Appeal Details
Counselvise Citation
[2016] 133 COUNSELVISE.COM (IT) 2814 (ITAT-PUNE)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
1 year(s) 10 month(s) 10 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
29-01-2016
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
A
Next Hearing Date
03-12-2015
Assessment Year
2006-2007
Appeal Filed On
19-03-2014
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUN E , , !'!! # , $ % BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NOS. 532 & 533/PN/2014 $& ' !(' / ASSESSMENT YEARS : 2006-07 & 2008-09 MR. RANJIT SINGH P. AHUJA, NEWASA ROAD, TAL.-SHRIRAMPUR, DISTT.-AHMEDNAGAR PAN : AAVPA1877C ....... / APPELLANT )& / V/S. DY. COMMISSIONER OF INCOME TAX, AHMEDNAGAR CIRCLE, AHMEDNAGAR / RESPONDENT ASSESSEE BY : SHRI S.N. DOSHI REVENUE BY : SHRI ANCHAL SHARMA / DATE OF HEARING : 03-12-2015 / DATE OF PRONOUNCEMENT : 29-01-2016 * / ORDER PER VIKAS AWASTHY, JM : THESE TWO APPEALS HAVE BEEN FILED BY THE ASSESSEE AGAINS T THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-IT/TP, PUNE. ITA NO. 532/PN/2014 IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) DATED 10-01-2014 FOR THE ASSESSMENT YEAR 2006-07. IN ITA NO. 533/PN/2014, THE ASSESSEE HAS IMPUGNED THE ORD ER OF COMMISSIONER OF INCOME TAX (APPEALS) DATED 10-01-2014 FOR THE ASSESSMENT YEAR 2008-09. SINCE, IN BOTH THE APPEALS THE ISSUES ARE EMERGING FROM SIMILAR TRANSACTIONS, THE APPEALS ARE TAKEN UP TOGETHER FOR ADJUDICATION. 2 ITA NOS. 532 & 533/PN/2014, A.YS. 2006-07 & 2008-09 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORD S ARE: THE ASSESSEE IS A TRANSPORTER AND IS CARRYING ON TRANSPORT BUSINESS UNDER THE NAME AND STYLE OF M/S. JEETSONS TRANSPORT CO. TH E ASSESSEE IS PRIMARILY ENGAGED IN TRANSPORTATION OF MOLASSES FROM DIFFERE NT SUGAR FACTORIES TO THE DISTILLERIES. FOR THE TRANSPORTATION OF MOLA SSES THE ASSESSEE IS HAVING ITS OWNS TRUCKS AND ALSO HIRES TRUCKS FOR TRANSPORTATION OF MOLASSES. THE ASSESSEE IS MAINTAINING R EGULAR BOOKS OF ACCOUNT WHICH ARE SUBJECT TO TAX AUDIT U/S. 44AB OF T HE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). FOR TH E SAKE OF CONVENIENCE, WE HAVE TAKEN THE FACTS FROM ITA NO. 532/PN /2014 FOR ASSESSMENT YEAR 2006-07. 3. THE ASSESSEE FILED HIS RETURN OF INCOME FOR THE ASSESSM ENT YEAR 2006-07 ON 26-10-2006 DECLARING TOTAL INCOME OF ` 15,62,318/-. SUBSEQUENTLY, HE FILED REVISED RETURN OF INCOME ON 13-03- 2007 DECLARING TOTAL INCOME OF ` 15,12,540/-. THE ASSESSEE IN HIS REVISED RETURN OF INCOME CLAIMED REFUND OF MORE THAN ` 5 LAKHS. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY NOTIC E U/S. 143(2) WAS ISSUED TO THE ASSESSEE. DURING THE COURSE OF SCRU TINY ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER FOUND THAT THE ASSESSE E HAD PAID ` 58,59,998/- TOWARDS TRANSPORTATION CHARGES. THE ASSESS ING OFFICER ASKED THE ASSESSEE TO FILE CONFIRMATION LETTERS FROM THE VA RIOUS TRUCK OWNERS TO WHOM PAYMENTS WERE MADE. THE CONFIRMATION LET TERS FROM 77 TRANSPORTERS WERE RECEIVED ACKNOWLEDGING RECEIPT OF ` 41,33,782/-. THE ASSESSING OFFICER MADE ADDITION OF ` 17,26,216/- FOR WHICH CONFIRMATION LETTERS WERE NOT RECEIVED. SIMILARLY, THE ASSES SEE HAD PAID ` 1,49,28,643/- TOWARDS TRIP ADVANCES. THE ASSESSING OFFICER ASKED THE ASSESSEE TO FURNISH CONFIRMATION LETTERS IN RESPECT OF SUCH PAYMENTS. THE ASSESSEE COULD NOT FURNISH CONFIRMATION LETTERS IN RESP ECT OF TRIP 3 ITA NOS. 532 & 533/PN/2014, A.YS. 2006-07 & 2008-09 ADVANCES AMOUNTING TO ` 25,39,351/-. THE ASSESSING OFFICER MADE ADDITION OF THE SAID TWO UNSUBSTANTIATED PAYMENTS AGG REGATING TO ` 42,65,567/- U/S. 40(A)(IA) OF THE ACT ON THE PREMISE THAT THE ASSESSEE HAS FAILED TO DEDUCT TAX ON SUCH PAYMENTS U/S. 194C OF THE ACT. AGGRIEVED BY THE ASSESSMENT ORDER DATED 30-12-2008, T HE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF I NCOME TAX (APPEALS). BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) THE ASSESSEE FURNISHED THE LIST OF TRANSPORTERS ALONG WITH 31 CONFIRMATION LETTERS AGGREGATING TO ` 17,22,708/- IN RESPECT OF TRANSPORT CHARGES PAYABLE. THE ASSESSEE ALSO FURNISHED THE LIST OF TRUCK OW NERS TO WHOM TRIP ADVANCES WERE PAID GIVING THE DETAILS OF THE VEHICLE N UMBER, NAME AND ADDRESS ALONG WITH 34 CONFIRMATION LETTERS CONFIRMING TH E RECEIPT OF ` 25,39,351/-. THE DOCUMENTS FURNISHED BY THE ASSESSEE W ERE FORWARDED BY THE COMMISSIONER OF INCOME TAX (APPEALS) TO A SSESSING OFFICER AND REMAND REPORT WAS SOUGHT. THE ASSESSING OFFICE R VIDE REPORT DATED 13-09-2013 CONFIRMED THAT REPLIES FROM VARIO US TRANSPORTERS CONFIRMING THE RECEIPT OF TRIP ADVANCES AGG REGATING TO ` 19,35,186/- WERE RECEIVED. HOWEVER, CONFIRMATION/REPLIES WE RE NOT RECEIVED IN RESPECT OF PAYMENTS AMOUNTING TO ` 6,04,166/- AS TRIP ADVANCES. SIMILARLY, IN RESPECT OF TRANSPORT CHARGES THE ASSESSING OFFICER CONFIRMED THAT OUT OF DISPUTED AMOUNT OF ` 17,22,708/- CONFIRMATION/REPLIES HAVE BEEN RECEIVED IN RESPECT OF ` 1,96,965/- AND CONFIRMATIONS HAVE NOT BEEN RECEIVED IN RESPECT OF PAYMENTS AMOUNTING TO ` 15,25,743/-. AFTER TAKING COGNIZANCE OF REMAND REPORT, THE COMMISSIONER OF INCOME TAX (APPEALS) RESTRICTED DISALLOWANCE OF UNVERIFIED T RIP ADVANCES TO ` 6,04,166/- AND TRANSPORTATION CHARGES OF ` 15,25,743/-. AGGRIEVED 4 ITA NOS. 532 & 533/PN/2014, A.YS. 2006-07 & 2008-09 BY THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS), THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL. 4. SHRI S.N. DOSHI APPEARING ON BEHALF OF THE ASSESSEE SUBMIT TED THAT THE ASSESSING OFFICER HAD ERRED IN MAKING DISALLOWANCE OF ` 42,65,567/- ( ` 17,22,708 TOWARDS TRANSPORT CHARGES AND ` 25,39,352/- TOWARDS TRIP ADVANCES) U/S. 40(A)(IA) OF THE ACT. IN FIRST AP PEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) GRANTED PARTIAL RELIEF BY DELETING THE ADDITION TO THE EXTENT OF CONFIRMATIONS RECEIVED FROM V ARIOUS PARTIES. HOWEVER, A PERUSAL OF ASSESSMENT ORDER AND THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) WOULD SHOW THAT THER E IS CONFUSION ABOUT THE DISALLOWANCE OF THESE EXPENSES, WHETHE R IT IS U/S. 40(A)(IA) OR ON ACCOUNT OF EXPENSES NOT VERIFIABLE. THE ASSE SSING OFFICER MADE ADDITION FOR NON-DEDUCTION OF TAX AT SOURCE U/S. 194 C ON UNVERIFIED PAYMENTS. THE COMMISSIONER OF INCOME TAX (APPEA LS) HELD THAT INVOKING OF PROVISIONS OF SECTION 40(A)(IA) BY THE ASSESSIN G OFFICER IS WRONG. THE ASSESSING OFFICER SHOULD HAVE MADE DISALLOWANC E ON THE GROUND THAT THE PAYMENTS ARE NOT VERIFIABLE. 4.1 THE LD. AR SUBMITTED THAT THESE PAYMENTS WERE VERIFIE D DURING THE TAX AUDIT AND ARE SUPPORTED BY RELEVANT VOUCHERS. THE TAX AUDITOR HAS NOT MADE ANY QUALIFICATION IN THE TAX AUDIT REPORT. TH E SAME HAS BEEN FILED ALONG WITH RETURN OF INCOME. THE ONLY REASON F OR MAKING DISALLOWANCE BY THE AUTHORITIES BELOW IS THAT NO CONFIRMATION HAS BEEN RECEIVED FROM THE PAYEES. NON-OBTAINING OF CONFIRMATION FROM SOME OF THE PAYEES CANNOT BE A GROUND FOR DISALLOWING EXPENSES WHICH ARE OTHERWISE SUPPORTED BY THE VOUCHERS. THE ASSESSING OFFIC ER HAS NOT POINTED OUT ANY DEFECT IN THE VOUCHERS AND THE PAYMEN TS MADE. NO DEFECT HAS BEEN POINTED OUT BY THE AUTHORITIES IN THE BO OKS OF ACCOUNT. 5 ITA NOS. 532 & 533/PN/2014, A.YS. 2006-07 & 2008-09 THEREFORE, WITHOUT REJECTING BOOKS OF ACCOUNT THE ASSESS ING OFFICER CANNOT MAKE ADDITION MERELY ON THE GROUND THAT THE PAYMENTS HAVE NOT BEEN CONFIRMED BY THE PAYEES. THE LD. AR IN SUPPORT OF HIS CONTENTIONS PLACED RELIANCE ON THE FOLLOWING DECISIONS: I. CIT VS. SULABH MARBLES P. LTD., 205 CTR 464 (RAJ.); II. SURAT DISTRICT CO-OP. MILK PRODUCERS UNION LTD. VS. JCIT, 99 TTJ (AHD) 390; III. INCOME TAX OFFICER VS. GIRISH M. MEHTA, 99 TTJ (RAJKOT) 394. 4.2 THE LD. AR FURTHER SUBMITTED THAT THERE IS NO DOUBT THAT THE POWERS OF THE ASSESSING OFFICER AND THE COMMISSIONER OF INC OME TAX (APPEALS) ARE CO-TERMINUS. HOWEVER, THE COMMISSIONER OF INC OME TAX (APPEALS) HAS NO POWER TO CHANGE THE SECTION UNDER WHICH THE DISALLOWANCE IS MADE BY THE ASSESSING OFFICER. IN SUPPORT O F HIS CONTENTIONS THE LD. AR PLACED RELIANCE ON THE DECISION OF HO N'BLE KARNATAKA HIGH COURT IN THE CASE OF ABDUL SATTAR M. MOK ASHI VS. COMMISSIONER OF INCOME TAX REPORTED AS 174 ITR 368 (KAR.). 5. ON THE OTHER HAND SHRI ACHAL SHARMA REPRESENTING THE DEPARTMENT VEHEMENTLY SUPPORTING THE FINDINGS OF COMMISS IONER OF INCOME TAX (APPEALS) SUBMITTED, THAT THE GENUINENESS OF T HE TRANSACTIONS ON WHICH DISALLOWANCE HAS BEEN CONFIRMED BY T HE COMMISSIONER OF INCOME TAX (APPEALS) WERE NOT ESTABLISHED. THE ASSESSEE COULD NOT FILE CONFIRMATIONS FROM VARIOUS PARTIES TO WHOM PAYMENTS WERE MADE. SOME OF THE PARTIES WHO APPEARED BEFORE THE ASSESSING OFFICER COULD NOT EVEN PRODUCE THE DOCUMENTS IN SUPPORT OF THEIR OWNERSHIP OF TRUCKS. THEREFORE, THE AUTHORITIES BELOW HAVE GOOD REASON TO DOUBT THE CLAIM MADE BY THE ASSESSEE. THE LD . DR FURTHER SUBMITTED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HA S POWER TO 6 ITA NOS. 532 & 533/PN/2014, A.YS. 2006-07 & 2008-09 CHANGE THE SECTION WRONGLY MENTIONED BY THE ASSESSING OFFICER FOR MAKING ANY DISALLOWANCE/ADDITION. MENTIONING OF WRONG SECTION BY THE ASSESSING OFFICER WOULD NOT VITIATE THE DISALLOWANCE/ADDITION. THE POWERS OF THE COMMISSIONER OF INCOME TAX (APPEALS) ARE CO- TERMINUS WITH THAT OF THE ASSESSING OFFICER. THEREFORE, THE COMMISSION ER OF INCOME TAX (APPEALS) CAN DO WHATEVER THE ASSESSING OFFICER CAN DO. IN SUPPORT OF HIS SUBMISSIONS, THE LD. DR PLACED RELIANCE ON THE FOLLOWING DECISIONS: I. COMMISSIONER OF INCOME TAX VS. NIRBHERAM DALURAM, 224 ITR 610; II. HAZARI MAL KUTHIALA (L.) VS. INCOME TAX OFFICER, 41 ITR 12. 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF BOTH THE SIDES AND HAVE PERUSED THE ORDERS OF THE AUT HORITIES BELOW. WE HAVE ALSO CONSIDERED THE DECISIONS ON WHICH THE RIVAL SIDES HAVE PLACED RELIANCE. THE ASSESSEE IN APPEAL HAS ASSAILED THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) ON FOLLOWING GROUNDS: 1) LEARNED A.O. HAS ERRED IN LAW AS WELL AS ON FACT IN DISALLOWING THE TRIP ALLOWANCE AT RS.6,04,166/- AND TRANSPORT CHARGES OU TSTANDING AT RS.15,25,743/- AS THE DISALLOWANCE PROVISION U/S. 4 0(A)(IA) WAS NOT APPLICABLE DURING THE YEAR UNDER APPEAL. HENCE ADDITIONS SUSTAINED IN APPEAL IS ILLEGAL. 2) THE G.P. OF 8.17% ON TRANSPORT CHARGES WHICH ARE SU PPORTED BY BILLS AND AUDITED ACCOUNTS IS MORE THAN REASONABLE. HENCE NO DISALLOWANCE IS CALLED FOR. CONSEQUENTLY, THE ADDITIONS MADE AND PARTLY SUSTAINED IN APPEAL IS ARBITRARY AND ILLEGAL. 3) MERELY BECAUSE NOTICE ISSUED U/S. 133(6) BY THE A.O . COULD NOT BE SERVED OR THE TRUCK OWNER RESIDING AT INDORE OR PHALTAN DI D NOT ATTEND, NO ADVERSE INFERENCE COULD BE DRAWN AND HENCE CONFIRMA TION LETTER FOR TRIP ADVANCE AS WELL AS TRANSPORT CHARGES OUTSTANDING SH OULD BE ALLOWED IN FULL LOOKING TO TOTALITY OF THE CASE. 7 ITA NOS. 532 & 533/PN/2014, A.YS. 2006-07 & 2008-09 4) APPELLANT CRAVES LEAVE TO ADD, AMEND AND MODIFY THE GROUNDS OF APPEAL AT THE TIME OF HEARING. 7. THE ADDITIONS HAVE BEEN MADE IN THE INCOME RETURNED BY THE ASSESSEE BY ASSESSING OFFICER ON THE GROUND THAT TRANSP ORTATION CHARGES PAYABLE AND TRIP ALLOWANCES PAID BY THE ASSESSEE ARE NOT PROVED. THE ASSESSING OFFICER FINALLY CONCLUDED THAT THE A SSESSEE WAS LIABLE TO DEDUCT AT SOURCE ON THE AFORESAID PAYMENTS U/S . 194C OF THE ACT. SINCE, TAX AT SOURCE WAS NOT DEDUCTED ON SUCH PA YMENTS, DISALLOWANCE U/S. 40(A)(IA) IS MADE. IN FIRST APPEAL, THE COMMISS IONER OF INCOME TAX (APPEALS) HELD THAT THE ASSESSING OFFICER HAS ERRED IN MAKING DISALLOWANCE BY INVOKING THE PROVISIONS OF SECTION 40(A )(IA) OF THE ACT. THE COMMISSIONER OF INCOME TAX (APPEALS) OBSERVE D THAT ON SUCH PAYMENTS NO TDS WAS LIABLE TO BE DEDUCTED U/S. 194 C OF THE ACT. HOWEVER, THE COMMISSIONER OF INCOME TAX (APPEALS) RESTRICTE D THE ADDITION TO ` 21,29,909/- ON THE GROUND THAT THE PAYMENTS ARE NOT VERIFIABLE. THE CONTENTION OF THE ASSESSEE IS THAT WITHOUT REJECTING THE BOOKS OF ACCOUNT NO DISALLOWANCE CAN BE MADE MERELY ON THE GROUND THAT THE PARTIES TO WHOM PAYMENTS HAVE BEEN MADE HAV E NOT SENT CONFIRMATION LETTERS. 8. IT IS AN UNDISPUTED FACT THAT THE BOOKS OF THE ASSESSEE ARE S UBJECT TO AUDIT. THE ASSESSEE HAS FILED TAX AUDIT REPORT ALONG W ITH THE RETURN OF INCOME. IN THE TAX AUDIT REPORT THE AUDITORS HAVE N OT MADE ANY REMARKS WITH REGARD TO ANY OF SUCH PAYMENTS. FROM TH E RECORDS, THE ASSESSEE HAS BEEN ABLE TO ESTABLISH THAT THE PAYMENTS WERE MADE. THE ASSESSEE HAD GIVEN THE DETAILS OF THE PERSONS ALONG WITH VEHICLE REGISTRATION NO. TO WHOM PAYMENTS HAVE BEEN MADE. DURIN G SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSEE GAVE THE LIST OF P ARTIES TO WHOM 8 ITA NOS. 532 & 533/PN/2014, A.YS. 2006-07 & 2008-09 PAYMENTS WERE MADE. SOME OF THE PARTIES CONFIRMED THE PAYMENTS. THE ASSESSING OFFICER MADE ADDITION OF THE PAYMENTS IN RESP ECT OF WHICH CONFIRMATIONS WERE NOT RECEIVED. DURING THE FIRST APP ELLATE PROCEEDINGS THE ASSESSEE GAVE ANOTHER LIST OF PARTIES FRO M WHOM CONFIRMATIONS WERE RECEIVED. THE COMMISSIONER OF INCOME T AX (APPEALS) UPHELD THE ADDITION IN RESPECT OF PAYMENTS WHERE CONFIRMATIONS WERE NOT RECEIVED. THE ONUS TO PROVE GENU INENESS OF PAYMENTS PRIMARY LIES ON THE ASSESSEE. THE ASSESSEE DISCHARGED THE ONUS BY GIVING THE DETAILS OF THE PERSONS/PARTIES TO WHOM PAYMENTS WERE MADE. IF SOME OF THE PARTIES FAIL TO RESPOND TO THE NOTICE, THE ADDITION CANNOT BE MADE IN THE HANDS OF THE ASSESSEE, ME RELY ON THE GROUND THAT SOME OF THE PARTIES HAVE NOT CONFIRMED THE TRANSACTIONS. IT IS NOT THE CASE OF DEPARTMENT THAT THE PARTIES HAVE D ENIED THE TRANSACTIONS OR RECEIPT OF PAYMENTS. THE ASSESSEE HAS MADE TOTAL PAYMENT OF ` 1,49,28,643/- TOWARDS TRIP ADVANCES AND HAS CLAIMED ` 58,59,998/- TOWARDS TRANSPORTATION CHARGES PAYABLE. THE ASSESSEE HAS BEEN ABLE TO SUBSTANTIATE ENTIRE PAYMENTS ON ACCOU NT OF TRIP ADVANCES, EXCEPT ` 6,04,166/- AND ` 15,25,743/- IN RESPECT OF TRANSPORT CHARGES PAYABLE. THE PAYMENTS IN RESPECT OF WHICH CONFIRM ATIONS HAVE NOT BEEN RECEIVED ARE ONLY SMALL PART (10% APPROX.) OF TH E TOTAL EXPENDITURE CLAIMED BY THE ASSESSEE. IN THE FACTS OF TH E CASE, WE ARE OF THE CONSIDERED VIEW THAT NO DISALLOWANCE SHOULD BE MADE M ERELY ON THE GROUND THAT CONFIRMATIONS HAVE NOT BEEN RECEIVED IN RESP ECT OF MARGINAL AMOUNT. IN VIEW OF OUR ABOVE FINDINGS, WE ACCEPT T HE APPEAL OF THE ASSESSEE AND DELETE THE ADDITION WITHOUT COMMENTIN G ON THE TECHNICAL ISSUES RAISED BY THE LD. AR OF THE ASSESSEE. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. 9 ITA NOS. 532 & 533/PN/2014, A.YS. 2006-07 & 2008-09 ITA NO. 533/PN/2014 (A.Y. 2008-09) 10. IN ASSESSMENT YEAR 2008-09, THE ASSESSEE FILED HIS RE TURN OF INCOME ON 30-09-2008 DECLARING TOTAL INCOME OF ` 40,68,650/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND ACCO RDINGLY NOTICE U/S. 143(2) WAS ISSUED TO THE ASSESSEE. DURING THE COUR SE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER MADE ADDITIONS/DISALLOWANCES ON FOLLOWING COUNTS: I. DISALLOWANCE OF INTEREST ` 19,57,643/-. II. DISALLOWANCE U/S. 40A(2)(B) ON ACCOUNT OF UNPROVED TRANSPORT CHARGES PAYABLE ` 25,28,497/-. III. ADDITION U/S. 68 ON ACCOUNT OF UNEXPLAINED CASH CREDITS ` 84,71,000/-. IV. DISALLOWANCE U/S. 40(A)(IA) ` 11,81,500/-. AGGRIEVED BY THE ASSESSMENT ORDER DATED 24-12-2010, T HE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF I NCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE ABOVE DISALLOWANCES, EXCEPT THE ADDITION MADE U/S. 68 OF TH E ACT. AGGRIEVED BY THE ORDER OF COMMISSIONER OF INCOME TAX (APP EALS), THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL. THE ASS ESSEE HAS IMPUGNED THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) ON THE FOLLOWING GROUNDS: 1) LEARNED A.O. AS WELL C.I.T (A) HAS ERRED IN MAKING ADDITION OF RS.25,28,497/- FOR TRANSPORT CHARGES PAYABLE TO FAM ILY MEMBERS WHO OWN TANKERS AND ARE ASSESSED TO INCOME TAX FOR LAST MANY YEARS , HENCE ADDITIONS MADE BY A.O. U/S. 40(A)(IA) IS ILLE GAL AND ARBITRARY. 2) LEARNED C.I.T. (A) HAS ERRED IN CONFIRMING THE ADDI TION AT RS.25,28,497/- U/S. 37(1) WITHOUT APPRECIATING FACTS OF THE CASE. THE TANKER OWNERS HAVE DECLARED THIS INCOME IN THEIR RESPECTIVE INCOM E TAX RETURN., HENCE MERELY BECAUSE TRANSPORT BILLS DID NOT BEAR DATE OF TRANSPORT NO ADVERSE OPINION CAN BE FORMED. 10 ITA NOS. 532 & 533/PN/2014, A.YS. 2006-07 & 2008-09 3) THE LEARNED A.O. SHOULD HAVE ISSUED SUMMONS TO THES E TANKER OWNERS TO FIND OUT THE TRUTH OF TRANSPORT INSTEAD OF MAKIN G ADDITIONS SIMPLY BECAUSE THEY ARE RELATED TO APPELLANT. HENCE ADDITI ONS SUSTAINED U/S. 37 (1) IN APPEAL IS ARBITRARY & ILLEGAL. 4) THE LEARNED A.O. HAS ERRED IN MAKING ADDITION ON PU RCHASE OF 11 LORRY TANKERS U/S. 194 (C) OF RS.11,81,500/- AS SAID SECT ION IS NOT APPLICABLE ON PURCHASE OF TANKER, IT IS NOT LABOUR PAYMENT, TH E COPY OF PURCHASE BILL OF TANKERS ISSUED BY MANUFACTURER MR. SHABBIR HUSSA IN OF INDORE IS ON THE RECORD OF A.O. AND APPELLANT CLAIMED DEPRECIATI ON ON COST OF TANKER AS PER BALANCE SHEET FILED WITH I.T.O. IN ASSESSMEN T PROCEEDINGS, HEN CE THE ADDITION OF RS.11,81,500/- MADE U/S. 40(A)(IA) FOR DEFAULT U/S. 194-C IS ILLEGAL AND ARBITRARY. THE ASSESSEE HAS ALSO RAISED ADDITIONAL GROUND WHICH REA DS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF INTEREST OF RS.19,57,643/- RELATING TO THE INTEREST FREE ADVANCES/INVESTMENTS MADE BY THE APPELLANT. 11. IN RESPECT OF DISALLOWANCE MADE U/S. 40A(2)(B) ON ACCO UNT OF UNPROVED TRANSPORT CHARGES PAYABLE. THE LD. AR OF THE A SSESSEE SUBMITTED THAT THE ASSESSEE HAD FURNISHED THE BILLS, CONFIRM ATIONS ALONG WITH LEDGER EXTRACTS RAISED BY THE RESPECTIVE PART IES. THE ASSESSING OFFICER HAS NOT FOUND ANY DEFECT IN THE BOOKS OF ACCOUNT. NO EFFORT HAS BEEN MADE BY THE ASSESSING OFFICER TO SHOW THA T THE PAYMENTS MADE TO THE PARTIES ARE NOT GENUINE OR INFLATED . ALL THE TRUCK OWNERS HAVE FILED THE RETURN OF INCOME WHICH SHOW THAT TH EY ARE GENUINE PARTIES AND OWN TRUCKS. THE DISALLOWANCE HAS BEE N MADE BY THE ASSESSING OFFICER U/S. 40A(2)(B) WHICH PRESUPPOSES THAT EXPENSES CLAIMED ARE OTHERWISE ALLOWABLE U/S. 37 OF THE ACT. THE CO MMISSIONER OF INCOME TAX (APPEALS) ON THE OTHER HAND DISALLOWED THE E XPENSES ON THE GROUND THAT THEY ARE NOT GENUINE. THE COMMISSIONER OF INCOME 11 ITA NOS. 532 & 533/PN/2014, A.YS. 2006-07 & 2008-09 TAX (APPEALS) HAS HELD THAT THE PROVISIONS OF SECTION 40A(2) (B) CANNOT BE INVOKED. HOWEVER, WHILE CONFIRMING THE ADDITION U/S. 37 T HE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN NOT CONS IDERING THE DOCUMENTARY EVIDENCE FILED BY THE ASSESSEE IN THE FORM OF BILLS, CONFIRMATIONS ETC. BOTH THE AUTHORITIES BELOW HAVE FAILED T O CONDUCT THOROUGH ENQUIRY TO ASCERTAIN WHETHER THE PARTIES TO W HOM PAYMENTS ARE MADE ARE GENUINE. THE ADDITIONS HAVE BEEN MADE MER ELY ON SURMISES. 12. ON THE OTHER HAND THE LD. DR STRONGLY SUPPORTED T HE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) AND PRAYED FOR DISMISSIN G THE APPEAL OF THE ASSESSEE. 13. BOTH SIDES HEARD. THE ORDERS OF THE AUTHORITIES BELO W PERUSED. WE FIND THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS C ONFIRMED THE ADDITION ON THE GROUND THAT THE ASSESSEE HAS NOT BEEN ABLE TO PROVE THE GENUINENESS OF THE PAYMENTS. ON THE CONTRARY CONT ENTION OF THE ASSESSEE IS THAT, CONFIRMATION LETTERS HAVE BEEN FILED BY TH E RECIPIENTS WHICH HAVE NOT BEEN TAKEN INTO CONSIDERATION BY THE AUT HORITIES BELOW. WE OBSERVE THAT THE ASSESSING OFFICER HAD MADE THE DISALLO WANCE U/S. 40A(2)(B) ON THE GROUND THAT THE PAYMENTS HAVE BEEN MAD E TO THE CLOSE RELATIVES ON THE ACCOUNT OF TRANSPORTATION CHARGES. T HE ADDITION OF ` 25,28,497/- ON ACCOUNT OF TRANSPORT CHARGES PAYABLE HAS BEEN MADE BY THE TWO AUTHORITIES BELOW UNDER DIFFERENT PROVISIONS OF T HE ACT. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S. 40A(2)(B) PRES UPPOSES THE GENUINENESS OF THE EXPENDITURE. UNDER THE PROVISION S OF SECTION 40A(2)(B), DISALLOWANCE CAN BE MADE ONLY TO THE EXTENT OF EX CESS OR UNREASONABLE PAYMENTS MADE TO RELATED PERSONS. 12 ITA NOS. 532 & 533/PN/2014, A.YS. 2006-07 & 2008-09 ON THE OTHER HAND THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ALL TOGETHER REJECTED THE PAYMENTS CASTING DOUBT ON TH E GENUINENESS OF THE TRANSACTIONS. IN VIEW OF THESE CONTRARY FINDINGS BY T HE AUTHORITIES BELOW, WE DEEM IT APPROPRIATE TO REMIT THE FILE BACK TO THE ASSESSING OFFICER TO EXAMINE THE ISSUE AFRESH IN THE LIGHT OF THE DOCU MENTS FURNISHED BY THE ASSESSEE IN SUPPORT OF CLAIM. THE ASSESS ING OFFICER SHALL GIVE OPPORTUNITY OF HEARING TO THE ASSESSEE AND TH EREAFTER DECIDE THE ISSUE, IN ACCORDANCE WITH LAW. ACCORDINGLY, GROUND NOS . 1 TO 3 RAISED IN THE APPEAL ARE ALLOWED FOR STATISTICAL PURPOSE. 14. IN GROUND NO. 4 THE ASSESSEE HAS ASSAILED THE ADDITIO N OF ` 11,81,500/- MADE U/S. 40(A)(IA) OF THE ACT FOR NON-DEDUCTION O F TAX AT SOURCE ON THE PAYMENTS MADE FOR TRUCK BODY BUILDING CHA RGES. THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS PA ID A SUM OF ` 11,81,500/- FOR THE PURCHASE OF TANKERS TO BE MOUNTED O N THE CHASSIS OF THE TRUCKS AND NOT FOR BODY BUILDING CHARGES. THE COS T OF TANKERS HAS BEEN SHOWN AS ADDITION TO FIXED ASSET AND DEPRECIAT ION HAS BEEN CLAIMED THEREON. THE LD. AR DRAWS OUR ATTENTION TO THE L ETTER DATED 23-12-2010 (AT PAGE 53 OF THE PAPER BOOK) WHERE HE HAS MENTIONED THAT THE TANKERS HAVE BEEN SOLD TO THE ASSESSEE. THE DETAILS OF THE BILL, QUANTITY, DATE OF BILLS AND AMOUNT HAVE ALSO BEEN MENTIONE D THEREIN. THE LD. AR SUBMITTED THAT THE AUTHORITIES BELOW HAVE ER RED IN MAKING DISALLOWANCE U/S. 40(A)(IA) ON PAYMENTS MADE FOR ACQUIRING BUSIN ESS ASSET. 15. ON THE OTHER HAND THE LD. DR SUBMITTED THAT THE AS SESSEE HAS MADE PAYMENT OF ` 11,81,500/- TOWARDS BODY BUILDING CHARGES OF THE TRUCKS. A PERUSAL OF THE BILLS AT PAGES 55 TO 66 OF THE P APER BOOK WOULD SHOW THAT THE VENDOR IS A MANUFACTURER OF PETROL, DIESEL, T ANKERS ETC. IT 13 ITA NOS. 532 & 533/PN/2014, A.YS. 2006-07 & 2008-09 IS A WELL KNOWN FACT THAT TANKERS MOUNTED ON THE TRUCKS ARE FABRICATED ACCORDING TO THE SPECIFICATIONS. IT IS NOT A PRODUCT THAT CAN BE PURCHASED OVER THE COUNTER. A TRUCK BODY BUILDING IS A SKILLED JOB WHICH IS CARRIED OUT IN ACCORDANCE WITH THE REQUIREMENT A ND SPECIFICATIONS OF THE TRUCK OWNER. THEREFORE, THE CONTENTIO N OF THE ASSESSEE THAT HE HAS PURCHASED THE TANKERS SHOULD NO T BE ACCEPTED. THE ASSESSEE WAS LIABLE TO MAKE PAYMENT FOR FABRICATION OF THE TANKERS AFTER DEDUCTING TAX AT SOURCE. THE LD. DR OBJECTED TO THE LETTER DATED 23-12-2010 FILED BY THE ASSESSEE. THE LD. DR SUBMITTED TH AT THE SAID LETTER WAS OBTAINED AFTER THE DATE OF ASSESSMENT ORDER. THE LETTER HAS BEEN FILED AS ADDITIONAL EVIDENCE BEFORE COMMISSIONER OF INCO ME TAX (APPEALS), HOWEVER, NO FORMAL APPLICATION FOR ADMISSION OF FRESH EVIDENCE WAS MADE. THE COMMISSIONER OF INCOME TAX (APPE ALS) HAS NOT CONSIDERED THE LETTER WHILE DECIDING THE ISSUE. THE LD . DR PRAYED FOR DISMISSING GROUND NO. 4 OF THE APPEAL. 16. BOTH SIDES HEARD. THE ADDITION U/S. 40(A)(IA) HAS BEEN M ADE ON THE GROUND THAT THE ASSESSEE HAS NOT DEDUCTED TAX A T SOURCE ON THE PAYMENTS MADE TOWARDS BODY BUILDING CHARGES OF THE TRUC KS. THE CONTENTION OF THE ASSESSEE IS THAT THE ASSESSEE HAS PU RCHASED TANKERS AND MOUNTED THE SAME ON TRUCK CHASSIS. THE TANKER MO UNTED TRUCKS ARE THE BUSINESS ASSETS OF THE ASSESSEE AND THE SAME HAVE BEEN INCLUDED IN THE BLOCK OF ASSETS IN THE BOOKS. WE OBSERVE THAT THE AUTHORITIES BELOW HAVE NOT EXAMINED THE ISSUE FROM THIS PE RSPECTIVE. MOREOVER, THE SUBSEQUENT LETTER OBTAINED BY THE ASSESS EE FROM THE VENDOR AFTER PASSING OF ASSESSMENT ORDER HAS NOT BEEN TAKEN INTO CONSIDERATION BY COMMISSIONER OF INCOME TAX (APPEALS) AND T HE SAME WAS NOT AVAILABLE BEFORE THE ASSESSING OFFICER. IN THE BACK DROP OF THESE FACTS, WE ARE OF THE VIEW THAT THE ISSUE NEEDS A REVISIT T O THE ASSESSING 14 ITA NOS. 532 & 533/PN/2014, A.YS. 2006-07 & 2008-09 OFFICER. THE ASSESSING OFFICER SHALL CONSIDER THE ISSUE DE NO VO IN LIGHT OF OUR ABOVE OBSERVATIONS. ACCORDINGLY, THE GROUND NO. 4 RAISED IN THE APPEAL BY ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 17. IN ADDITIONAL GROUND, THE ASSESSEE HAS ASSAILED THE DISALLOWANCE OF INTEREST AMOUNTING TO ` 19,57,643/-. THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HAS MADE DISALLOWANCE ON THE GROUND THAT THE ASSESSEE HAS PURCHASED SHOW ROOM AT PUNE BY DIVERTING INTEREST BEARING FUNDS. THE SHOW ROOM PURCHASE D BY THE ASSESSEE WAS NOT THE BUSINESS ASSET OF THE ASSESSEE AND IS A CAPITAL INVESTMENT. THE ASSESSING OFFICER HAS FURTHER MADE DISALLOWA NCE ON THE GROUND THAT THE ASSESSEE HAS GIVEN INTEREST FREE LOAN AMOUNTING TO ` 17,01,854/- TO SISTER CONCERNS OUT OF INTEREST BEARING FU NDS. THE LD. AR POINTED THAT THE ASSESSEE IS HAVING A CAPITAL OF ` 1,51,41,705/- AND INTEREST CREDITORS TO THE TUNE OF ` 6,72,55,525/- AS PER THE BALANCE SHEET AS ON 31-03-2008. THE ASSESSEE IS HAVING INTERE ST FREE OWN FUNDS MUCH MORE THAN THE FUNDS ADVANCED TO SISTER CONC ERNS. IN SUPPORT OF HIS SUBMISSIONS THE LD. AR PLACED RELIANCE ON THE FOLLOWING DECISIONS : I. EAST INDIA PHARMACEUTICAL WORKS LTD. VS. CIT, 224 ITR 627 (SC); II. CIT VS. RELIANCE UTILITIES LTD., 313 ITR 340 (BOM); III. CIT VS. HDFC BANK LTD., ITA NO. 330 OF 2012 (BOM) DECIDED ON 23-07-2014. THE LD. AR FURTHER SUBMITTED THAT THE SHOWROOM PURCHASE D BY THE ASSESSEE IS A BUSINESS ASSET. THE AUTHORITIES BELOW HAVE ERRED IN TREATING IT AS A PERSONAL ASSET OF THE ASSESSEE. 15 ITA NOS. 532 & 533/PN/2014, A.YS. 2006-07 & 2008-09 18. ON THE OTHER HAND THE LD. DR AT THE OUTSET OPPOSE D THE ADDITIONAL GROUND RAISED BY THE ASSESSEE. THE LD. DR SUBM ITTED THAT THE ASSESSEE HAD NOT RAISED HIS GROUND BEFORE THE COMM ISSIONER OF INCOME TAX (APPEALS). NO VALID REASON HAS BEEN GIVEN BY T HE ASSESSEE FOR NOT RAISING THIS GROUND BEFORE COMMISSIONER OF INCOME T AX (APPEALS). THE REASON GIVEN IN THE APPLICATION IS NOT TENABLE . IN SUPPORT OF HIS SUBMISSION, THE LD. DR PLACED RELIANCE ON THE FOLLOWING DECISIONS: I. BATLIBOI & CO. LTD. VS. DY. CIT, 67 ITD 397 (MUM); II. S. KUMAR TYRES MFG., CO. LTD. VS. DY. CIT, 61 ITD 326 (INDORE). ON MERITS, THE LD. DR SUBMITTED THAT THE ASSESSEE HAS SO LD THE SHOW ROOM DURING THE YEAR AND THE SURPLUS RECEIVED HAS BEEN OFFE RED TO TAX AS LONG TERM CAPITAL GAIN. THUS, IT IS CLEARLY EVIDENT THAT THE SHOW ROOM WAS A CAPITAL ASSET AND THE INVESTMENT THEREIN WA S NOT FOR THE BUSINESS PURPOSE. THE LD. DR FURTHER SUBMITTED THAT THE ASSESSEE HAS GIVEN INTEREST FREE DEPOSIT TO ITS SISTER CONCERN OUT OF IN TEREST BEARING FUNDS. THE ASSESSEE HAS PAID INTEREST ` 69,62,599/- ON THE BORROWED FUNDS. THE INTEREST ON INVESTMENT/LOAN TO THE TUNE OF ` 1,63,13,694/- @ 12% HAS TO BE DISALLOWED AS THE INVESTMENT/LOAN WAS N OT RELATED TO THE BUSINESS. 19. BOTH SIDES HEARD. THE DISALLOWANCE OF INTEREST HAS B EEN MADE ON THE GROUND THAT THE ASSESSEE HAS DIVERTED INTEREST BE ARING FUNDS TOWARDS INVESTMENTS NOT RELATED TO THE BUSINESS AS INTE REST FREE LOANS TO THE SISTER CONCERNS. ADMITTEDLY THE ASSESSEE HAS N OT RAISED THIS ISSUE BEFORE COMMISSIONER OF INCOME TAX (APPEALS). EVEN BEFO RE TRIBUNAL THE DISALLOWANCE OF INTEREST HAS BEEN RAISED SUBSE QUENTLY AS ADDITIONAL GROUND. IT IS A WELL SETTLED LAW, THAT THE TRIBUNA L HAS POWER 16 ITA NOS. 532 & 533/PN/2014, A.YS. 2006-07 & 2008-09 TO ENTERTAIN THE GROUND RAISED BEFORE THE TRIBUNAL FOR TH E FIRST TIME, IF IT IS ARISING FROM THE FATS OF THE CASE AND IS HAVING BEARING ON TAX LIABILITY OF THE ASSESSEE. (NATIONAL THERMAL POWER CO. LTD. VS. CIT, 2 29 ITR 383). IT IS AN UNDISPUTED FACT THAT DISALLOWANCE OF INTEREST WAS MADE DURING ASSESSMENT PROCEEDINGS. EVEN THOUGHT THE DISALLOW ANCE HAD BEARING ON THE TAX LIABILITY OF THE ASSESSEE, THE ASSESSEE FOR THE UNEXPLAINED REASONS HAS NOT RAISED THIS ISSUE BEFORE COM MISSIONER OF INCOME TAX (APPEALS). WE ARE OF THE CONSIDERED VIEW, THAT THE ISSUE RAISED IN A DDITIONAL GROUND IS ARISING FROM THE FACTS OF THE CASE AND HAS BEAR ING ON THE TAX LIABILITY OF THE ASSESSEE. THEREFORE, WE ADMIT THE SAME FOR A DJUDICATION ON MERITS. 20. AS PER THE CONTENTION OF THE REVENUE THE ASSESSE E HAS MADE INVESTMENT IN SHOW ROOM FROM THE INTEREST BEARING FUNDS. THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS SH OWN SURPLUS FROM SALE OF SHOW ROOM AS LONG TERM CAPITAL GAIN IN THE RE TURN OF INCOME. THUS, THE ASSESSEE HAD MADE INVESTMENT IN SHOW ROOM AS CAPITAL ASSET AND NOT FOR THE BUSINESS PURPOSE. THE FACT THAT THE ASSESSEE HAS RETURNED SURPLUS FROM THE SALE OF SHOW ROO M AS LONG TERM CAPITAL GAIN SHOWS THAT THE ASSESSEE HAS MADE INVE STMENT IN SHOW ROOM MORE THAN 36 MONTHS BACK. THERE IS NOTHING ON RECORD TO SHOW THAT THE ASSESSEE HAD INVESTED ANY SUM IN SHOW R OOM DURING THE PERIOD RELEVANT TO ASSESSMENT YEAR UNDER APPEAL. THE A SSESSING OFFICER HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO SHOW THAT IN THE EARLIER ASSESSMENT YEARS INTEREST WAS DISALLOWED FOR SIMILAR REASON S. THEREFORE, WE DO NOT CONCUR WITH THE FINDINGS OF THE ASSES SING OFFICER ON THIS ISSUE. FURTHER, THE REVENUE HAS NOT DRAWN ANY NEXUS BETWEEN 17 ITA NOS. 532 & 533/PN/2014, A.YS. 2006-07 & 2008-09 THE INVESTMENT MADE IN THE SHOW ROOM AND THE BORROWING S OF THE ASSESSEE FOR BUSINESS. AS REGARDS INTEREST FREE ADVANCES TO THE SISTER CONCERNS, A PERUSAL OF BALANCE SHEET AS ON 31-03-2008 WOULD SHOW THAT THE ASSESSEE IS HAVING CAPITAL IN EXCESS OF ` 1.51 CRORES. WHEREAS, THE INTEREST FREE FUNDS ADVANCED BY ASSESSEE TO SISTER CONCERNS ARE ONL Y ` 17,01,854/-. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RE LIANCE UTILITIES LTD. (SUPRA) HAS HELD, THAT WHERE THE ASSESSEE HAS SUFFIC IENT OWN INTEREST FREE FUNDS, PRESUMPTION CAN BE DRAWN THAT THE IN TEREST FREE ADVANCES ARE GIVEN BY THE ASSESSEE TO ITS SISTER CONCE RN FROM OWN INTEREST FREE FUNDS AND NOT FROM BORROWED CAPITAL. SIMILAR V IEW HAS BEEN TAKEN BY THE HON'BLE BOMBAY HIGH COURT IN THE CAS E OF CIT VS. HDFC BANK LTD. (SUPRA). THE HON'BLE HIGH COURT IN THE S AID CASE AFTER CONSIDERING THE DECISION RENDERED IN THE CASE OF CIT VS. R ELIANCE UTILITIES LTD. (SUPRA) HELD : 4. WE DO NOT AGREE. IN THE CASE AT HAND, AS RECORD ED BY THE ITAT, UNDISPUTEDLY THE ASSESSEE'S OWN FUNDS AND OTHER NON -INTEREST BEARING FUNDS WERE MORE THAN THE INVESTMENT IN THE TAX FREE SECURITIES. THE ITAT THEREFORE HELD THAT THERE WAS NO BASIS FOR DEEMING THAT THE ASSESSEE HAD USED THE BORROWED FUNDS FOR INVESTMENT IN TAX F REE SECURITIES. ON THIS FACTUAL ASPECT, THE ITAT DID NOT FIND ANY MERI T IN THE CONTENTION RAISED BY THE REVENUE AND THEREFORE, ACCORDINGLY AN SWERED THE QUESTION IN FAVOUR OF THE ASSESSEE. ON GOING THROUGH THE ORD ER OF THE CIT (APPEALS) DATED 28 TH MARCH 2005 AS WELL AS THE IMPUGNED ORDER, WE DO NO T FIND THAT THE CIT (APPEALS) OR THE ITAT ERRED IN HOLDING IN FAVOUR OF THE ASSESSEE. IN THIS REGARD, THE SUBMISSION OF MR MIST RY, THE LEARNED SENIOR COUNSEL APPEARING ON BEHALF OF THE ASSESSEE, THAT T HIS ISSUE IS SQUARELY COVERED BY A JUDGMENT OF THIS COURT IN THE CASE OF COMMISSIONER OF INCOME TAX V/S RELIANCE UTILITIES AND POWER LTD., R EPORTED IN (2009) 313 ITR 340 (BOM) IS WELL FOUNDED. THE FACTS OF THAT CA SE WERE THAT THE ASSESSEE VIZ. M/S RELIANCE UTILITIES AND POWER LTD. HAD INVESTED CERTAIN AMOUNTS IN RELIANCE GAS LTD. AND RELIANCE STRATEGIC INVESTMENTS LTD. IT WAS THE CASE OF THE ASSESSEE THAT THEY THEMSELVES WE RE IN THE BUSINESS 18 ITA NOS. 532 & 533/PN/2014, A.YS. 2006-07 & 2008-09 OF GENERATION OF POWER AND THEY HAD EARNED REGULAR BUSINESS INCOME THEREFROM. THE INVESTMENTS MADE BY THE ASSESSEE IN M/S RELIANCE GAS LTD. AND M/S RELIANCE STRATEGIC INVESTMENTS LTD. WE RE DONE OUT OF THEIR OWN FUNDS AND WERE IN THE REGULAR COURSE OF BUSINES S AND THEREFORE NO PART OF THE INTEREST COULD BE DISALLOWED. IT WAS AL SO POINTED OUT THAT THE ASSESSEE HAD BORROWED RS.43.62 CRORES BY WAY OF ISS UE OF DEBENTURES AND THE SAID AMOUNT WAS UTILISED AS CAPITAL EXPENDI TURE AND INTER- CORPORATE DEPOSIT. IT WAS THE ASSESSEE'S SUBMISSION THAT NO PART OF THE INTEREST BEARING FUNDS (VIZ. ISSUE OF DEBENTURES) H AD GONE INTO MAKING INVESTMENTS IN THE SAID TWO COMPANIES. IT WAS POINT ED OUT THAT THE INCOME FROM THE OPERATIONS OF THE ASSESSEE WAS RS.3 13.53 CRORES AND WITH THE AVAILABILITY OF OTHER INTEREST FREE FUNDS WITH THE ASSESSEE THE AMOUNT AVAILABLE FOR INVESTMENTS OUT OF ITS OWN FUN DS WERE TO THE TUNE OF RS.398.19 CRORES. IN VIEW THEREOF, IT WAS SUBMITTED THAT FROM THE ANALYSIS OF THE BALANCE-SHEET, THE ASSESSEE HAD ENO UGH INTEREST FREE FUNDS AT ITS DISPOSAL FOR MAKING THE INVESTMENTS. TH E CIT (APPEALS) ON EXAMINING THE SAID MATERIAL, AGREED WITH THE CONTEN TION OF THE ASSESSEE AND ACCORDINGLY DELETED THE ADDITION MADE BY THE AS SESSING OFFICER AND DIRECTED HIM TO ALLOW THE SAME UNDER THE PROVISIONS OF THE INCOME TAX ACT, 1961. THE REVENUE BEING AGGRIEVED BY THE ORDER PREFERRED AN APPEAL BEFORE THE ITAT WHO UPHELD THE ORDER OF THE CIT (APPEALS) AND DISMISSED THE APPEAL OF THE REVENUE. FROM THE O RDER OF THE ITAT, THE REVENUE APPROACHED THIS COURT BY WAY OF AN APPE AL. AFTER EXAMINING THE ENTIRE FACTUAL MATRIX OF THE MATTER A ND THE LAW ON THE SUBJECT, THIS COURT HELD AS UNDER :- 'IF THERE BE INTEREST-FREE FUNDS AVAILABLE TO AN AS SESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE AS SESSEE HAD RAISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMEN TS WERE FROM THE INTEREST-FREE FUNDS AVAILABLE . IN OUR OPINION, THE SUPREME COURT IN EAST INDIA PHARMACEUTICAL WORKS LTD. V. CI T (1997) 224 ITR 627 HAD THE OCCASION TO CONSIDER THE DECISION O F THE CALCUTTA HIGH COURT IN WOOLCOMBERS OF INDIA LTD. (1982) 134 ITR 219 WHERE A SIMILAR ISSUE HAD ARISEN. BEFORE THE SUPREM E COURT IT WAS ARGUED THAT IT SHOULD HAVE BEEN PRESUMED THAT I N ESSENCE AND TRUE CHARACTER THE TAXES WERE PAID OUT OF THE P ROFITS OF THE RELEVANT YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS AND IN THESE CIRCUMSTANCES THE APPE LLANT WAS ENTITLED TO CLAIM THE DEDUCTIONS. THE SUPREME COURT NOTED THAT THE ARGUMENT HAD CONSIDERABLE FORCE, BUT CONSIDERING TH E FACT THAT THE CONTENTION HAD NOT BEEN ADVANCED EARLIER IT DID NOT REQUIRE TO BE ANSWERED. IT THEN NOTED THAT IN WOOLCOMBERS OF INDI A LTD.'S CASE 19 ITA NOS. 532 & 533/PN/2014, A.YS. 2006-07 & 2008-09 (1982) 134 ITR 219 THE CALCUTTA HIGH COURT HAD COME TO THE CONCLUSION THAT THE PROFITS WERE SUFFICIENT TO MEET THE ADVANCE TAX LIABILITY AND THE PROFITS WERE DEPOSITED IN THE OVE R DRAFT ACCOUNT OF THE ASSESSEE AND IN SUCH A CASE IT SHOULD BE PRESUM ED THAT THE TAXES WERE PAID OUT OF THE PROFITS OF THE YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS. IT NOTED THAT TO RAISE THE PRESUMPTION, THERE WAS SUFFICIENT MATERIA L AND THE ASSESSEE HAD URGED THE CONTENTION BEFORE THE HIGH C OURT. THE PRINCIPLE, THEREFORE, WOULD BE THAT IF THERE WERE F UNDS AVAILABLE BOTH INTEREST-FREE AND OVER DRAFT AND/OR LOANS TAKE N, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE O UT OF THE INTEREST-FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY IF THE INTEREST-FREE FUNDS WERE SUFFICIENT TO MEET THE INV ESTMENT . IN THIS CASE THIS PRESUMPTION IS ESTABLISHED CONSIDERING TH E FINDING OF FACT BOTH BY THE COMMISSIONER OF INCOME-TAX (APPEAL S) AND THE INCOME-TAX APPELLATE TRIBUNAL.' (EMPHASIS SUPPLIED) 5. WE FIND THAT THE FACTS OF THE PRESENT CASE ARE S QUARELY COVERED BY THE JUDGMENT IN THE CASE OF RELIANCE UTILITIES AND POWE R LTD. (SUPRA). THE FINDING OF FACT GIVEN BY THE ITAT IN THE PRESENT CA SE IS THAT THE ASSESSEE'S OWN FUNDS AND OTHER NON-INTEREST BEARING FUNDS WERE MORE THAN THE INVESTMENT IN THE TAX-FREE SECURITIES. THI S FACTUAL POSITION IS NOT ONE THAT IS DISPUTED. IN THE PRESENT CASE, UNDISPUT EDLY THE ASSESSEE'S CAPITAL, PROFIT RESERVES, SURPLUS AND CURRENT ACCOU NT DEPOSITS WERE HIGHER THAN THE INVESTMENT IN THE TAX-FREE SECURITIES. IN VIEW OF THIS FACTUAL POSITION, AS PER THE JUDGMENT OF THIS COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. (SUPRA), IT WOULD HAVE TO BE PRESUME D THAT THE INVESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF THE INTEREST-FREE FUNDS AVAILABLE WITH THE ASSESSEE. WE THEREFORE, ARE UNA BLE TO AGREE WITH THE SUBMISSION OF MR SURESH KUMAR THAT THE TRIBUNAL HAD ERRED IN DISMISSING THE APPEAL OF THE REVENUE ON THIS GROUND . WE DO NOT FIND THAT QUESTION (A) GIVES RISE TO ANY SUBSTANTIAL QUESTION OF LAW AND IS THEREFORE REJECTED. 21. IN THE PRESENT CASE, THE DEPARTMENT HAS NOT DISPU TED THE FINANCIAL POSITION AS SUBSTANTIATED BY THE ASSESSEE FROM BA LANCE SHEET. IN VIEW OF THE FACTS OF THE CASE AND THE JUDGMENTS OF T HE HON'BLE JURISDICTIONAL HIGH COURT, WE HOLD THAT THE DISALLOWANCE OF INT EREST 20 ITA NOS. 532 & 533/PN/2014, A.YS. 2006-07 & 2008-09 AMOUNTING TO ` 19,57,643/- MADE BY THE ASSESSING OFFICER IS NOT SUSTAINABLE. THUS, THE ADDITIONAL GROUND RAISED IN THE APP EAL BY ASSESSEE IS ALLOWED. 22. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR THE A SSESSMENT YEAR 2006-07 IS ALLOWED AND THE APPEAL OF THE ASSESSEE FOR T HE ASSESSMENT YEAR 2008-09 IS PARTLY ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 29 TH DAY OF JANUARY, 2016. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 29 TH JANUARY, 2016 RK *+,$-.'/'(- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A)-IT/TP, PUNE 4. ' / THE CIT-I, PUNE 5. !*+ %%,- , ,- , . /01 , / DR, ITAT, A BENCH, PUNE. 6. + 2 34 / GUARD FILE. // ! % // TRUE COPY// #5 / BY ORDER, %6 ,1 / PRIVATE SECRETARY, ,- , / ITAT, PUNE
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