Dy. Commissioner of Income Tax-II, Kanpur V. Shri Sanjiv Gupta , Kanpur

ITA 561/LKW/2012

• Counselvise Citation: 56123714 RSA 2012
• Duration Of Justice: 2 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 12-11-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 21-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y P SRIVASTA VA
• Assessee Lawyers: S K JAIN
• Keywords: Deemed to accrue or arise in india; Non-deduction of tax
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI. A. K. GARODIA, ACCOUNTANT MEMBER ITA NO.561/LKW/2012 ASSESSMENT YEAR:2009-10 DY. CIT-II KANPUR V. SHRI. SANJIV GUPTA PROP. M/S DIVYA INTERNATIONAL 84/21, FAZAL GANJ KANPUR TAN/PAN:ADLPG3870G (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI. Y. P. SRIVASTAVA, D.R. RESPONDENT BY: SHRI. S. K. JAIN, FCA DATE OF HEARING: 12 11 2014 DATE OF PRONOUNCEMENT: 16 01 2015 O R D E R PER SUNIL KUMAR YADAV: THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A), INTER ALIA, ON VARIOUS GROUNDS, WHICH ARE AS UNDER:- 1. THE LD, CIT(A)-II, KANPUR HAS ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION OF RS.39,33,341/- ON ACCOUNT OF NON-DEDUCTION OF TDS ON PAYMENT OF COMMISSION TO FOREIGN AGENT WITHOUT APPRECIATING THE FACTS BROUGHT ON RECORD BY THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 2. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-II, KANPUR, HAS ERRED IN LAW AND ON FACTS IN DELETING THE ABOVE ADDITION WITHOUT CONSIDERING THE BOARD'S CIRCULAR NO.7 OF 2009. 3. THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-II, KANPUR, HAS NOT APPRECIATED THE SETTLED PRINCIPLE IN RESPECT OF INTERPRETATION OF PROSPECTIVE OR RETROSPECTIVE NATURE OF AMENDMENT IN THE :- 2 -: STATUTE AS LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS GOLD COIN HEALTH FOOD PVT. LTD. (2008)304 ITR 308 (SC) AND CIT VS MOSER BAER INDIA LTD. [2009] 315 ITR460(SC). 4. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-II KANPUR, HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THE FACT THAT THE SERVICES RENDERED BY THE NON -RESIDENT AGENT TO PROCURE ORDERS FROM FOREIGN BUYERS ARE PURELY TECHNICAL OR MANAGERIAL IN NATURE. THEREFORE, THE PROVISION OF SECTION 9(1)(VII) IS CLEARLY APPLICABLE ON THE ASSESSEE. 5. THAT THE LD. COMMISSIONER OF INCOME TAX(APPEALS)-II, KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.1,48,489/- TOWARDS VALUATION OF EXPORT DEBTORS IGNORING THE FACT THAT THE ASSESSEE HAD NOT VALUED THE DEBTORS AT THE EXCHANGE RATE PREVAILING ON THE CLOSING DATE I.E. 31.03.2009 AS IT SHOULD HAVE DONE UNDER THE PRESCRIBED ACCOUNTING STANDARDS. 6. THAT THE LD. COMMISSIONER OF INCOME TAX(APPEALS)-II, KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITIONS OUT OF FOLLOWING EXPENSES INSPITE OF THE FACT THAT THESE EXPENSES WERE MADE IN CASH AND WERE NOT SUPPORTED BY PROPER BILLS AND VOUCHERS. A. RS.2,00,000/-OUT OF JOB WORK CHARGES. B. RS.50,000/- OUT OF MANUFACTURING EXPENSES. C. RS.50,000/- OUT OF EXPORT DEVELOPMENT EXPENSES. D. RS.50,000/- OUT OF CHECKING AND INSPECTION CHARGES. 6. THAT THE LD. COMMISSIONER OF INCOME TAX(APPEALS)-II, KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.1,44,427/- BE IGNORING THE FACT THAT THE ASSESSEE HAS PAID THE SAID INTEREST ON FUNDS BORROWED FROM HIS WIFE, EVEN THOUGH IT HAS ITSELF NOT CHARGED INTEREST ON LOANS/ADVANCES OF RS.47,73,163/-. 7. THAT THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-II, KANPUR BEING ERRONEOUS IN LAW AND ON FACTS, BE VACATED AND THE ORDER DATED 26.12.2011 PASSED BY THE ASSESSING OFFICER U/S :- 3 -: 143(3) OF THE INCOME TAX ACT, 1961 BY THE ASSESSING OFFICER TO BE RESTORED. 2. APROPOS GROUNDS NO.1 TO 4, IT WAS CONTENDED THAT THE ISSUE INVOLVED THESE GROUNDS ARE SQUARELY COVERED BY THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT AND VARIOUS ORDERS OF THE TRIBUNAL, PARTICULARLY IN THE CASE OF ACIT VS. M/S MODEL EXIMS, KANPUR IN I.T.A. NO. 697/LKW/2013 IN THE LIGHT OF CBDT CIRCULAR AND AMENDMENTS. WE FIND THAT THE VIEW TAKEN BY THE TRIBUNAL HAS BEEN APPROVED BY THE HON'BLE HIGH COURT OF ALLAHABAD IN THE CASE OF CIT VS. M/S MODEL EXIMS, 358 ITR 2 (ALLD). THE RELEVANT OBSERVATIONS OF THE HON'BLE HIGH COURT ARE EXTRACTED HEREUNDER:- WE FIND THAT ALL THE QUESTIONS AS FRAMED BY THE DEPARTMENT ARE COVERED BY OUR JUDGMENT IN CIT V. M/S MODEL EXIMS, KANPUR, INCOME TAX APPEAL (DEF.) NO.164 OF 2011, DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE ON 10.09.2013 AND DIE JUDGMENT IN CIT, KANPUR V. M/S ALLIED EXIMS, INCOME TAX APPEAL NO.313 OF 2013 DECIDED ON 13.11.2013. IN BOTH THESE JUDGMENTS WE HAVE HELD, THAT A.O. DID NOT BRING ANYTHING ON RECORD, WHICH COULD DEMONSTRATE THAT NON-RESIDENT AGENTS WERE APPOINTED AS SELLING AGENTS, DESIGNERS OR TECHNICAL ADVISERS. THE PAYMENT OF COMMISSION TO FOREIGN AGENTS DID NOT ENTITLE SUCH FOREIGN AGENTS TO PAY TAX IN INDIA AND THUS THE TDS WAS NOT LIABLE TO BE DEDUCTED UNDER SECTION 195 OF THE ACT. THE DISALLOWANCE MADE BY A.O. UNDER SECTION 40 (A) (I) FOR NON-DEDUCTION OF TAX AT SOURCE UNDER SECTION 195 WERE NOT JUSTIFIED. SHRI BHARAT JI AGRAWAL HAS TRIED TO DISTINGUISH THE JUDGMENTS ON THE GROUND THAT IN THE PRESENT CASE THERE WAS SUFFICIENT MATERIAL BY WAY OF WRITTEN SUBMISSIONS OF THE ASSESSEE, WHO HAD STATED IN HIS REPLY ON 20.12.2010 THAT THE ASSESSEE IS ENGAGED IN BUSINESS OF MANUFACTURE AND EXPORT OF FINISHED LEATHER, SHOE UPPER AND LEATHER PRODUCTS. THE ASSESSEE'S MAIN BUSINESS BEING EXPORT BUSINESS IT HAS TO TAKE THE SERVICE OF FOREIGN AGENTS, WHO SECURE EXPORT ORDERS AND HELP IN EXECUTION OF SUCH BUSINESS. FOR THE SERVICES RENDERED BY THE :- 4 -: FOREIGN AGENTS, THEY ARE PAID COMMISSION IN FOREIGN EXCHANGE BY REMITTING THE AMOUNT THROUGH BANK. WE FIND THAT THE CIT (A) HAS CONSIDERED THE ALLEGED ADMISSION IN THE REPLY OF THE ASSESSEE AND HAS ALSO PERUSED THE AGREEMENT FROM WHICH HE FOUND THAT THERE WAS NOTHING, WHICH COULD DEMONSTRATE THAT THESE AGENTS WERE APPOINTED AS SELLING AGENTS, DESIGNERS OR TECHNICAL ADVISERS FOR INVOKING THE PROVISIONS OF SECTION 9 (1) (VII) OF THE ACT. THE FINDINGS RECORDED BY THE CIT (A), WHICH HAVE BEEN CONFIRMED BY THE ITAT IS QUOTED AS BELOW:- '5.3.2 THE A. O. HAS ALSO INVOKED THE PROVISIONS OF SECTION 9 (1) (VII) ON THE PREMISE THAT SUCH PAYMENTS ALSO FULL UNDER FTS. IN THIS REGARD SHE HAS OBSERVED THAT NORMALLY THE EXPORTER APPOINTS THE AGENTS AS HIS SELLING AGENT, DESIGNER & TECHNICAL ADVISER FOR HIS PRODUCTS. HE HAS FURTHER OBSERVED THAT BEING COMMISSION AGENT REQUIRED MANAGERIAL ACUMEN & EXPERTISE AND THEREFORE, WOULD BE COVERED UNDER SECTION 9 (1) (VII) OF THE ACT AS MANAGERIAL SERVICES. ON PERUSAL OF THE ASSESSMENT ORDER AND ASSESSMENT FOLDER, I FIND THAT THE A.O. HAS NOT BROUGHT ANYTHING ON RECORD WHICH COULD DEMONSTRATE THAT THESE AGENTS HAD BEEN APPOINTED AS SELLING AGENTS, DESIGNERS & TECHNICAL ADVISERS. RATHER ON ME CONTRARY I FIND THAT THE AGREEMENT IS OF FOR PROCURING ORDERS AND NOTHING ELSE. IN ABSENCE OF ANY SUCH EVIDENCE, THIS OBSERVATION OF THE A.O. IS MERE CONJECTURE AND THEREFORE, NO COGNIZANCE OF THE SAME CAN BE TAKEN. IT IS A TRITE LAW THAT SUSPICION, NO MATTER HOW GRAVE, CANNOT TAKE PLACE OF EVIDENCE. IN THIS CASE, THERE IS EVEN NO CASE OF SUSPICION, LEAVE ASIDE ANY EVIDENCE TO THE EFFECT THAT THE AGENTS WERE NOT ONLY SELLING AGENTS BUT ALSO DESIGNERS AND TECHNICAL ADVISERS. THE CONFIRMATION FROM THE RESPECTIVE FOREIGN AGENTS THAT THE FOREIGN AGENTS DID NOT HAVE ANY BRANCH OR PE IN INDIA FURTHER SUPPORTS THE CASE OF THE APPELLANT. :- 5 -: 5.3.3 THE A.O.'S OBSERVATION THAT AS A SELLING AGENT, THE AGENT HAS TO HAVE MANAGERIAL ACUMEN AND, THEREFORE, HIT BY THE PROVISIONS OF SECTION 9 (1) (VII), IS BASELESS. THE PROVISIONS OF SECTION 9 (1) (VII) DEALS WITH FEES FOR TECHNICAL SERVICES AND IT HAS TO BE READ IN THAT CONTEXT. PAR THAT MATTER, EVERYTHING IN LIFE REQUIRES MANAGERIAL SKILLS, LIKE RUNNING THE HOUSEHOLD, BEING AN ASSESSING OFFICER, RUNNING A SHOP ETC. WILL THAT TANTAMOUNT TO PROVIDING MANAGERIAL SERVICES IN THE CONTEXT OF SECTION 9 (1) (VII)? THE ANSWER IS CLEAR NO. THUS, THE AFORESAID PAYMENTS DO NOT FALL WITHIN THE MEANING OF 'FTS' AS DESCRIBED IN SECTION 9 (1) (VII) OF THE ACT. 5.3.4 THE INCOME OF THE NON-RESIDENT WAS NOT CHARGEABLE TO TAX IN INDIA SINCE THE SAME WAS NEITHER RECEIVED IN INDIA NOR HAD IT ACCRUED OR DEEMED TO ACCRUE IN INDIA. ACCORDINGLY, THE APPELLANT WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE U/S 195 IN RESPECT OF COMMISSION PAID TO THE FOREIGN AGENTS. DISALLOWANCE U/S 40 (A) (I) IS, THEREFORE, DELETED.' SHRI BHARAT JI AGRAWAL SUBMITS THAT THE CIT (A) AND ITAT HAVE NOT CONSIDERED THE EXPLANATION ADDED TO SECTION 9 (1) (VII) BY THE FINANCE ACT, 2010 W.E.F. 1.6.1976 AND WHICH PROVIDES THAT FOR THE PURPOSE OF SECOND PROVISO THE INCOME OF SUCH NON-RESIDENT SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA UNDER CLAUSE (V) OR CLAUSE (VI) OR CLAUSE (VII) [OF SUB-SECTION (1)] AND SHALL BE INCLUDED IN TOTAL INCOME OF NON-RESIDENT WHETHER OR NOT, NON-RESIDENT HAS RESIDENCE OR PLACE OF BUSINESS OR BUSINESS COMMISSION IN INDIA; OR NON-RESIDENT HAS RENDERED SERVICES IN INDIA. WE DO NOT FIND THAT THE FACT SITUATION CONTEMPLATED OR CLARIFIED IN THE EXPLANATION ADDED BY FINANCE ACT, 2010 IS APPLICABLE TO THE PRESENT CASE AS IN THE PRESENT CASE THE AGENTS APPOINTED BY THE ASSESSEE HAD THEIR OFFICES SITUATE IN A FOREIGN COUNTRY AND THAT THEY DID NOT PROVIDE ANY MANAGERIAL SERVICES TO THE ASSESSEE. SECTION 9 (1) (VII) DEALS WITH TECHNICAL SERVICES AND HAS TO BE READ IN MAT CONTEXT. THE :- 6 -: AGREEMENT OF PROCURING ORDERS WOULD NOT INVOLVE ANY MANAGERIAL SERVICES. THE AGREEMENT DID NOT SHOW THE APPLICABILITY OR REQUIREMENT OF ANY TECHNICAL EXPERTISE AS FUNCTIONING AS SELLING AGENT, DESIGNER OR ANY OTHER TECHNICAL SERVICES. THERE ARE NO DISTINGUISHING FEATURE IN THIS CASE, NOR DO WE FIND THAT THE RATIO OF THE CONSTITUTION BENCH DECISION IN COMMISSIONER OF C. EX., BOLPUR V. RATAN MELTING & WIRE INDUSTRIES, (2008) (231) E.L.T. 22 (SC) (PARA 6) IS APPLICABLE IN AS MUCH AS IN THE PRESENT CASE THERE WAS NO DECISION OF THE SUPREME COURT OR HIGH COURT OR ANY STATUTORY PROVISION, WHICH WAS CONTRARY TO THE CIRCULAR, WHICH WAS WITHDRAWN ON 22.10.2009. THE QUESTIONS OF LAW ARE COVERED BY THE JUDGMENTS OF THIS COURT CITED AS ABOVE, AND ARE DECIDED IN FAVOUR OF THE ASSESSEE AND A AGAINST THE DEPARTMENT. 3. WE, THEREFORE, FOLLOWING THE AFORESAID JUDGMENT OF THE JURISDICTIONAL HIGH COURT, DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE AND CONFIRM THE ORDER OF THE LD. CIT(A) IN THIS REGARD. 4. APROPOS GROUND NO.5, IT IS NOTICED THAT THE ASSESSING OFFICER HAS MADE AN ADDITION OF RS.1,48,489/- TOWARDS VALUATION OF EXPORT DEBTORS AS ON THE LAST DAY OF ACCOUNTING YEAR ON THE BASIS OF RBI REFERENCE RATE; WHEREAS THE ASSESSEE HAS VALUED THEM ON THE BASIS OF ACTUAL REALIZATION. 5. AGAINST THE ADDITION, ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WITH THE SUBMISSION THAT THE ASSESSEE HAS VALUED THE EXPORT DEBTORS AS ON 31 ST MARCH ON THE ACTUAL REALIZATION RATES OF THE FOREIGN EXCHANGE, WHICH ARE AVAILABLE WITH THE ASSESSEE AT THE TIME OF FINALIZATION OF THE BALANCE SHEET. THIS METHOD OF VALUATION HAS BEEN CONSISTENTLY FOLLOWED BY THE ASSESSEE FOR THE LAST 20 YEARS AND THE SAME HAS BEEN ACCEPTED BY THE DEPARTMENT IN SEVERAL SCRUTINY ASSESSMENTS IN THE PAST. IT WAS FURTHER CONTENDED THAT THE VALUATION DONE BY THE ASSESSING OFFICER IS REVENUE :- 7 -: NEUTRAL, IN THE SENSE IT WILL INCREASE THE PROFIT AND ALSO THE TOTAL VALUE OF SUNDRY DEBTORS AS ON 31.3.2009, BUT SIMULTANEOUSLY WILL RESULT IN REDUCTION OF ACTUAL REALIZATION OF SUNDRY DEBTORS IN ASSESSMENT YEAR 2010-11 AND WRITING OFF OF THE BALANCE AMOUNT RESULTING IN REDUCTION OF PROFIT IN ASSESSMENT YEAR 2010-11. 6. THE LD. CIT(A) RE-EXAMINED THE ISSUE IN THE LIGHT OF ASSESSEES CONTENTION AND BEING CONVINCED WITH IT, HE DELETED THE ADDITION. THE RELEVANT OBSERVATIONS OF THE LD. CIT(A) ARE EXTRACTED HERE FOR THE SAKE OF REFERENCE:- I HAVE EXAMINED THE ISSUE AND OBSERVED THAT THE APPELLANT HAS NOT FOLLOWED THE AS-11 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. HOWEVER, THE APPELLANT HAS CONSISTENTLY APPLIED THE REALIZATION RATE FOR VALUATION OF EXPORT DEBTORS OUTSTANDING ON THE LAST DATE OF ACCOUNTING YEAR. THE APPELLANT HAS BEEN REGULARLY ASSESSED TO TAX FOR LAST MORE THAN 20 YEARS AND IT WAS ACCEPTED BY THE DEPARTMENT. THOUGH THE APPLICATION OF CORRECT ACCOUNTING POLICIES AND PRINCIPLES IS IMPORTANT FOR DETERMINATION OF CORRECT INCOME, BUT CONCEPT OF CONSISTENCY AND REAL INCOME ARE VITAL PRINCIPLES IN THE TAX LAW, WHICH CANNOT BE IGNORED. HAD THIS ADDITION BEEN SUSTAINED, IT WILL DISTURB THE RETURNED INCOME OF THE APPELLANT FOR SUBSEQUENT ASSESSMENT YEARS ALSO I.E. FOR A.Y. 2010-11, 2011-12 AND SO ON. 7. NOW THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AND HAS SIMPLY PLACED RELIANCE UPON THE ORDER OF THE ASSESSING OFFICER; WHEREAS THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THE ASSESSEE HAS BEEN FOLLOWING THIS METHOD OF ACCOUNTING FOR THE LAST 20 YEARS AND THE SAME WAS ACCEPTED BY THE REVENUE IN THE PAST. THEREFORE, IT CANNOT BE DISTURBED IN THE IMPUGNED ASSESSMENT YEAR. 8. WE HAVE CAREFULLY EXAMINED THE ORDERS OF THE LOWER AUTHORITIES AND WE FIND THAT UNDISPUTEDLY ASSESSEE HAS BEEN FOLLOWING THIS METHOD OF :- 8 -: ACCOUNTING IN THE PAST ALSO AND THE SAME WAS ACCEPTED BY THE REVENUE. THEREFORE, WE FIND NO JUSTIFICATION TO DISTURB THE METHOD OF ACCOUNTING CONSISTENTLY BEING FOLLOWED BY THE ASSESSEE. WE ACCORDINGLY CONFIRM THE ORDER OF THE LD. CIT(A), WHO HAS RIGHTLY ADJUDICATED THE ISSUE. 9. APROPOS GROUND NO.6, IT IS NOTICED THAT THE ASSESSING OFFICER HAS MADE AD HOC ADDITION IN RESPECT OF THE FOLLOWING EXPENSES:- A. RS.2,00,000/- OUT OF JOB WORK CHARGES AMOUNTING TO RS.46,04,894-. B. RS.50,000/- OUT OF MANUFACTURING EXPENSES AMOUNTING TO RS.5,78,121/-. C. RS.50,000/- OUT OF CHECKING & INSPECTION CHARGES AMOUNTING TO RS.7,55,630/-. D. RS.50,000/- OUT OF EXPORT DEVELOPMENT EXPENSES AMOUNTING TO RS.5,33,200/-. 10. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WITH THE SUBMISSION THAT THE AD HOC DISALLOWANCES ARE NOT PERMISSIBLE UNDER THE LAW. IF THE ASSESSING OFFICER IS NOT SATISFIED WITH ANY PARTICULAR NATURE OF CLAIM OR EXPENSE, HE CAN POINT OUT THE DEFECT THEREIN AND THEN TO MAKE ADDITION. BUT THE ASSESSING OFFICER HAS MADE AD HOC DISALLOWANCES BY MAKING GENERAL OBSERVATION THAT THE CLAIM OF EXPENSES IS NOT VERIFIABLE. HE HAS ALSO PLACED RELIANCE UPON VARIOUS JUDICIAL PRONOUNCEMENTS. THE LD. CIT(A) RE-EXAMINED THE SAME AND BEING CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEE, HE DELETED THE ADDITION. 11. NOW THE REVENUE IS BEFORE US, BUT COULD NOT PLACE ANY SPECIFIC DEFECT IN THE EXPENSES CLAIMED BY THE ASSESSEE. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWER AUTHORITIES IN THE LIGHT OF THE RIVAL SUBMISSIONS, WE FIND THAT THE ASSESSING OFFICER HAS NOT POINTED OUT ANY SPECIFIC DEFECT EITHER IN THE MAINTENANCE OF THE BOOKS OF ACCOUNT OR ANY PARTICULAR EXPENSE. HE HAS MADE GENERAL OBSERVATION THAT THE EXPENSES CLAIMED BY THE ASSESSEE WERE :- 9 -: NOT FULLY VERIFIABLE AND THEREAFTER HE STARTED MAKING AD HOC DISALLOWANCES, WHICH ARE NOT PERMISSIBLE UNDER THE LAW. WE, THEREFORE, FIND NO MERIT IN THIS GROUND OF THE REVENUES APPEAL, AS THE LD. CIT(A) HAS PROPERLY DELETED THE ADDITION MADE ON AD HOC BASIS. 12. APROPOS GROUND NO.7, IT IS NOTICED THAT THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF INTEREST PAID BY THE ASSESSEE TO HIS WIFE, SMT. ANU GUPTA AMOUNTING TO RS.1,44,427/- FOR NOT CHARGING INTEREST ON CERTAIN LOANS AND ADVANCES. 13. AGAINST THE DISALLOWANCE, ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WITH THE SUBMISSION THAT WITHOUT BRINGING ON RECORD ANY MATERIAL TO PROVE THE NEXUS BETWEEN THE BORROWED FUNDS FROM SMT. ANU GUPTA AND FUNDS LENT TO STICKY BORROWERS, ON WHICH NO INTEREST WAS CHARGED, THE ASSESSING OFFICER CANNOT MAKE DISALLOWANCE OF INTEREST PAID TO SMT. ANU GUPTA ON HER BORROWINGS. THE LD. CIT(A) RE-EXAMINED THE CLAIM OF THE ASSESSEE AND BEING CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEE, HE DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 14. NOW THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL, BUT COULD NOT ESTABLISH THE NEXUS BETWEEN THE BORROWED FUNDS AND THE INTEREST FREE ADVANCES. THEREFORE, DISALLOWANCE OF CORRESPONDING INTEREST IS NOT PERMISSIBLE. ACCORDINGLY, WE FIND NO MERIT IN THIS GROUND OF THE REVENUES APPEAL AND WE CONFIRM THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. 15. IN THE RESULT, APPEAL OF THE REVENUE STANDS DISMISSED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTIONED PAGE. SD/- SD/- [A. K. GARODIA] [SUNIL KUMAR YADAV] ACCOUNTANT MEMBER JUDICIAL MEMBER :- 10 -: DATED:16 TH JANUARY, 2015 JJ:0801 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR