTORS. WHI LE ADMITTING THAT THE CAR WAS REGISTERED IN THE NAME OF THE DIRECTOR, IT WAS SUBMITTED THAT THE FUNDS FOR THE PURCHASE OF THE CAR WAS RAIS ED FROM THE ASSESSEE COMPANY AND THE VEHICLE WAS REFLECTED IN T HE BALANCE SHEET OF ASSESSEE AS ASSESSEE IS THE BENEFICIAL OWN ER AND WAS USED FOR THE PURPOSE OF ASSESSEES BUSINESS DEPRECIATION WAS ALLOWABLE. IT WAS FURTHER SUBMITTED THAT THE CIT (A) WHILE DECIDI NG THE APPEAL FOR THE ASSESSMENT YEAR 2000-01 HAS ALLOWED DEPRECIATIO N TO ASSESSEE ON IDENTICAL FACTS. 32. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE FACTS . SINCE THE ISSUE OF DEPRECIATION WAS ALLOWED IN FAVOUR OF ASSESSEE IN ASSESSMENT YEAR 2000-01 AND THE REVENUE HAS NOT CON TESTED THE SAME AS CAN BE SEEN FROM THE ISSUES RAISED IN OTHER APPEALS (ITA NOS.4162 & 6044/MUM/2008), WE ARE OF THE VIEW THAT THERE IS NO NEED FOR DISALLOWING 20% OF THE DEPRECIATION AS WAS DONE BY THE CIT (A). SINCE THERE IS A FINDING THAT THE CARS ARE REF LECTED IN ASSESSEES BALANCE SHEET AND ARE USED FOR ASSESSEES BUSINESS, ASSESSEE IS ENTITLED FOR DEPRECIATION AS CLAIMED. THERE IS NO N EED FOR DISALLOWING 20% OF THE CLAIM. AO IS DIRECTED TO ALLOW THE SAME. 33. GROUND NO.4 PERTAIN TO RESTRICTING THE DISALLOWNACE MADE BY AO OUT OF VARIOUS EXPENDITURE CLAIMED UNDER EIGHT H EADS OF EXPENSES. IT WAS FAIRLY ADMITTED THAT SUCH DISALLOW ANCE IN EARLIER YEARS WAS DELETED BY THE CIT (A). CONSIDERING THE F ACTS OF THE CASE AND THE ARBITRARY DISALLOWANCE MADE BY AO UNDER VAR IOUS HEADS, ITA NOS 4162 3707 4931 AND 6044 JAYANTILAL KHANDWAL A & SONS-J BENCH PAGE 19 OF 25 WE ARE OF THE OPINION THAT THERE IS NO NEED FOR DIS ALLOWING 20% OF THE EXPENDITURE AS WAS DONE BY THE CIT (A) UNDER TH E HEADS TRAVELLING, CONVEYANCE, STAFF WELFARE, MISCELLANEOU S EXPENDITURE ETC. WE DIRECT AO TO ALLOW THE AMOUNT AS CLAIMED. GROUND IS ACCORDINGLY ALLOWED. 34. GROUND NO.5 PERTAINS TO THE ADDITION OF ` .25 LAKHS REPRESENTING THE AMOUNT RECEIVED BY ASSESSEE FROM S HRI I.R. KHANDWALA THROUGH KHANDWALA SECURITIES LTD. BRIEFLY STATED AO OBSERVED THAT IN THE NOTES TO THE ACCOUNTS, IT WAS STATED THE ASSESSEE COMPANY HAD ACCEPTED A FRAUDULENT UNCONFIR MED TRANSFER OF ` .25 LAKHS WHICH STOOD SHOWN AS SUNDRY CREDITOR. SIN CE ASSESSEE FAILED TO EXPLAIN THIS NON EXISTING LIABILITY, IN T HE ABSENCE OF ANY EXPLANATION, THE AMOUNT OF ` .25 LAKHS WAS ADDED BY AO AS UNEXPLAINED CREDIT. IT WAS CONTENDED BEFORE CIT(A) THAT ASSESSEE WAS PASSING THROUGH A PERIOD OF FINANCIAL CRISES AN D WAS IN NEED OF FUNDS. IT THEREFORE, APPROACHED SHRI I.R. KHANDWALA FOR A LOAN. SHRI I.R. KHANDWALA CONSIDERED THAT IF THE LOAN WAS ADVA NCED TO ASSESSEE, THERE MIGHT BE DIFFICULTY IN RECOVERING T HE SAME. THEREFORE, HE ADVANCED A LOAN OF ` .25 LAKHS TO KHANDWALA SECURITY LTD (FORMERLY KNOWN AS KHANDWALA FINANCE LTD) A PUB LIC LIMITED COMOPANY AND ASKED ASSESSEE TO OBTAIN THE LOAN FROM THE PUBLIC LIMITED COMPANY. ACCORDINGLY, THE LOAN OF ` .25 LAKHS WAS ADVANCED BY SHRI I.R. KHANDWALA TO KHANDWALA SECURITIES LTD WHICH COMPANY IN ITS TURN ADVANCED THE SAME IN JULY 2001 TO ASSES SEE. IN THE BOOKS 'OF ACCOUNT OF ASSESSEE FOR THE YEAR ENDED 31 -3-02, THE SUM OF R.25 LAKHS WAS CREDITED TO THE ACCOUNT OF KHANDW ALA SECURITY LTD. AND ON 01-04-02 BY A JOURNAL ENTRY WAS PASSED IN THE BOOKS OF ASSESSEE TRANSFERRING THIS SUM OF RS.251AKHS FROM T HE ACCOUNT OF KHANDWALA SECURITY LTD TO THE ACCOUNT OF I.R. KHAND WALA. IT WAS SUBMITTED THAT LATER ON MR.I.R. KHANDWALA FILED A SUMMARY SUIT AGAINST KHANDWALA SECURITY LTD. AND STATED THAT THE SUM OF RS.25LAKHS WAS PASSED ON BY KHANDWALA AND SECURITY LTD. TO ITA NOS 4162 3707 4931 AND 6044 JAYANTILAL KHANDWAL A & SONS-J BENCH PAGE 20 OF 25 ASSESSEE. IT WAS FURTHER SUBMITTED THAT LATER ON TH IS SUM OF ` 25 LAKHS WAS REPAID BY THE ASSESSEE TO SHRI I.R. KHAND WALA BY ISSUING CHEQUES ON VARIOUS DATES UPTO 12-12-06. THE DETAILS FURNISHED IN THIS REGARD WERE FORWARDED TO THE AO FOR HIS COMMEN TS AND VERIFICATION FROM MR.I.R. KHANDWALA. THE COMMENTS R ECEIVED FROM THE AO WERE FORWARDED TO ASSESSEE FOR ITS COMMENTS. IN REPLY IT WAS REITERATED ITS STAND THAT THERE WAS NO FRAUD AS MEN TIONED BY THE STATUTORY AUDITORS, ALL THE RELEVANT TRANSACTIONS W ERE THROUGH THE CHEQUES AND STOOD DULY ENTERED IN THE BOOKS OF ACCO UNTS. 35. THE MATTER WAS FURTHER REFERRED BY CIY(A) TO AO AND HIS COMMENTS WERE RECEIVED WHICH WERE AS UNDER: AS DIRECTED BY THE UNDERSIGNED A SUMMONS DATED 12-2-07 WAS ISSUED ON SHRI I.R. KHANDWALA, REQUESTING HIM TO FURNISH LOAN CONFIRMATION AND COPIES OF THE RETURNS FILED FOR A. Y 2003-04 AND 20034-05 FOR THE LOAN ADVANCED TO M/S. JAYANTILAL KHANDWALA & SONS P. LTD. IN RESPONSE SHRI I.R. KHANDWALA FILED A LETTER DATED 6TH MARCH, 2007 STATING THAT AS PER THE INSTRUCTION OF JAYANTILAL KHANDUIALA & SONS PUT. LTD. A PAY ORDER FAVOURING KHANDWALA SECURITIES LTD. WAS ISSUED ON 12-07-01 AND FURTHER AS M/S JAYANTILAL KHANDWALA & SONS PVT. LTD. DID NOT TAKE HIS CONSENT OR INFORMED HIM IN WHOSE ACCOUNT THE CHEQUE SHOULD BE DEBITED. FURTHER SHRI I.R. KHANDWALA STATED THAT THOUGH THE CHEQUE WAS ISSUED TO M/S. KHANDWALA SECURITIES LTD. THE AMOUNT WAS RECEIVED BACK FROM M/S JAYANTILAL KHANDWALA & SONS PVT.LTD. HOWEVER, NO LOAN CONFIRMATIONS WERE PRODUCED BY SHRI I.R. KHANDWALA INSPITE OF SEVERAL OPPORTUNITIES GIVEN TO HIM. SHRI LR. KHANDWALA WAS THE AUDITOR OF THE COMPANY M/S JAYANTILAL KHANDWALA & SONS PVT. LTD. THE REMARK THAT 'THE ASSESSEE COMPANY HAD ACCEPTED FRAUDULENT UNCONFIRMED TRANSFER OF `.25,00,000/- WHICH HAS BEEN SHOWN AS SUNDRY CREDITORS' WAS ITA NOS 4162 3707 4931 AND 6044 JAYANTILAL KHANDWAL A & SONS-J BENCH PAGE 21 OF 25 CORRECTLY MENTIONED BY HIM AND THE SAME CAN BE SEEN FROM THE REPLY RECEIVED FROM SHRI I.R. KHANDWALA. AS FROM THE STATEMENT OF AFFAIRS AS ON 31-3-2002 AND 31-3-2004, IT IS SEEN THAT SHRI I.R. KHANDWALA IS SHOWING AN AMOUNT OF ` 25,00,000/- AS DUE FROM M/S KHANDWALA SECURITIES LTD AND NOT M/S JAYANTILAL KHANDWALA & SONS PVT. LTD. A COPY OF THE REPLY DATED 6-3-2007 RECEIVED FROM SHRI I.R. KHANDWALA IS ENCLOSED HEREWITH FOR NECESSARY ACTION AT YOUR END. 36. THE CIT (A) CONFIRMED THE SAME BY STATING AS UNDER: 30. ON CAREFUL CONSIDERATION OF THE RELEVANT FACTS AND SUBMISSIONS AND AO'S COMMENTS, IT IS CLEAR THAT ON 01-04-02, THE APPELLANT HAD SHOWN THE AMOUNT ` 25 LAKHS AS RECEIVED FROM MR.I.R.KHANDWALA THROUGH A JOURNAL ENTRY. HOWEVER THIS ENTRY WAS NOT TRUE AS THERE WAS NO BASIS FOR MAKING SUCH A TRANSFER ENTRY . THUS ENTRY OF THE SUM OF RS. 25 LAKHS SHOWN AS HAVING BEEN RECEIVED FROM MR.I.R. KHANDWALA AS ON 01-04-02 WAS NOT FACTUALLY CORRECT. BESIDES AS OBSERVED BY THE AO, MR. I.R.KHANDWALA WAS NOT SHOWING A SUM OF RS.25,00,OO/- AS DUE FROM THE APPELLANT. THE OBSERVATIONS IN THE NOTES TO THE ACCOUNTS CONTAINED .IN SCHEDULE 14 WERE VERY CLEAR ON THE POINT THAT IT WAS A FRAUDULENT AND UNCONFIRMED TRANSFER. UNDER THE CIRCUMSTANCES, THE AO WAS JUSTIFIED TO TREAT THE SUM OF RS.25,00,000/- AS UNEXPLAINED. THE AR'S CONTENTION THAT THIS ISSUE WA S RELEVANT FOR A.Y.2002-03 AND NOT FOR A.Y. 2003-04 I .E. ASSESSMENT YEAR UNDER APPEAL, AND ON THE BASIS OF MERE BOOK ENTRIES NO ADDITION UNDER SECTION 68COULD 'BE MADE, WAS NOT CORRECT AND CANNOT BE ACCEPTED. THE JUDGMENT RELIED UPON BY THE AR WAS NOT APPLICABLE TO THE FACTS OF THE CASE. ONCE THE AMOUNT OF RS.25,OO,000/-- STOOD CREDITED IN THE NAME OF I.R. KHANDWALA AS ON )1-04-02, IT WAS VERY MUCH RELEVANT FOR THE A.Y. 2003-04. FURTHER AS THIS WAS UNCONFIRM ED AND FRAUDULENT TRANSFER AS CERTIFIED BY THE STATUTO RY AUDITORS, AO WAS FULLY JUSTIFIED TO TREAT IT AS UNEXPLAINED. ACCORDINGLY, THIS GROUND OF APPEAL IS REJECTED AND ADDITION OF RS.25 LAKHS IS HEREBY CONFIRMED . ITA NOS 4162 3707 4931 AND 6044 JAYANTILAL KHANDWAL A & SONS-J BENCH PAGE 22 OF 25 37. IT WAS SUBMITTED THAT INITIALLY SHRI I.R. KHANDWALA WHO IS RELATED TO ONE OF THE DIRECTORS HAS ADVANCED FUNDS AND THESE WERE ACCOUNTED FOR IN EARLIER YEARS AS RECEIVED FROM KHA NDWALA SECURITIES LTD. SUBSEQUENTLY THE COMPANY PASSED JOU RNAL ENTRY IN THIS YEAR REVERSING THE EARLIER ENTRIES. THE LEARNE D COUNSEL ALSO PLACED ON RECORD THE FACT OF DISPUTE BETWEEN SHRI I .R. KHANDWALA AND HIS PETITION FILED BEFORE THE HON'BLE BOMBAY HI GH COURT AND ULTIMATELY PAYMENT OF THE AMOUNT BY WAY OF CHEQUES AND ULTIMATE SETTLEMENT DATED 26 TH DECEMBER, 2006 TO SUBMIT THAT EVEN THOUGH THE TRANSACTIONS HAPPENED BETWEEN M/S KHANDWALA SEC URITIES LTD AND SHRI I.R. KHANDWALA FINALLY ASSESSEE WAS THE UL TIMATE BENEFICIARY OF THE AMOUNT AND SINCE SHRI I.R. KHAND WALA ALSO HAPPENS TO BE THE PARTNER IN THE CHARTERED ACCOUNTA NT FIRM, A STATUTORY NOTE WAS GIVEN IN ORDER TO OBTAIN FROM AS SESSEE COMPANY CERTAIN BENEFITS AND ULTIMATELY AS THE MATTER WAS S ETTLED BY PAYING THE AMOUNT, IT CAN NOT BE CONSIDERED AS UNSECURED L OAN. MOREOVER, IT WAS SUBMITTED THAT THERE IS NEITHER CASH RECEIPT , NOR ANY CREDIT TO THE ASSESSEE COMPANY DURING THE YEAR AND SUBMITTED ON THE FACTS OF THE CASE, THERE IS NO NEED FOR MAKING ANY ADDITION UNDER SECTION 68 OF THE ACT. LEARNED DR HOWEVER, RELIED ON THE NOTE OF THE STATUTORY AUDITOR THAT THERE ARE FRAUDULENT TRANSACTIONS AND ASSESSEE HAS BOGUS LIABILITY AND THEREFORE, THE REVENUE IS CORRE CT IN BRINGING THE AMOUNT TO TAX. 38. WE HAVE CONSIDERED THE ISSUE. WE ARE UNABLE TO UNDE RSTAND HOW THESE TRANSACTIONS CAN BE CONSIDERED AS UNEXPLA INED CASH CREDIT. FIRST OF ALL THERE IS NO DISPUTE WITH REFER ENCE TO THE ADVANCE AMOUNT OF ` .25 LAKHS TO KHANDWALA SECURITIES LTD, A PUBLIC LIM ITED COMPANY, WHICH IN TURN PASSED ON THE LOAN TO THE AS SESSEE COMPANY. THE ENTRIES IN THE EARLIER YEARS IN THE BO OKS OF ACCOUNT ARE A CREDIT IN THE NAME OF KHANDWALA SECURITIES LT D. TO THAT EXTENT THE CREDIT STANDS EXPLAINED. CONSEQUENT TO THE DISP UTE BETWEEN THE PARTIES ON 1.4.2002, A JOURNAL ENTRY WAS PASSED BY CREDITING TO THE ITA NOS 4162 3707 4931 AND 6044 JAYANTILAL KHANDWAL A & SONS-J BENCH PAGE 23 OF 25 ACCOUNT OF SHRI I.R. KHANDWALA AND DEBITING TO THE KHANDWALA SECURITIES LTD. THIS JOURNAL ENTRY WAS STATED TO BE FRAUDULENT ENTRY AND ON THAT BASIS THE AMOUNT WAS TAKEN AS UNSECURED LOAN. THERE IS EVIDENCE ON RECORD THAT SHRI I.R. KHANDWALA MADE A SUMMARY CIVIL CASE BEFORE THE HON'BLE BOMBAY HIGH COURT AND THERE IS NO DISPUTE WITH REFERENCE TO THE ADVANCING THE FUNDS D IRECTLY OR INDIRECTLY. THERE IS ALSO NO DISPUTE TO THE FACT OF THE PAYMENT BY THE ASSESSEE COMPANY TO THE SAID SHRI I.R. KHANDWALA, E VIDENCE OF WHICH WAS ALSO PLACED BEFORE AO. JUST BECAUSE A JOU RNEY ENTRY WAS PASSED REVERSING THE EARLIER ENTRY IN THE BOOKS OF ACCOUNT, WE ARE UNABLE TO UNDERSTAND HOW THIS ENTRY WILL BECOME UNE XPLAINED CASH CREDIT. AS FAR AS THE TRANSACTIONS TO SHRI I.R. KHA NDWALA ARE CONCERNED, MONEY WAS ULTIMATELY RECEIVED AND PAID A ND THERE IS EVIDENCE ON RECORD THAT SAID TRANSACTION IS A BONAF IDE TRANSACTION. IF WE WERE TO CONSIDER SHRI I.R. KHANDWALA HAS NOT ADV ANCED MONEY DIRECTLY AND THE JOURNAL ENTRY WAS PASSED WITHOUT A NY BASIS, THE ACTUAL CREDIT WAS FROM KHANDWALA SECURITIES LTD IN EARLIER YEAR WHICH WAS ALSO NOT DISPUTED BY AO. LOOKING AT EITHE R WAY, THERE IS NO BASIS FOR MAKING ADDITION UNDER SECTION 68 AS UN EXPLAINED INCOME OF ASSESSEE. THEREFORE, WE HAVE NO HESITATIO N IN DELETING THE SAID ADDITION MADE BY AO AND CONFIRMED BY THE CIT ( A). ACCORDINGLY GROUND IS ALLOWED. 39. IN THE RESULT APPEAL IS ALLOWED FOR STATISTICAL PUR POSES. ITA NO.6044/MUM/2008 A.Y 2003-04. 40. THIS IS A REVENUE APPEAL AGAINST THE ORDERS OF THE CIT (A)-14 MUMBAI DATED 21-07-2008 DELETING THE PENALTY UNDER SECTION 271(1)(C) FOR THE ASSESSMENT YEAR 2003-04. THE QUAN TUM APPEAL WAS CONSIDERED BY US IN THE EARLIER APPEAL IN ITA N O 4931/MUM /07. THE ISSUE IN THIS APPEAL IS LEVY OF PENALTY WI TH REFERENCE TO BSE MEMBERSHIP CARD WHICH IS STATED TO HAVE BEEN SU SPENDED DURING THE YEAR, CLAIM OF INTEREST SUPPOSED TO BE O N DIVERSION OF ITA NOS 4162 3707 4931 AND 6044 JAYANTILAL KHANDWAL A & SONS-J BENCH PAGE 24 OF 25 FUNDS FOR NON BUSINESS PURPOSES AND ADDITION MADE A S UNEXPLAINED CREDIT OF ` .25 LAKHS. THE CIT (A) DELETED THE PENALTIES ON THE REASON THAT AO SIMPLY LEVIED THE PENALTY ON THE GROUND THA T ADDITIONS/ DISALLOWANCE MADE BY HIM WERE STOOD CONFIRMED BY TH E CIT (A) WITHOUT APPRECIATING THAT THE ASSESSMENT AND PENALT Y PROCEEDINGS WERE DIFFERENT AND THEREFORE, MATERIAL GOOD ENOUGH TO JUSTIFY THE ADDITION MAY NOT JUSTIFY THE PENALTY. THE LD.CIT(A) HAS FURTHER GIVEN A FINDING THAT THERE IS NO DELIBERATE ACTION ON THE PART OF ASSESSEE AND AO HAS NOT ARRIVED AT ANY FINDING THAT THE EXPL ANATION FURNISHED BY ASSESSEE WAS FALSE OR BONAFIDE OR ASSE SSEE HAS NOT DISCLOSED ALL THE FACTS WHICH WERE MATERIAL FOR THE COMPUTATION OF INCOME. HE DELETED PENALTY. ACCORDINGLY THE REVENUE IS AGGRIEVED. 41. AFTER CONSIDERING THE ARGUMENTS OF THE LEARNED DR A ND THE AUTHORIZED REPRESENTATIVE, WE ARE OF THE OPINION TH AT THE CIT (A) ORDER PER SE CANNOT BE FAULTED. HOWEVER, AS SEEN FR OM THE APPEAL FOR THE ASSESSMENT YEAR IN QUANTUM, THE ISSUE OF BSE ME MBERSHIP AND INTEREST CLAIM OF BORROWED FUNDS WERE RESTORED TO T HE FILE OF AO FOR FRESH CONSIDERATION. THEREFORE, TO THAT EXTENT LEVY OR DELETION OF PENALTY ON THE ISSUE DOES NOT ARISE AT THIS POINT O F TIME AS THE ISSUES WERE ALREADY RESTORED TO THE FILE OF AO FOR FRESH ADJUDICATION. WE SET ASIDE THE ORDERS OF AO AND THE CIT (A) ON TH E ABOVE TWO ISSUES AND RESTORE THE PENALTY ON THE ABOVE ISSUES TO THE FILE OF AO FOR FRESH CONSIDERATION, AFTER FINALIZING THE ISSUE OF CLAIM OF DEPRECIATION ON MEMBERSHIP CARD AND CLAIM OF INTERE ST ON BORROWED FUNDS. WITH REFERENCE TO THE PENALTY ON UNEXPLAINED CASH CREDIT OF ` .25 LAKHS, WE AGREE WITH THE FINDINGS OF THE CIT (A ) IN DELETING THE PENALTY. MOREOVER, IN ASSESSEE APPEAL FOR ASSESSMEN T YEAR 2003-04, WE ALSO DELETED THE ADDITION SO MADE UNDER SECTION 68 VIDE PARA 38 ABOVE. SINCE THE ADDITION WHICH IS BASIS FOR THE LE VY OF PENALTY WAS ALLOWED IN FAVOUR OF ASSESSEE, QUESTION OF CONFIRMI NG THE PENALTY ON THAT DOES NOT ARISE. TO THAT EXTENT GROUND NO.3 RAI SED BY THE REVENUE IS TO BE DISMISSED. ACCORDINGLY REVENUE APP EAL IS PARTLY ITA NOS 4162 3707 4931 AND 6044 JAYANTILAL KHANDWAL A & SONS-J BENCH PAGE 25 OF 25 ALLOWED TO THE EXTENT OF GROUND NO.1 & 2 ON TWO IS SUES FOR WHICH AO IS TO CONSIDER THE LEVY OF PENALTY UNDER SECTION 271(1)(C) AFRESH AFTER DECIDING THE MATTERS RESTORED TO THE FILE OF AO AS DIRECTED. THE APPEAL IS PARTLY ALLOWED. 42. IN THE RESULT, APPEAL FILED BY THE REVENUE IN ITA NO.3707/MUM/2011 IS DISMISSED, WHILE THE APPEAL FIL ED BY ASSESSEE IN ITA NO.4931/MUM/2007 IS ALLOWED FOR STA TISTICAL PURPOSES AND THE REVENUE APPEAL IN ITA NO.6044/MUM/ 2008 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH JUNE, 2012. SD/- SD/- (S.S.GODARA) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 6 TH JUNE, 2012. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, J BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI