BIMAL ROY SONI, Jaipur V. CIT-1, Jaipur

ITA 580/JPR/2010

• Counselvise Citation: 58023114 RSA 2010
• Duration Of Justice: 1 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 24-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VINOD JOHARY
• Keywords: Capital asset; Business income; Revision of order; Depreciation; Earning of tax free income; Difference of opinion; Non compliance; Assessment record; Prejudicial to interest; Change of opinion
• Section: 142(1); 14A; 131; 148; 263; 68

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, B JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L. KALRA) ITA NO.580/JP/2010 ASSESSMENT YEAR : 2005-2006 DR. BIMAL ROY SONI, VS. I.T.O. WARD-7(1), JAIPUR. JAIPUR. ITA NO.816/JP/2009 ASSESSMENT YEAR: 2006-2007 THE DY.C.I.T., CIRCLE-2, VS. DR. BIMAL ROY SONI , JAIPUR. JAIPUR. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MANISH AGARWAL RESPONDENT BY : SHRI SUNIL MATHUR & SHR I VINOD JOHARY DATE OF HEARING: 15.09.2011 DATE OF PRONOUNCEMENT: 14.10.2011 ORDER PER SHRI N.L. KALRA, A.M. THE ASSESSEE HAS FILED AN APPEAL AGAINST ORDER OF LD. CIT DATED 26.03.2010. THE GROUNDS OF APPEAL RAISED ARE AS UNDER: THE LEARNED COMMISSIONER OF INCOME TAX, JAIPUR-1 HA S ERRED IN LAW AND ON FACTS IN EXERCISING HIS POWERS U/S 263 OF THE IN COME TAX ACT AND SETTING ASIDE THE ASSESSMENT ORDER. THE LEARNED COMMISSIONER OF INCOME TAX, JAIPUR-1 HA S FURTHER ERRED IN LAW AND ON FACTS IN HOLDING THAT THE ASSESSMENT ORD ER WAS ERRONEOUS AND 2 PREJUDICIAL TO THE INTEREST OF REVENUE, IGNORING TH E FACTS ON RECORD THAT THE ASSESSMENT ORDER WAS PASSED BY THE LEARNED ASSESSIN G OFFICER (I) AFTER DUE ENQUIRIES AND (II) KEEPING IN VIEW THE JUDGMENT OF THE ITAT, JAIPUR BENCH ON SIMILAR FACTS, FOR THE ASSESSMENT YEAR 2002-03 I N THE CASE OF THE ASSESSEE HIMSELF. THE LEARNED COMMISSIONER OF INCOME TAX, JAIPUR-1 HA S AGAIN ERRED IN RELYING UPON THE JUDGEMENT REPORTED IN 201 ITR 464 WHERE THE FACTS WERE TOTALLY DIFFERENT AND THE JUDGEMENT WAS IN A DIFFER ENT CONTEXT. 2. THE LD. CIT NOTICED FROM THE RECORD THAT THE A.O . HAS COMPLETED THE ASSESSMENT WITHOUT PROPER VERIFICATION AND ACCORDINGLY CIT ISS UED A SHOW CAUSE NOTICE DATED 17.02.2010 VIDE WHICH THE ASSESSEE WAS ASKED TO SHO W CAUSE AS TO WHY THE ASSESSMENT ORDER BE NOT HELD AS ERRONEOUS AND PREJUDICIAL TO I NTEREST OF REVENUE. THE ASSESSEE FILED REPLY VIDE LETTER DT. 26.02.2010. THE SUBMISSIONS G IVEN BY THE ASSESSEE ARE SUMMARIZED AS UNDER: (A) THE ASSESSEE IS HAVING INTEREST BEARING AND NON INTEREST BEARING FUNDS IN THIS YEAR AND EARLIER YEAR. (B) ASSESSEE HAS NOT INVESTED INTEREST BEARING FUND S FOR ACQUISITION OF ASSETS GENERATING NON TAXABLE INCOME. THE ASSESSEE HAS MAD E INVESTMENT IN PARTNERSHIP FIRM AND INVESTED AS CAPITAL CONTRIBUTI ON IN COMPANIES TO HAVE CONTROLLING INTEREST. (C) IT IS NOT CORRECT TO SAY THAT A.O. HAS ALLOWED CLAIM WITHOUT PROPER VERIFICATION OF THE FACT A.O. HAS EXAMINED ALL THE DETAILS AND HAVE ALSO VERIFIED THE BOOKS OF ACCOUNT. THE ASSESSEE ALSO FI LED COPY OF ORDER OF ITAT IN THE CASE OF THE ASSESSEE FOR THE A.Y. 02-03 . (D) THE ORDER CANNOT BE CALLED AS ERRENOUS IN CASE THE A.O. HAS FOLLOWED THE ORDER OF TRIBUNAL REFERENCE MADE TO THE DECISION OF HONBLE CALCULTA HIGH COURT IN RUSSEL PROPERTIES (P) LTD. V ADDL. CI T 109 ITR 229. 3 (E) ASSESSEE INVESTED FUNDS TO AQUIRE CONTROLLING I NTEREST IN THE BUSINESS ENTITIES AND BY VIRTUE OF SUCH CONTROLLING INTEREST , THE ASSESSEE EARNED MONETARY BENEFITS. A NOTE ON ALLOWABILITY OF INTERE ST U/S 36(1)(III) WAS ALSO FILED AND ATTENTION WAS DRAWN TOWARD ORDER OF TRIBU NAL IN THE CASE OF ASSESSEE FOR THE A.Y. 02-03. COPY OF ORDER WAS ALSO FILED. FACTS FOR THE A.Y. UNDER CONSIDERATION ARE SIMILLER TO THE FACTS FOR THE A.Y. 02-03. (F) INFERENCE OF NOT MAKING ANY ENQUIRY IS PERHAPS ON THE GROUND THAT SUCH ISSUE IS NOT REFERRED IN THE ASSESSMENT ORDER. IN A SSESSMENT ORDER, USUALLY THE DISCUSSION IS IN RESPECT OF ISSUES ON WHICH DIS ALLOWANCE IS MADE. RELIANCE IS PLACED ON THE FOLLOWING CASES. CIT V ASHIS RAJPAL 180 TAXMAN 623 (DELHI) ANIL SHAH V CIT 162 TAXMAN 39 (MAM)(MAG) ARVIND BHARTIYA VIDHALYA SAMITI V ITO 32 TAX WORL D 55 (JAIPUR) CIT V STELLER INVESTMENT 59 TAXMAN 568 (DEL) (G) IF THERE ARE TWO POSSIBLE VIEWS THEN THE ORDER CANNOT BE ERRENOUS IF A.O. ADOPTS ONE OF THE POSSIBLE VIEWS RELIANCE PLACED ON THE FOLLOWING DECISIONS: CIT V GREEN WORLD CORPORATION 181 TAXMAN 11 (S.C. ) CIT V DESIGN & AUTOMATION ENGINEERS (BOMBAY) P LT D. 177 TAXMAN 9 (BOM) CIT V MEHSANA DISTT CO-OP. MILLS PRODUCERS UNION LTD. 130 TAXMAN 235 (GUJ) CIT V GABRIEL INDIA LTD. 203 ITR 108 (BOM) CIT V NIRMA CHEMICAL WORKS (P) LTD. 182 TAXMAN 18 3 (GUJ) 4 CROSS LAND INDUSTRIES V CIT 39 TAX WORLD 1 (ITAT JPR) RAMDAYAL KALLA V ITO 32 TAX WORLD 18 (ITAT JPR) (H) IF THE ORDER IS NOT ERRENOUS, THEN LOSS OF REVE NUE IN THE CASE IS NOT PREJUDICIAL TO INTEREST OF REVENUE. 3. THE LD. CIT AFTER CONSIDERING THE SUBMISSION HEL D AS UNDER: CONCLUSION: UNDOUBTEDLY, THE MONEY BORROWED HAD BEE N UTILIZED FOR ACQUIRING THE CONTROLLING INTEREST IN THE COMPANY. HONBLE GUJARAT HIGH COURT IN THE CASE OF SARABHAI SONS PVT LTD REPOTED IN 201 ITR 464 HELD THAT IF INTEREST EXPENDITURE WAS NOT FOR THE PURPOS E OF EARNING INCOME BUT FOR THE PURPOSE OF GETTING CONTROL OVER THE COMPANY HENCE NOT ALLOWABLE AS DEDUCTION. BESIDES THIS, SINCE THE BORROWED FUND S HAD BEEN USED FOR EARNING TAX FREE INCOME HENCE HIT BY THE PROVISION OF SECTION 14A OF THE INCOME TAX ACT. I FAIL TO UNDERSTAND HOW BY FLOATING MANY COMPANIES THE ASSESSEE WILL BE BENEFITED IN EARNING HIS INCOME. THE ASSESSEE HAD S HOWN FOLLOWING RECEIPTS OF INCOME. DR. BIMAL ROY SONY PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31.03.2005 PARTICULARS AMOUNT (RS.) PARTICULARS AMOUNT (RS.) TO INTEREST TO FINANCE BROKERAGE TO BANK CHARGES TO INSURANCE CHARGES TO INTEREST TO ABN AMBRO BANK TO MEMBERSHIP & SUBSCRIPTION TO INTEREST PAID TO THE URBAN CO-OPERATIVE BANK LTD. TO INTEREST PAID TO ICICI BANK TO LEGAL & PROFESSIONAL EXP. TO INTEREST TO STATE BANK OF TRAVANKORE TO INTEREST TO CITIBANK TO LOSS FROM SONI INFOTECH 2791182.00 115510.00 3246.00 2164.00 19775.60 2497.00 9623.00 105774.28 13700.00 16738.00 76749.33 3783.60 BY PROFIT FORM PARTNERSHIP FIRM** BY CONSULTANCY FEES BY LEASE RENT OF MACHINES BY DIVIDEND RECEIVED BY SALARY RECEIVED FROM SONI* MEDICARE LIMITED BY SALARY FROM PARTNERSHIP FIRM** BY BANK INTEREST BY INTEREST FORM PARTNERSHIP FIRM** BY NET LOSS TRANSFERRED TO CAPITAL A/C 233732.21 594385.00 594385.00 540000.00 1335.97 420000.00 200446.00 8819.80 195834.00 966189.83 3160742.81 3160742.81 5 THE ASSESSEE IS RENOWNED DOCTOR, EARNING OF INCOME BY WAY OF CONSULTANCY FEES, LEASE RENT OF MACHINES, DIVIDEND RECEIVED, SALARY RECEIVED FROM SONI MEDICARE LIMITED, SALARY FROM PA RTNERSHIP FIRM, BANK INTEREST, INTEREST FORM PARTNERSHIP FIRM HAD NO REL ATIONSHIP WITH THE ASSESSEES SHAREHOLDING WITH THE COMPANY. HOW CONTR OLLING INTEREST IN THE COMPANIES WILL ENHANCE OR HELP THE ASSESSEES OWN B USINESS, IS DIFFICULT TO APPRECIATE. SINCE THE ASSESSEE,S CASE HAS NOT BEEN EXAMINED KEE PING IN VIEW HONBLE GUJARAT HIGH COURT DECISION IN THE CASE OF SARABHAI SONS PVT. LTD REPORTED IN 201 ITR 464, IN THE LIGHT OF PROVISION OF SECTION 14A OF THE IT ACT AND PROPERLY ANALYZING WHETHER THERE IS ANY REL ATIONSHIP BETWEEN THE ASSESSEES BUSINESS AND CONTROLLING INTEREST IN THE COMPANY, HENCE THE ORDER PASSED BY THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE AND DESERVES TO BE SET ASIDE IN TERMS OF SE CTION 263 OF THE I.T. ACT, 1961 ON THE ISSUE OF ALLOWABLITY OF DEDUCTION ON AC COUNT OF INTEREST. HE IS DIRECTED TO DECIDE THE ISSUE AFTER GIVING DUE OPPOR TUNITY OF HEARING TO THE ASSESSEE. 4. BEFORE US THE LD. A/R HAS FILED THE WRITTEN SUBM ISSIONS ALONGWITH PAPER BOOK CONTAINING 60 PAGES. OUR ATTENTION WAS DRAWN TOWARD S SECOND PARAGRAPH OF THE ASSESSMENT ORDER IN WHICH THE A.O. HAS MENTIONED TH AT QUERRIES WERE REAISED AND THE ASSESSEE FILED ALL THE DETAILS. QUERRY LETTER AND R EPLIES FILED ARE PART OF THE PAPERBOOK. THE LD. A/R RELIED ON THE SUBMISSIONS GIVEN BEFORE THE LD. CIT. IF THE A.O. HAS ADOPTED ONE OF THE POSSIBLE VIEWS THEN ASSESSMENT ORDER IS NOT ERR ONEOUS. RELIANCE PLACED ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF MALAB AR INDUSTRIAL CO. LTD. V CIT 243 ITR 83. IT WAS SUBMITTED THAT ASSESSEE HAS NOT RECE IVED ANY DIVIDEND AND EXEMPTED INCOME WAS ONLY RS.2,33,732/- WHICH REPRESENTED A S HARE OF PROFIT FORM PARTNERSHIP FIRM. THE INCREASE IN INVESTMENT IN CONTROLLING ENTITIES IS TO THE EXTENT OF RS.65,54, 161/- AS COMPARED TO LAST YEAR WHILE INCREASE IN INTEREST FR EE FUNDS IS OF RS.36,84,761/- AND INTEREST BEARING FUNDS INCREASED BY RS.24,55,776/- AS COMPARED TO PRECEDING YEAR. THE DECISION OF HONBLE GUJ. HIGH COURT IN THE CASE OF SARABHAI SONS PVT. LTD. (SUPRA) IS NOT 6 APPLICABLE AS FACTS ARE DISTINGUISHABLE. RELIANCE H AS BEEN PLACED ON THE FOLLOWING DECISIONS: CIT VS. MAX INDIA LTD., (2007) 295 ITR 282 (SC) REVISION-REVISION CANNOT BE MADE WHERE TWO VIEWS AR E POSSIBLE ON THE DATE OF PASSING OF THE ORDER IN REVISION-RETROSPECT IVE AMENDMENT WILL NOT ATTRACT THE PROVISION OF S.263. 258 ITR 331 CIT VS. GIRDHARI LAL (RAJ) REVISION-JURISDICTION-ACCOUNTING-TRIBUNAL FINDING T HAT ASSESSING OFFICER HAD JURISDICTION AND THAT HE HAD CONSIDERED EXPLANA TION OF ASSESSEE BEFORE REJECTING ACCOUNTS AND MAKING ADDITIONS-ORDER OF RE VISION SETTING ASIDE ORDER OF ASSESSING OFFICER- NOT VALID-INCOME TAX AC T, 1961, S.263. 259 ITR 502 CIT VS. ARVIND JEWELLERS (GUJ.) REVISION-CONDITION PRECEDENT-ORDER PREJUDICIAL TO INTERESTS OF REVENUE- MEANING OF-FINDING THAT ASSESSING OFFICER HAD CONSI DERED MATERIAL ON RECORD AND FRAMED ASSESSMENT-REVISION OF ORDER NOT JUSTIFIED-INCOME TAX ACT, 1961, S.263. 160 CTR 107, 111-12 CIT VS. SAKTHI CHARITIES (MAD .) COMMISSIONER HAD NO JURISDICTION TO SET ASIDE THE O RDER OF ASSESSMENT MERELY TO CONDUCT ANOTHER PURPOSELESS AND FRUITLESS ENQUIRY TO REACH THE SAME RESULT WHICH WAS ARRIVED AT EARLIER AND IF ANY FRESH ENQUIRY IS HELD, IT WILL BE AN EMPTY FORMALITY AS BY GOING THROUGH THE MOTION OF MAKING A FURTHER ENQUIRY AND REACHING THE SAME CONCLUSION NO USEFUL PURPOSE WOULD BE ACHIEVED. THOUGH IT IS NOT EXPECTED OF THE COMMISSIONER TO RECORD HIS FINAL CONCLUSION IN THE ORDER PASSED IN REVISION, HE MUST AT LEAST INDICATE IN HIS ORDER HOW THE ORDER OF THE OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE PO WER OF REVISION CANNOT BE EXERCISED AS A MATTER OF COURSE, BUT MUST BE EXE RCISED TO CORRECT SOME ERROR IN THE ORDERS PASSED BY THE ASSESSING OFFICER . THE REVISIONAL POWER IS NOT MEANT TO BE EXERCISED TO CORRECT EVERY ERROR OF FACT, BUT THE ERROR MUST BE OF SUCH A NATURE THAT IT IS ERRONEOUS AND P REJUDICIAL TO THE INTERESTS OF THE REVENUE. THUS, THE COMMISSIONER WO ULD HAVE NO JURISDICTION TO REVISE AN ORDER OF ASSESSMENT, IF T HE FINAL CONCLUSION ARRIVED AT BY THE OFFICER WOULD NOT BE DIFFERENT EV EN AFTER CONSIDERING THE PARTICULAR FACT WHICH THE COMMISSIONER HAS DIRECTED THE OFFICER TO CONSIDER THE SAME. FURTHER, THE POWER OF REVISION I S NOT MEANT TO BE EXERCISED FOR THE PURPOSE OF DIRECTING THE OFFICER TO HOLD ANOTHER INVESTIGATION WHEN THE ORDER OF THE OFFICER WAS NOT FOUND TO BE ERRONEOUS. 106 ITD 105 BAGARIA VEGETABLE PRODUCTS LTD. VS. J T.CIT (PUNE) (TM) SECTION 263 OF THE INCOME-TAX ACT, 1961- REVISION OF ORDERS PREJUDICIAL TO INTERESTS OF REVENUE ASSESSMENT YEAR 1999-2000 WHETHER WHERE ASSESSING OFFICER HAD NOT ONLY GONE THROUGH BOOKS O F ACCOUNT, BUT HE HAD 7 ALSO TAKEN INTO CONSIDERATION TAX AUDIT REPORT IN W HICH IT WAS SPECIFICALLY MENTIONED THAT THERE WAS NO DEVIATION IN METHOD OF VALUATION AND METHOD OF VALUATION OF CLOSING STOCK WAS MARKET PRICE, COM MISSIONER WAS JUSTIFIED IN SETTING ASIDE ASSESSMENT ORDER PASSED BY ASSESSI NG OFFICER ON GROUND THAT ASSESSING OFFICER HAD FAILED TO CONDUCT AN ENQ UIRY WHICH IN NORMAL COURSE HE SHOULD HAVE CONDUCTED; AND THAT HE HAD NO T VERIFIED METHOD OF VALUATION OF STOCK HELD, NO. CIT VS. GANPAT RAM BISHNOI, 296 ITR 292 (RAJ.) REVISION : S.263 OF INCOME TAX ACT, 1961: A.Y. 1993 -94: POWERS OF COMMISSIONER: NO POWER TO MAKE SHORT ENQUIRIES OR T O GO INTO PROCESS OF ASSESSMENT AGAIN AND AGAIN : FINDING THAT AO MADE A SSESSMENT AFTER RELEVANT ENQUIRIES: JURISDICTION ASSUMED BY COMMISS IONER UNSUSTAINABLE. 324 ITR 411 CIT VS. DEEPAK MITTAL [2010](P&H) CHANGE OF OPINION BY REAPPRAISING THE EVIDENCE IS N OT WITHIN THE PARAMETERS OF REVISIONAL JURISDICTION OF THE COMMIS SIONER UNDER SECTION 263 OF THE INCOME-TAX ACT, 1961. 203 ITR 109 CIT VS. GABRIEL INDIA LTD. (BOM.) REVISION-EXERCISE OF POWER OF CIT TO MAKE REVISION SUO MOTU-CONDITION PRECEDENT-CIT CANNOT REVISE ORDER MERELY BECAUSE HE DISAGREES WITH CONCLUSION ARRIVE AT BY ITO-EXPENDITURE ALLOWED BY ITO AS BEING REVENUE IN NATURE-CIT REOPENING MATTER UNDER SECTION 263 AN D HEARING ASSESSEE- CIT DIRECTING ITO TO RE HEAR MATTER ORDER NOT VAL ID INCOME TAX ACT, 1961, SEC.263. 106 TTJ 495 PAWAN KUMAR VS. ASSESSING OFFICER (IT AT, JODHPUR BENCH) REVISION-ERRONEOUS AND PREJUDICIAL ORDER LACK OF PROPER ENQUIRY- AS REGARDS INTEREST RECEIPTS, THE ASSESSEE HAD FURNISH ED THE DETAILS IN REPLY TO A QUERY LETTER AND THE AO HAD EXAMINED THE RECEIPTS AND PAYMENTS OF INTEREST TO DIFFERENT PARTIES _ HENCE, IT COULD NOT BE SAID THAT THE AO HAS NOT APPLIED HIS MIND-THEREFORE, THE ORDER OF AO CAN NOT BE SAID TO BE ERRONEOUS AND COULD NOT BE REVISED ON THE AFORESAID GROUNDS. 5. ON THE OTHER HAND, THE LD. D/R DREW OUR ATTENTIO N TO THE ORDER OF THE A.O. THE A.O. HAS NO WHERE MENTIONED THAT HE HAS CONSIDERED THE P ROVISIONS OF SECTION 14A. WHEN NO ENQUIRY IS MADE THEN ORDER IS ERRONEOUS. THE LD. D/ R PLACED RELIANCE ON THE DECISION IN THE CASE OF SMT. RENU GUPTA V CIT 301 ITR 45 (RAJ) 8 6. WE HAVE HEARD BOTH THE PARTIES. IT IS AN ACCEPTE D POSITION THAT IF THE A.O. HAS NOT MADE ENQUIRY THEN ORDER IS ERRONEOUS. THE ITAT CHENNAI SPECIAL BENCH IN THE CASE OF RAJLA KSHMI MILLS LTD. VS. ITO 313 ITR 182 (AT) HAD AN OCCASION TO CONSIDER AS TO WHETHER THE LD. CIT HAS POWER U/S 263 TO REVISE THE ORDER OF THE AO WHERE THE AO HAS MADE ASSESSMENT WITHOUT NECESSARY ENQUIRY. IT WILL BE USEFUL TO REPRODUCE THE FOLLOWING OBSERVATION OF THE SPECIAL BENCH. IT IS NOT NECESSARY FOR THE COMMISSIONER OF INCOM E-TAX TO MAKE FURTHER ENQUIRIES BEFORE CANCELING THE ASSESSMENT O RDERS OF THE ASSESSING OFFICER. THE COMMISSIONER CAN REGARD THE ORDER AS ERRONEOUS ON THE GROUND THAT IN THE CIRCUMSTANCES O F THE CASE THE ASSESSING OFFICER SHOULD HAVE MADE FURTHER INQUIRIE S BEFORE ACCEPTING THE STATEMENTS MADE BY THE ASSESSEE IN HI S RETURN. THE REASON IS OBVIOUS. UNLIKE THE CIVIL COURT WHICH IS NEUTRAL TO GIVE A DECISION ON THE BASIS OF EVIDENCE PRODUCED BEFORE I T, AN ASSESSING OFFICER IS NOT ONLY AN ADJUDICATOR BUT IS ALSO AN I NVESTIGATOR. HE CANNOT REMAIN PASSIVE IN THE FACE OF A RETURN WHICH IS APPARENTLY IN ORDER BUT CALLS FOR FURTHER ENQUIRY. IT IS HIS D UTY TO ASCERTAIN THE TRUTH OF THE FACTS STATED IN THE RETURN WHEN THE CI RCUMSTANCES OF THE CASE ARE SUCH AS TO PROVOKE INQUIRY. THE MEANING TO BE GIVEN TO THE WORD ERRONEOUS IN SECTION 263 EMERGES OUT OF THIS CONTEXT. THE WORD ERRONEOUS IN THAT SECTION INCLUDES CASES WHERE THERE HAS BEEN FAILURE TO MAKE THE NECESSARY INQUIRIES. I T IS INCUMBENT ON THE ASSESSING OFFICER TO INVESTIGATE THE FACTS STAT ED IN THE RETURN WHEN CIRCUMSTANCES WOULD MAKE SUCH AN INQUIRY PRUDE NT AND THE WORD ERRONEOUS IN SECTION 263 INCLUDES THE FAILUR E TO MAKE SUCH AN ENQUIRY. THE ORDER BECOMES ERRONEOUS BECAUSE SUC H AN ENQUIRY HAS NOT BEEN MADE AND NOT BECAUSE THERE IS ANYTHING WRONG WITH THE ORDER IF ALL THE FACTS STATED THEREIN ARE ASSUM ED TO BE CORRECT. IN THE FACTS OF THE PRESENT CASE WE FIND THAT THE A SSESSING OFFICER FAILED TO MAKE ANY ENQUIRY IN REGARD TO THE ALLOWAB ILITY OF THE PROVISION FOR GRATUITY. AS SUCH IN OUR OPINION THE ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE. THEREFORE THE CONDITIONS PRECEDENT FOR ASSUMING JUR ISDICTION UNDER SECTION 263 DID EXIST IN THE FACTS OF THE PRESENT C ASE. 7. THERE IS DIFFERENCE BETWEEN LACK OF ENQUIRY AND INSUFFICIENCY OF ENQUIRY. IN THE FIRST CASE THE ORDER IS ERRONEOUS BUT IN SECOND CAS E THE ORDER IS NOT ERRONEOUS. SUFFICIENCY OF ENQUIRY IS A SUBJECTIVE MATTER. IF A QUERY IS RA ISED AND REPLY IS GIVEN TO THE SATISFACTION 9 OF A.O. THEN IT CAN NOT BE SAID TO BE A CASE OF LAC K OF ENQUIRY. REFERENCE IS MADE TO CIT V/S ANIL KUMAR SHARMA 335 ITR 83 (DELHI). VODAFONE ESSAR SOUTH LTD. V CIT 227 CTR 133 (DEL) 8. THE ASSESSEE VIDE LETTER DATED 12.12.2007 FILED COPY OF ORDER OF TRIBUNAL DATED 30.11.2007 IN THE CASE OF THE ASSESSEE FOR ASSESSME NT YEAR 02-03. IT IS TRUE THAT BRIEF NOTE WAS IN RESPECT OF CLAIM OF INTEREST U/S 36 (1)(III) . ONCE INTEREST IS ALLOWABLE U/S 36 (1)(III) ON THE GROUND THAT ASSESSEE IS HAVING CONTROLLING I NTEREST THEN IT WAS CLAIMED IN THE BRIEF NOTE THAT INVESTMENT IS NOT TO EARN EXEMPTED INCOME . THE TRIBUNAL IN THE CASE OF THE ASSESSEE VIDE ORDER DATED 30.11.2007 IN ITA NO.382/ JP/2006 & ITA NO.406/JP/2006 HELD AS UNDER: CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE PRES ENT CASE IN VIEW OF THE ARGUMENTS ADVANCED BY THE PARTIES, AS DISCUSSED ABO VE, WE FIND SUBSTANCE IN THE CONTENTION OF THE LD. A/R THAT THE ASSESSEE HAD MADE INVESTMENT FOR ACQUIRING CONTROLLING INTEREST IN VARIOUS CORPORATE ENTITIES WITH THE CALCULATED MOTIVE OF EXPLOITING BUSINESS INTEREST A ND IN MAKING INVESTMENT FOR COMMERCIAL CONSIDERATIONS SUCH AS TAKING ADVANT AGE OF CONTROLLING INTEREST BY PERSUADING THE COMPANIES TO ACCEPT THE BUSINESS FACILITIES PROVIDED BY THE ASSESSEE ON COMMERCIAL BASIS WHICH HAD GIVEN POSITIVE INCOME TO THE ASSESSEE IN THE YEAR UNDER APPEAL AND ALSO IN FUTURE. IT WOULD BE PERTINENT TO MENTION OVER HERE THAT EVERY CASE HAS GOT ITS OWN FACTS AND CIRCUMSTANCES. THUS WHILE DECIDING AN ISS UE IT IS NECESSARY TO GIVE IMPORTANCE TO THE SURROUNDING FACTS AND CIRCUM STANCES OF THAT CASE. THE ASSESSEE IN THE PRESENT CASE HIMSELF IS IN MEDI CAL PROFESSION AND BY HAVING CONTROLLING INTEREST, THE ASSESSEE HAS BEEN IN A POSITION TO EARN INCOME FROM THESE ENTITIES IN NUMBER OF MODES. IN P ARA 3 AT PAGE 2 THE AO HIMSELF HAS ACKNOWLEDGED THIS MATERIAL FACT THAT TH E ASSESSEE IS IN CONTROLLING POSITION OF DAY TO DAY AFFAIRS OF THE C OMPANY I.E. M/S. SONI MEDICARE LTD. THE FACTS AND CIRCUMSTANCES OF THE CA SES IN RAJASTHAN STATE WAREHOUSING CORPORATION LTD. VS. CIT, 242 ITR 450 ( SC) AND CIT VS. AMRITABEN R. SHAH, 238 ITR 777 (BOMBAY) RELIED UPON BY THE AO ARE DISTINGUISHABLE, HENCE ARE NOT HELPFUL TO THE REVEN UE. IN THE CASE OF RAJASTHAN STATE WAREHOUSING CORPORATION LTD. VS. CI T (SUPRA), IT WAS HELD BY THE HONBLE SUPREME COURT THAT THE BUSINESS OF THE ASSESSEE BEING ONE AND INDIVISIBLE, IT IS NOT OPEN TO THE REVENUE TO CONTEND THAT THE BUSINESS IS NOT ONE AND INDIVISIBLE. THE INCOME FOR M VARIOUS VENTURES WAS EARNED IN THE COURSE OF AN INDIVISIBLE BUSINESS, HE NCE THE HONBLE SUPREME COURT WAS PLEASED TO HOLD THAT THE IMPUGNED ORDER UPHOLDING THE APPORTIONMENT OF THE EXPENDITURE AND ALLOWING DEDUC TION OF ONLY THAT 10 PORTION OF IT WHICH IS REFERABLE TO TAXABLE INCOME, IS UNSUSTAINABLE. LIKEWISE, IN THE CASE OF CIT VS. AMRITABEN R.SHAH ( SUPRA), THE OBJECT OF ACQUISITION OF THE SHARES OF THE COMPANY WAS TO ACQ UIRING CONTROLLING INTEREST THEREIN AS THERE THE ASSESSEE, HER HUSBAND AND HER FATHER-IN-LAW WERE NOT HAVING ANY INTEREST IN THE COMPANY, BEFORE PURCHASING ITS SHARES. IN THE PRESENT CASE, HOWEVER, ASSESSEE BEING IN THE SAME PROFESSION, ALWAYS REMAINED INTERESTED IN THE AFFAIRS OF THE CO MPANY. THE FACTS IN THE CASE OF A.T.E. ENTERPRISES LTD. VS. JCIT (SUPRA) RE LIED UPON BY THE LD. A/R ARE MORE SIMILAR TO THE PRESENT CASE, AS IN THAT CA SE ALSO THE ASSESSEE TO SAFEGUARD ITS BUSINESS INTEREST, HAD ACQUIRED SHARE S OF THE COMPANY. T, WHICH WAS MAIN SOURCE OF INCOME OF THE ASSESSEE, SI NCE ASSESSEE ENGAGED IN BUSINESS OF DISTRIBUTION OF GOODS, WAS A SOLE SE LLING AGENT OF COMPANY. T THE TRIBUNAL HELD THAT ACT OF BORROWING MONEY F OR THE ACQUISITION OF SHARES WAS CLOSELY CONNECTED WITH OR INCIDENTAL TO THE CARRYING OF THE BUSINESS AND CONSEQUENTLY, THE CONDITION OF ALLOWIN G DEDUCTION UNDER SECTION 36(1)(III) STOOD SATISFIED. THE HONBLE CAL CUTTA HIGH COURT IN THE CASE OF CIT VS. RAJEEV LOCHAN KANOTIA (SUPRA) RELIE D UPON BY THE LD. A/R, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THAT CAS E, HAS BEEN PLEASED TO HOLD THAT THE ACQUIRING CONTROLLING INTEREST IN COM PANIES AND MANAGING, ADMINISTERING, FINANCING AND REHABILITATING COMPANI ES UNDER CONTROL WERE FOR BUSINESS AND/OR PROFESSIONAL PURPOSE, HENCE INT EREST ON CAPITAL BORROWED FOR INVESTMENT IN SHARES WAS DEDUCTIBLE. F ACTS OF THAT CASE ALMOST ARE SIMILAR TO THE FACTS OF THE PRESENT CASE , AS IN THE PRESENT CASE ALSO THE ASSESSEE BEING IN SAME PROFESSION HAS ALWA YS REMAINED INTERESTED IN THE AFFAIRS OF THE COMPANY, SHARES OF WHICH WERE ACQUIRED BY HIM WITH HIS MAIN AIM TO PROTECT HIS BUSINESS INTEREST THERE IN. AGAIN IN THE CASE OF DCIT VS. SARABHAI PIRAMAL PHARMACEUTICALS LTD. (SUP RA), UNDER ALMOST SIMILAR CIRCUMSTANCES IT HAS BEEN HELD THAT IF THE BORROWED FUNDS ARE UTILIZED EVEN FOR ACQUISITION OF CAPITAL ASSET DURI NG THE COURSE OF BUSINESS, THE INTEREST PAID ON THE BORROWED FUNDS IS ALLOWABL E AS DEDUCTION UNDER SECTION 36(1)(III) OF THE ACT. WE ALSO FIND SUBSTAN CE IN THE SUBMISSIONS OF THE LD. A/R THAT LOOKING TO THE QUANTUM OF INVESTME NT AND ON GOING LIABILITY OF INTEREST ETC. NO SANE PERSON WOULD MAKE INVESTME NT WHERE THE EARNING OF INCOME IN THE NATURE OF DIVIDEND IS A FAR CITED PROPOSITION AND ONLY AN INCIDENTAL EVENT. THE PROVISIONS OF SECTION 14A OF THE ACT ARE THUS NOT APPLICABLE IN THE PRESENT CASE BECAUSE THE INVESTME NT WAS MADE BY THE ASSESSEE TO PROTECT HIS BUSINESS INCOME AND THUS EX PENDITURE INCURRED IN RELATION TO INCOME FROM THE BUSINESS WAS VERY MUCH ALLOWABLE. HENCE IN THE PECULIAR FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, IT APPEARS TO US THAT INVESTMENT IN SHARES HAVE BEEN EXPLOITED BY TH E ASSESSEE TO BEST COMMERCIAL ADVANTAGE AND THE EARNING OF DIVIDEND HA S NOT BEEN THE PRIME CONSIDERATION. WE, THUS WHILE SETTING ASIDE THE ORD ERS OF THE LOWER AUTHORITIES IN THIS REGARD, DIRECT THE AO TO ALLOW DEDUCTION OF RS.15,79,930/- I.E. PAYMENT OF INTEREST ON BORROWED FUNDS AND RS.91.939/- I.E. FINANCE BROKERAGE PAID THEREON. 11 9. THE A.O. HAS THUS ADOPTED ONE OF THE POSSIBLE VI EWS BY FOLLOWING THE ORDER OF TRIBUNAL. ONCE THE A.O. HAS CONSIDERED THE ORDER OF TRIBUNAL, IT MEANS THE A.O. HAS ALSO CONSIDERED THE PROVISIONS OF SECTION 14A. THE TRIBU NAL HELD THAT PROVISIONS OF SECTION 14 A ARE NOT APPLICABLE. AT THAT RELEVANT TIME, THE OR DER OF SPECIAL BENCH WAS NOT PRONOUNCED 121 ITD 318 (DELHI). THERE WAS NO DECISION OF JURIS DICTIONAL HIGH COURT OR OF APEX COURT. THE ORDER CAN BE ERRONEOUS IF THERE IS SUBSE QUENT JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT OF APEX COURT. IT IS NOW WELL SETTLED BY THE DECISIONS OF THE HONBLE APEX COURT THAT THE ORDER IS NOT ERRONEOUS IF THE A.O. ADOPTS ONE OF THE POSSIBLE VIEW. 10. THE TRIBUNAL WHILE DISPOSING OF THE APPEAL OF T HE ASSESSEE HELD THAT SECTION 14A IS NOT APPLICABLE THEN IT CAN NOT BE SAID THAT A.O. HAS NOT MADE ANY ENQUIRY. THE A.O. COULD HAVE TAKEN A STAND THAT THE REVENUE HAS NOT A CCEPTED THE ORDER OF TRIBUNAL AND COULD HAVE MADE ADDITION AFTER INVOKING PROVISIONS OF SECTION 14A. 11. THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF RUSSELL PROPERTIES (P) LTD. (SUPRA) HAS CONSIDERED A CASE WHERE THE A.O. HAS PASSED THE ORDER FOLLOWING THE ORDER OF TRIBUNAL. THE HONBLE HIGH COURT AT PAGE 244 OBSERV ED AS UNDER: THE INCOME TAX OFFICER HAS MERELY FOLLOWED THE DECI SION OF THE TRIBUNAL. NO ERROR HAS BEEN POINTED OUT IN THE SAID DECISION OF THE INCOME-TAX OFFICER. IT HAS NOT BEEN POINTED OUT THAT THERE WER E MATERIALS FOR THE INCOME-TAX OFFICER NOT TO FOLLOW THE DECISION OF TH E TRIBUNAL. AS A MATTER OF FACT WHENEVER THERE IS A DECISION OF THE HIGHER APPELLATE AUTHORITY, THE SUBORDINATE AUTHORITIES ARE BOUND TO FOLLOW THE SAI D DECISION IF JUDICIAL DISCIPLINE IS TO BE MAINTAINED. RELIANCE MAY BE PLA CED IN THIS CONNECTION ON THE OBSERVATIONS OF THE SUPREME COURT IN THE CAS E OF EAST INDIA COMMERCIAL CO. LTD. V. COLLECTOR OF CUSTOMS AIR 196 2 SC 1893 AT PAGE 1905 OF THE REPORT. IN THE AFORESAID VIEW OF THE MA TTER I MUST HOLD THAT THE CONDITIONS FOR EXERCISE OF THE POWER UNDER SECTION 263 OF THE ACT, NAMELY, THAT THERE MUST BE MATERIAL FOR THE COMMISSIONER TO CONSIDER THAT THE ORDER PASSED BY THE INCOME-TAX OFFICER WAS ERRONEOU S IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE WERE NO T FULFILLED IN THE INSTANT CASE. IF THAT IS THE POSITION, THEN THE NOTICE MUST BE HELD TO BE WITHOUT AUTHORITY. IT IS TRUE, UNLIKE SECTION 148 OF THE IN COME-TAX ACT, 1961, FOR THE 12 INITIATION OF THE PROCEEDING UNDER SECTION 263 NO C ONDITIONS PRECEDENT ARE REQUIRED TO BE FULFILLED BUT WHEN A STATUTORY AUTHO RITY PROCEEDS TO ACT BY VIRTUE OF HE POWER GIVEN UNDER A STATUTORY ENACTMEN T, EXERCISE OF WHICH IS DEPENDENT UPON THE EXISTENCE OF CERTAIN OBJECTIVE F ACTORS AND WHEN A CHALLENGE IS THROWN THAT SUCH OBJECTIVE FACTORS ARE NOT PRESENT AND SUCH CHALLENGE IS MET BY PLACING BEFORE THE COURT FACTOR S WHICH THE STATUTORY AUTHORITY CONSIDERS TO BE FACTORS RELEVANT FOR THE EXERCISE OF THE POWER, IT IS OPEN FOR THE COURTS TO EXAMINE WHETHER SUCH FACT ORS ARE RELEVANT FOR THE EXERCISE OF HE POWER. 12. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CA SE OF GANPAT RAM BISHNOI (SUPRA) MENTIONED AS UNDER: UNDOUBTEDLY, THE JURISDICTION UNDER S.263 IS WIDE A ND IS MEANT TO ENSURE THAT DUE REVENUE OUGHT TO REACH THE PUBLIC TREASURY AND IF IT DOES NOT REACH ON ACCOUNT OF SOME MISTAKE OF LAW OR FACT COM MITTED BY THE AO, THE CIT CAN CANCEL THAT ORDER AND REQUIRE THE CONCERNED AO TO PASS A FRESH ORDER IN ACCORDANCE WITH LAW AFTER HOLDING A DETAIL ED ENQUIRY. BUT WHEN ENQUIRY IN FACT HAS BEEN CONDUCTED AND THE AO HAS R EACHED A PARTICULAR CONCLUSION, THOUGH REFERENCE TO SUCH ENQUIRIES HAS NOT BEEN MADE IN THE ORDER OF THE ASSESSMENT, BUT THE SAME IS APPARENT F ROM THE RECORD OF HE PROCEEDINGS, IN THE PRESENT CASE, WITHOUT ANYTHING TO SAY HOW AND WHY THE ENQUIRY CONDUCTED BY THE AO WAS NOT IN ACCORDANCE W ITH LAW, THE INVOCATION OF JURISDICTION BY THE CIT WAS UNSUSTAIN ABLE. AS THE EXERCISE OF JURISDICTION BY THE CIT IS FOUNDED ON NO MATERIAL, IT WAS LIABLE TO BE SET ASIDE. JURISDICTION UNDER S.263 CANNOT BE INVOKED F OR MAKING SHORT ENQUIRIES OR TO GO INTO THE PROCESS OF ASSESSMENT A GAIN AND AGAIN MERELY ON THE BASIS THAT MORE ENQUIRY OUGHT TO HAVE BEEN C ONDUCTED TO FIND SOMETHING. 13. THE LD. CIT VIDE SHOW CAUSE NOTICE PROPOSED TO TAKE ACTION ON A/C OF FOLLOWING: ON PERUSAL OF THE ASSESSMENT ORDER DATED 20.12.2007 FOR THE A.Y. 2005-06 VIS--VIS ASSESSMENT RECORD IT IS NOTICED THAT THE ORDER PASSED BY THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E FOR THE FOLLOWING REASONS. DURING THE YEAR UNDER CONSIDERATION IT WAS NOTICED THAT INTEREST BEARING LOANS WERE RAISED FOR ACQUISITION OF ASSETS GENERAT ING NON TAXABLE INCOME. IN P&L ACCOUNT YOU HAVE DEBITED RS.27,91,182/- AS I NTEREST. ON PERUSAL OF RECORD IT IS REVELED THAT YOU HAVE PAID INTEREST OF RS.2,28,660/- TO VARIOUS BANKS AND ENJOYING EXEMPT INCOME OF RS.6,53,732/-. FURTHER YOU HAVE MADE INVESTMENT IN SHARES OF LIMITED COMPANIES WORT H RS.2,08,32,683/-, IN SONI HOSPITAL PVT. LTD. RS.21,80,000/- AND IN PARTN ERSHIP FIRMS OF RS.32,30,012/-. THE TOTAL NET CURRENT LIABILITIES A PPEARS IN THE BALANCE 13 SHEET AT RS.2,51,37,978/- AND LOAN FROM URBAN BANK RS.7044/-, FROM ABN AMBRO BANK AT RS.89,024/-, CITY BANK AT RS.5,13,787 /-, ALONGWITH OTHER ITEMS. SINCE THE CLAIM OF THE ASSESSEE HAS BEEN ALLOWED WI THOUT PROPER VERIFICATION OF FACT, HENCE, ORDER PASSED BY THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE, THEREFORE A CTION UNDER SECTION 263 IS NECESSARY. IF YOUR HAVE ANY OBJECTION PLEASE EXPLAI N IN WRITING ON OR BEFORE 26.02.2010. 12. THERE IS MENTION OF INTEREST PAYABLE TO CREDITO RS. THERE IS NO MENTION OF SECTION 14A. THE ALLOWABILITY OF INTEREST U/S. 36 (1) (III) STOOD DECIDED BY THE TRIBUNAL FOR A.Y. 02-03. THE LD. CIT CAN INVOKE PROVISIONS UNDER SECT ION 263 AFTER PROVIDING OPPORTUNITY. THE ISSUE ON WHICH ORDER U/S 263 IS PASSED MUST BE THE SAME WHICH HAS BEEN MENTIONED IN THE SHOW CAUSE. HENCE IT IS CLEAR THAT LD. CIT W AS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 263 ON THE GROUND THAT A.O. H AS NOT INVOKED PROVISIONS OF SECTION 14A WHILE THERE IS NO MENTION OF SECTION 14 A IN SH OW CAUSE NOTICE. 13. LOOKING TO THE DISCUSSION IN THE ABOVE REFERRED PARAS, WE HOLD THAT LD. CIT WAS NOT JUSTIFIED IN PASSING THE ORDER U/S 263 AND ORDE R IS CANCELLED AND APPEAL OF ASSESSEE IS ALLOWED. 14. THE REVENUE HAS FILED AN APPEAL AGAINST ORDER D ATED 20.8.2009 OF LD. CIT (A)-I, JAIPUR. THE FIRST GRIEVANCE OF THE REVENUE IS THAT LD. CIT (A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.32,48, 937/- MADE BY THE A.O. U/ S 14A OF THE I.T. ACT 1961. 15. THE A.O. ISSUED NOTICE U/S 142(1) ON 6.11.2008 IN WHICH IT WAS STATED THAT PRIMA FACIE IT APPEARS THAT INTEREST BEARING FUNDS HAVE B EEN DEPLOYED IN GENERATION OF TAX FREE INCOME AND HENCE THE ASSESSEE WAS REQUIRED TO PREPA RE A CHART IN THE PERFORMA GIVEN BY A.O. FOR THE PURPOSE OF DEPLOYMENT OF FUNDS. FOLLOW ING FACTS WERE INTIMATED TO THE ASSESSEE. INTEREST = RS.32,63,918/- FINANCE BROKERAGE = RS.1,35,439/- 14 BANK CHARGES = RS.3,641/- INTEREST TO VARIOUS BANK = RS.2,69,958/- PROCESSING FEE = RS.16,970/- INVESTMENTS IN SHARES OF = RS.2,14,54,353/- INDIAN CO. CAPITAL BALANCE = RS.81,51,092/- 16. THE ASSESSEE FILED REPLY VIDE LETTER DATED 5.12 .2008. THE CONTENTIONS, IN BRIEF, ARE AS UNDER: (A) BORROWED FUNDS UTILIZED FOR RAISING THE STRENGT H OF CONTROLLING INTEREST IN THE LIMITED COMPANIES BY WAY OF SUBSCRIBING TO SHAR E CAPITAL AND ADVANCING MONEY FOR SMOOTH FUNCTIONING OF THE DAY T O DAY BUSINESS OPERATIONS. (B) DUE TO CONTROLLING INTEREST, THE ASSESSEE WAS A BLE TO EARN RS.47,18,103/- DURING THE YEAR. SUCH RECEIPTS ARE IN THE NATURE OF SALARY, CONSULTATION FEES, LEASE RENT FROM LIMITED COMPANIES, INTEREST, PROFIT AND SALARY FROM PARTNERSHIP FIRM. (C) ITAT, JAIPUR BENCH IN THE CASE OF ASSESSEE FOR THE A.Y. 02-03 ALLOWED SUCH INTEREST. (D) INTEREST HAS BEEN ALLOWED IN THE PRECEEDING YE AR. (E) CONTROLLING INTEREST IS FOUNTAIN HEAD OF EARNIN G OF TAXABLE INCOME AND HENCE IT CAN NOT BE SAID THAT BORROWED FUNDS WERE U SED FOR EARNING EXEMPTED INCOME. 15 17. THE A.O. HAS MENTIONED THAT THE CASE LAWS ON WH ICH THE ASSESSEE PLACED RELIANCE ARE OF NO HELP BECAUSE PROVISIONS OF SECTION 14A WA S NOT IN THE STATUITE BOOK WHEN THOSE DECISIONS WERE PRONOUNCED. THE ASSESSEE HAS REFERRE D TO THE FOLLOWING CASE LAWS. ATE ENTERPRISE LTD. V JCIT 102 ITD 110 (MUMBAI) CIT V RAJEEV LOCHAN KANORIA 208 ITR 616 (CAL) 18. THE A.O. THEREAFTER REPRODUCED THE PROVISIONS O F SECTION 14A AND MADE AN ADDITION OF RS.32, 48, 937/- AFTER OBSERVING AS UND ER: A-1 AS PER DETAILS FILED IN THE RETURN AND FURTHER EXPL AINED DURING THE COURSE OF PROCEEDINGS INTEREST OF RS.32,63,918/-, FINANCE BROKERAGE RS.1,35,439/-, BANK CHARGES OF RS.3,641/-, INTEREST TO ABN AMRO BA NK OF RS.17,992/-, INTEREST TO DCB OF RS.39,372/-, PROCESSING FEE OF R S.16,970/-, INTEREST PAID TO ICICI BANK OF RS.1,30,026/- INTEREST TO CENTRAL BANK OF PUNJAB OF RS.11,539/- INTEREST TO CITI BANK OF RS.71,029/- WA S DEBITED IN THE PROFIT AND LOSS ACCOUNT. ON PERUSAL OF THE BALANCE SHEET I T IS NOTICED THAT THERE ARE INVESTMENTS IN SHARES OF INDIAN COMPANIES OF RS .2,14,54,353/- AND OTHER INVESTMENTS ON WHICH NO INCOME IS GENERATED A GAINST THE CAPITAL ACCOUNT ON 31.03.2006 SHOWING CAPITAL BALANCE OF RS .81,51,092/- ONLY. IN VIEW OF SPECIFIC PROVISIONS OF SECTION 14A EXPEN SES DEBITED AGAINST INVESTMENT GENERATING TAX FREE INCOME ARE NOT DEDUC TIBLE EXPENSES. FURTHER EXPENSES AGAINST INVESTMENT GENERATING NO I NCOME ARE ALSO DISALLOWED. THE ASSESSEE HAS CREDITED INCOME OF RS. 46,70,629/- IN THE PROFIT & LOSS ACCOUNT AND THE EXPENSES DEBITED IDEN TIFIED NOT ALLOWABLE ARE AS UNDER: A. INTEREST RS.32,63,918/- B. FINANCE BROKERAGE RS.1,35,439/- C. BANK CHARGES RS.3,641/- D. INTEREST TO ABN AMRO BANK RS.17,992/- E. INTEREST TO DCB RS.39,372/- F. PROCESSING FEE RS.16,970/- G. INTEREST PAID TO ICICI BANK RS.1,30,026/- H. INTEREST TO CENTRAL BANK OF RS.11,539/- PUNJAB. I. INTEREST TO CITI BANK RS.71,029/- ----------------- TOTAL RS.36,89,926/- ------------------ THE INCOME CREDITED IN THE PROFIT & LOSS ACCOUNT AT RS.8,82,766/- IS RECOMPUTED AS UNDER IN VIEW OF THE ABOVE STATED FAC TS: 16 INCOME AS PROFIT & LOSS ACCOUNT RS.8,82,766/- ADD-AMOUNT OF INADMISSIBLE EXPENSES AS DISCUSSED ABOVE RS.36,89,926/- TOTAL RS.45,72,692/- ADD-SHARE IN FIRM TAX BEING NOT RS.88,230/- DEDUCTIBLE RS.46,60,922/- LESS-SHARE OF PROFIT IN PARTNERSHIP FIRM U/S 10(2A) RS.12,81,839/- DEPRECIATION AS CLAIMED RS.1,30,146/- RS.14,11,985/- RS.32,48,937/- 19. BEFORE THE LD. CIT (A), THE BASIC ARGUMENT HAS BEEN THE SAME AS HAS BEEN CONSIDERED BY THE LD. A.O. HOWEVER IT WILL BE USEFU L TO REPRODUCE THE CONTENTIONS AS RAISED BEFORE LD. CIT (A). THAT THE APPELLANT GOT VIDE EXPERIENCE IN THE MEDIC AL FIELD AND HAS GOOD MANAGERIAL AND ADMINISTRATIVE SKILLS. THAT WITH THE INTENTION TO PROVIDE BETTER MEDICAL AND HEALTH SERVICES THE HOSPITAL KNO WN AS SONI HOSPITAL WAS INITIALLY PROMOTED AND LATER ON IT WAS MERGED I NTO A LTD. COMPANY I.E. M/S. SONI MEDICARE LTD. TO CARRYING OUT BUSINESS AN D PROFESSION AND HAVE CONTROLLING INTEREST OVER THE HOSPITAL, THE APPELLA NT ACQUIRED SHARES OF THE COMPANY. THIS RESULTED INTO ACQUIRING OF KEY MANAGE RIAL POSITION IN THE MANAGEMENT OF THE COMPANY. THE ORGANIZATIONS INITIA LLY WHEREIN THE APPELLANT HAD CONTROLLING INTEREST WERE TRANSFERRED TO THE LTD. COMPANY. THE FACT THAT THE APPELLANT HAS CONTROLLING INTERES T IN M/S. SONI INFOTECH, M/S. SONI M.T. SYSTEM, M/S. PARDIYA SONI HOSPITAL, M/S. SONI INFOTECH, M/S. S.K. SONI HOSPITAL (UNIT OF SONI HOSPITAL PVT. LTD.), M/S. SONI TECHNO DEVELOPERS P. LTD., M/S. SONI HOSPITALS PVT. LTD. A ND M/S. SANJEEVNI- THE REAL MEDICAL SHOP. IT ESTABLISHED THAT THE APPELLAN T HAD REQUIRED PROFESSIONAL AND MANAGERIAL EXPERIENCE. TO HAVE CON TROLLING INTEREST THE APPELLANT ACQUIRED THE DIRECTORSHIP AND MANAGERIAL POSITION. TO GET DIRECTORSHIP AND MANAGERIAL POSITION STAKE WAS TO B E ACQUIRED IN THE CAPITAL AND FINANCE THE SAID CONCERNS. BESIDES, OWN CAPITAL THE APPELLANT BORROWED FUNDS FROM THE MARKET AND FINANCIAL INSTIT UTIONS TO ACQUIRE CONTROLLING INTEREST THROUGH FINANCING AND PURCHASI NG MACHINERIES TO LEASE OUT TO THE SAID CONCERNS. THE APPELLANT HAS E NOUGH SHAREHOLDINGS IN THESE COMPANIES TO HAVE FULL CONTROL OF THESE CONCE RNS. THE APPELLANT WAS IN A POSITION TO EARN INCOME FROM THESE ENTITIES IN VARIOUS MODES. THE APPELLANT ALSO HAD SUBSTANTIAL AND CONTROLLING INTE REST IN PARTNERSHIP FIRM SITUATED IN THE COMPOUND OF S.K. SONI HOSPITAL OWNE D BY SONI HOSPITALS PVT. LTD. THE APPELLANT ALSO HAD INTEREST IN A NUMB ER OF OTHER HEALTH 17 RELATED INSTITUTIONS. SOLE OBJECTIVE OF SUCH INVEST MENT WAS TO ACQUIRE CONTROLLING INTEREST IN SUCH ENTITIES TO ENABLE HIM SELF TO REAP MONETARY BENEFITS UNDER DIFFERENT NOMENCLATURES LIKE CONSULT ATION FEES, LEASE RENT FOR LEASING OUT MEDICAL EQUIPMENTS, DRAWING REMUNERATIO N FOR MANAGING DAY TO DAY AFFAIRS ETC. FURTHER IT WAS SUBMITTED THAT T HE APPELLANT EARNED GROSS INCOME OF RS.4707524/- DURING THE YEAR UNDER CONSID ERATION. THIS INCLUDES RS.1281839/- BEING SHARE IN PROFITS IN PAR TNERSHIP FIRM RS.1143715/- BEING CONSULTATION FEES FROM HOSPITALS OWNED BY THE LTD. COMPANY. RS.5,40,000/- BEING LEASE RENT OF MACHINES OF THESE LTD. COMPANIES, RS.899948/- BEING REMUNERATION FROM PART NERSHIP FIRM, RS.387601/- BEING INTEREST ON CAPITAL INVESTMENT IN PARTNERSHIP FIRM AND RS.465000/- BEING REMUNERATION FROM LTD. COMPANIES AS DIRECTOR. IT WAS SUBMITTED THAT HOSPITAL EQUIPMENTS AND CAPITAL INVE STED IN THE PARTNERSHIP FIRM WAS OUT OF BORROWED FUNDS ON WHICH INTEREST WA S PAID OR PAYABLE. THE AMOUNT INVESTED IN SHARES OF LTD. COMPANIES TO ACQUIRE THE CONTROLLING INTEREST, ALONGWITH DEPOSITS WITH SUCH LTD. COMPANIES WAS PARTLY OUT OF OWN CAPITAL AND PARTLY OUT BORROWED F UNDS. FROM THE PERUSAL OF INCOME STATEMENT IT IS REVEALED THAT THE APPELLA NT DID NOT RECEIVE ANY DIVIDEND ON SHARES OF LTD. COMPANIES. THESE LTD. CO MPANIES WHOSE CONTROLLING INTEREST HAS BEEN ACQUIRED BY THE ASSES SEE HAVE NOT DECLARED ANY DIVIDEND INCOME FOR HIS INVESTMENT IN SHARES SI NCE HE IS NOT HAVING KNOWLEDGE OF THE INTERNAL AFFAIRS OF THE COMPANY. O N THE CONTRARY THE ASSESSEE BEING AT THE HELM OF THE AFFAIRS OF THE CO MPANIES, PROMOTED BY HIM ALONGWITH HIS FAMILY MEMBERS, DOES HAVE THOROUG H KNOWLEDGE ABOUT THE INTERNAL FINANCIAL POSITION AND ALSO HAVE KNOWL EDGE ABOUT THE MODES OF OBTAINING MONETARY BENEFITS BY EXERCISING THE RI GHTS ACQUIRED BY WAY OF HAVING CONTROLLING INTEREST. LASTLY IT WAS SUBMITTE D THAT THE ISSUE HAS BEEN DECIDED BY HONBLE ITAT IN THE APPELLANTS OWN CASE IN ASSESSMENT YEAR 2002-03. THE ISSUE WAS DECIDED IN FAVOUR OF THE APP ELLANT WHEREIN IT WAS CLEARLY HELD THAT PROVISIONS OF SECTION 14 AS OF IT ACT WERE NOT APPLICABLE BECAUSE THE INVESTMENTS WERE MADE BY THE APPELLANT TO PROTECT HIS BUSINESS INCOME AND THUS EXPENDITURE INCURRED IN RE LATION TO INCOME FROM BUSINESS WAS VERY MUCH ALLOWABLE. IN ASSESSMENT YEAR 2005-06 THE AO ACCEPTED THE CLAI M OF APPELLANT IN RESPECT OF INTEREST AND OTHER FINANCIAL EXPENSES IN VIEW OF THE DECISION OF HONBLE ITAT IN ASSESSMENT YEAR 2002-03. PROVISIONS OF SECTION 14A WERE BROUGHT IN STATUE BOOK AND MADE EFFECTIVE W.E. F. 1.4.1998 BUT AFTER THAT CLAIM OF THE APPELLANT HAD BEEN REGULARLY ACCE PTED BY THE DEPARTMENT. IN VIEW OF THE LEGAL DECISION OF HONBLE ITAT JAIPU R BENCH AND OTHER CASE LAWS MENTIONED BELOW IT WAS REQUESTED THAT THE ENTI RE ADDITION OF RS.3248937/- DESERVES TO BE DELETED. 1. A.T.E. ENTERPRISES LTD. VS. JCIT (2006) 102 IT D 110 (MUMBAI) 2. CIT VS. RAJEEV LOCHAN KANORIA 208 ITR 616(CAL. ) 3. DCIT VS. SARABHAI PIRAMAL PHARMACEUTICALS LTD. (2006) 8 SOT 815 (MUMBAI). 18 20. THE LD. CIT (A) AFTER CONSIDERING THE CONTENTIO NS OF THE LD. A/R HELD AS UNDER: CONTENTION OF THE AR IS CONSIDERED. THE ISSUE HAS B EEN DECIDED BY HONBLE ITAT VIDE THEIR ORDER DATED 30.11.2007 IN E ARLIER YEAR IN FAVOUR OF THE APPELLANT AND HAS HELD THAT PROVISIONS OF SE CTION 14A WERE NOT APPLICABLE IN THE APPELLANT CASE AS THE INVESTMENT WAS MADE TO PROTECT THE BUSINESS INCOME. UNLIKE AN ORDINARY SHAREHOLDER WHO SE INTEREST IS GENERALLY RESTRI8CTED TO EARN DIVIDEND INCOME, THE APPELLANT BY ACQUIRING CONTROL OVER FINANCE AND MANAGEMENT OF THE LIMITED COMPANIES COULD SUCCESSFULLY EARN VARIOUS OTHER INCOMES AS DISCUSSE D ABOVE. THE EXPENDITURE INCURRED IN RELATION TO EARNING OF INCO ME FROM BUSINESS IS VERY MUCH ALLOWABLE. MOREOVER, NO DIVIDEND INCOME W AS EARNED DURING THE YEAR AND, THEREFORE, IT CANNOT BE SAID THAT THE EXPENSES WERE INCURRED TO EARN EXEMPTED INCOME. RESPECTFULLY FOLLOWING THE DECISION OF HONBLE TRIBUNAL IN APPELLANTS OWN CASE, THE EXPENSES ARE CONSIDERED AS ALLOWABLE AND NOT COVERED BY THE PROVISIONS OF SEC. 14A OF ACT. WITH THIS THE AO IS DIRECTED TO DELETE THE ENTIRE ADDITION OF RS.3689926/-. 21. BEFORE US, THE LD. D/R CONTENDED THAT INVESTMEN T IN SHARES IS MUCH MORE THAN THE CAPITAL. THE ASSESSEE HAS SHOWN THE SHARES AS INVES TMENT. NO FACT HAS BEEN PLACED TO INDICATE THAT INCOME WHICH THE ASSESSEE HAS EARNED IS HAVING A DIRECT NEXUS WITH THE INVESTMENT. 22. THE LD. A/R HAS FILED WRITTEN SUBMISSIONS ALONG WITH PAPERBOOK. SUBMISSIONS ARE SAME WHICH HAVE BEEN MADE BEFORE THE LOWER AUTHORIT IES. IT WAS STATED THAT A.O. HAS DISALLOWED THE ENTIRE INTEREST AND HAS NOT CONSIDER ED THE INVESTMENTS IN PARTNERSHIP FIRMS AND OTHER FROM WHICH THE ASSESSEE IS EARNING TAXABL E INCOME. REFERENCE HAS BEEN MADE TO THE ORDER OF TRIBUNAL IN THE CASE OF THE ASSESSEE F OR THE A.Y. 02-03. 23. WE HAVE HEARD BOTH THE PARTIES. IT IS TRUE THAT JAIPUR BENCH HELD THAT PROVISIONS OF SECTION 14A ARE NOT APPLICABLE WHEN INTEREST IS ALL OWABLE U/S 36(1)(III). HOWEVER THE 19 SPECIAL BENCH DELHI IN THE CASE OF CHEMINVEST LTD. V ITO 121 ITD 318 HAS AN OCCASION TO CONSIDER AS TO WHETHER INTEREST EXPENDITURE ON INVESTMENT IN SHARES ALLOWABLE U/S 57 AND INTEREST ALLOWABLE U/S 36(1)(III) ON SHARES HEL D AS STOCK IN TRADE IN GOVERNED BY SECTION 14A. IT WILL BE USEFUL TO REPRODUCE HELD PO RTION RELEVANT AS UNDER: THE CONTROVERSY RAISED IN THE INSTANT CASE WAS THAT THE ASSESSEE HAD NOT EARNED OR RECEIVED AND DIVIDEND IN THE YEAR UNDER C ONSIDERATION AND, THEREFORE, NO DISALLOWANCE COULD BE MADE BY INVOKIN G THE PROVISIONS OF SECTION 14A. THERE WAS NO FORCE IN THE SAID CONTENT ION OF THE ASSESSEE. WHEN THE EXPENDITURE OF INTEREST IS INCURRED IN REL ATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME, IT HAS TO SUFFE R THE DISALLOWANCE, IRRESPECTIVE OF THE FACT WHETHER ANY INCOME IS EARN ED BY THE ASSESSEE OR NOT. SECTION 14A DOES NOT ENVISAGE ANY SUCH EXCEPTI ON. THIS IS SO EVEN IF THE INTEREST PAID ON BORROWINGS FOR THE PURCHASE OF SHARES IS ALLOWABLE UNDER SECTION 57 AS AN EXPENDITURE INCURRED FOR EAR NING OR MAKING INCOME OR UNDER SECTION36(1)(III) AS AN EXPENDITURE INCURR ED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. WHEN PRIOR TO INTRODUCTION OF SECTION 14A, AN EXPENDITURE BOTH UNDER SECTIONS 36 AND 57 WAS ALLOWABLE TO AN ASSESSEE WITHOUT SUCH REQUIREMENT OF EARNING OR RECEIPT OF INCOME, NO SUCH CONDITION COULD BE IMPORTED WHEN IT CAME TO DISALLOWANCE OF THE SAME EXPENDITURE UNDER SECTION 14A. NOW SINCE DIVID END WAS EXEMPT, AS A CONSEQUENCE THEREOF EXPENDITURE HAD TO BE DISALLOWE D. THOUGH IT IS TRUE THAT LANGUAGE OF SECTION 57 FOR A LLOWANCE OF EXPENDITURE AND THE LANGUAGE OF SECTION 14A FOR DISALLOWANCE OF SUCH EXPENDITURE ARE DIFFERENT, YET IT WAS NOT SO MATERIAL IN DECIDING T HE ISSUE. WHEREAS SECTION 57 ALLOWS THE EXPENDITURE INCURRED FOR MAKING OR EA RNING THE INCOME, SECTION 14A DISALLOWS THE EXPENDITURE IN RELATION T O INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. THE TERM EXPENDITURE IN RELATION TO IS WIDER IN SCOPE AND PROVIDES FOR DISALLOWANCE IF IT RELATE S TO INCOME NOT FORMING PART OF TOTAL INCOME. THE TERM EXPENDITURE INCURRED IN RELATION TO INCOME USED IN SECTION 14A IS STILL WIDER THAN THE EXPENDITURE INCURRED FOR THE P URPOSES OF BUSINESS IRRESPECTIVE OF THE FACT THAT THE EXPENDITURE INCUR RED BY WAY OF INTEREST IS AN ALLOWABLE DEDUCTION IN TERMS OF THE AFORESAID SE CTION OF THE ACT WHICH INTRODUCES A CAVEAT OF SECTION 14A PROVIDING TO DIS ALLOW EXPENDITURE WHICH IS OTHERWISE ALLOWABLE IN THE CIRCUMSTANCES M ENTIONED IN THAT SECTION(S). THE LEGISLATURE, USING THE EXPRESSION EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INC OME IN SECTION 14A, IN NO WAY INDICATES THAT IT DOES NOT ENCOMPASS THE DIS ALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO THE INCOME IN A BSENCE OF ACTUAL RECEIPT OF INCOME DURING THE RELEVANT PREVIOUS YEAR. ON THE CONTRARY, THE TERM IN 20 RELATION TO IS WIDE ENOUGH TO INCLUDE IN ITS SWEEP THE EXPENDITURE BOTH FOR MAKING OR EARNING INCOME AND INCURRED WHOLLY AND EX CLUSIVELY FOR THE PURPOSES OF BUSINESS CARRIED ON BY THE ASSESSEE. 24. IN VIEW OF ORDER OF SPECIAL BENCH, ONE WILL HAV E TO CONSIDER THE DISALLOWANCE OF INTEREST U/S 14A. IF BORROWED FUNDS ARE INVESTED IN FIRM THEN INTEREST PAID ON BORROWING CAN NOT BE BIFURCATED AGAINST CAPITAL AND PROFIT FO RM THE FIRM. SECTION 14A WILL NOT BE APPLICABLE FOR DISALLOWANCE OF INTEREST ACIT V DELI TE ENTERPRISED (P) LTD. 135 TTJ 663 (MUM); VIVESH S TASWALA V ITO 2010-T102-337-ITAT- M UMBAI, DR BHAVIN B JANKHARIA V ACIT 2010-T10L-617-ITAT-MUMBAI. 25. IF THERE IS NO SPECIFIC NEXUS OF BORROWINGS AGA INST INVESTMENT YIELDING EXEMPTED INCOME THEN CAPITAL, INTEREST FREE ADVANCES AND RES ERVE AND SURPLUS ARE TO BE CONSIDERED FOR INVESTMENT IN TAX FREE INCOME, IF THE A.O. HAS NOT DISCHARGED THE ONUS TO ESTABLISH THAT ALL INTEREST BEARING FUNDS HAVE BEEN USED FOR MAKIN G INVESTMENT IN SHARES. ONUS ON A.O. TO ESTABLISH THE NEXUS BETWEEN BORROWED FUNDS AND I NVESTMENT IN SHARES. THE DELHI BENCH (THIRD MEMBER) IN THE CASE OF WIMO SEEDLINGS LTD. V DCIT 107 ITD 267 HELD THAT BURDEN IS ON A.O. TO NOT ONLY SHOW THAT SUCH E XPENDITURE WAS FACTUALLY INCURRED BUT ALSO TO SHOW ITS RELATIONSHIP WITH INCOME EXEMPT TA X. THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V HERO CYCLES LTD. 32 3 ITR 518 HELD THAT MERELY BECAUSE THE ASSESSEE HAD INCURRED INTEREST EXPENDITURE ON F UNDS BORROWED IN THE MAIN UNIT IT WOULD NOT UPSOFACTO INVITE THE DISALLOWANCE UNDER S ECTION 14A UNLESS THERE WAS EVIDENCE TO SHOW THAT SUCH INTEREST BEARING FUNDS HAD BEEN I NVESTED IN THE INVESTMENTS WHICH HAD GENERATED THE TAX EXEMPT DIVIDEND INCOME. 21 26 THE BENCH REQUIRED THE ASSESSEE TO FILE DETAILS OF CAPITAL AND INTEREST FREE LOANS. THE POSITION AS ON 31.3.2006 IS AS UNDER: INTEREST FREE LOANS RECEIVED RS.94,18,926/- CAPITAL RS.81,50,192/- -------------------------------------------------- --------------------- TOTAL RS.1,75,69,118/- SHARES AS ON 31.03.2006 = RS.2,14,54,353/- SHARES AS ON 31.3.2005 = RS.2,08,32,663/- 27. THUS INCREASE IN INVESTMENT DURING THE YEAR IS ONLY TO THE EXTENT OF AROUND RS.6.22 LAKH. IF CAPITAL AND INTEREST FREE LOANS AR E CONSIDERED TO HAVE BEEN USED FOR INVESTING IN SHARES THEN BORROWED FUNDS USED WILL B E LESS THAN 40 LAKH. THE ASSESSEE HAS PAID INTEREST AT RATES VARYING FROM 12% TO 15%. WE THEREFORE FEEL THAT IT WILL BE FAIR AND REASONABLE TO RESTRICT DISALLOWANCE U/S 14A TO THE EXTENT OF RS.5.75 LAKH. THE ASSESSEE WILL GET RELIEF ACCORDINGLY. 28. THE SECOND GROUND OF APPEAL OF THE REVENUE IS T HAT LD. CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS.3,95,000/- U/S 68 OF I. T.ACT. 29. THE A.O. ISSUED SUMMONS U/S 131 TO THE 16 CASH CREDITORS WHO HAVE DEPOSITED A SUM NOT EXCEEDING RS.20,000/-. OUT OF 16 PERSONS, 4 PERSONS RESPONDED. THESE DETAILS ARE AVAILABLE AT PAGE 8 & 9 OF ASSESSMENT ORDER. THE PE RSONS WHO COMPLIED WITH THE SUMMONS WERE NOT ABLE TO ESTABLISH THE CREDIT WORTH INESS. HENCE THE A.O. ISSUED NOTICE 22 TO ASSESSEE ON 26.12.2008 TO EXPLAIN AS TO WHY THE CREDITS BE NOT ADDED U/S 68 OF I.T. ACT. THE ASSESSEE FILED THE FOLLOWING REPLY: THAT THE PARTIES LISTED IN YOUR LETTER, ARE INCOME TAX ASSESSES AND HAVE CONFIRMED THAT THEY HAVE ADVANCED THE AMOUNT TO THE ASSESSEE AS STATED IN THE ACCOUNT CONFIRMATIONS. THEIR RESPECTIVE PERMANE NT ACCOUNT NUMBERS HAVE BEEN MENTIONED IN THE ACCOUNT CONFIRMATIONS WH ICH WERE FILED VIDE LETTERS DATED 12.05.2008 AND 24.06.2008. THAT BY FURNISHING ACCOUNT CONFIRMATIONS CONTAINING PAN AND ADDRESS, THE ASSESSEE HAS DISCHARGED HIS BURDEN OF PROVING T HE BORROWINGS. SERVICE OF SUMMONS AT THE GIVEN ADDRESSES FURTHER ESTABLISH ES THE GENUINENESS OF THE CASH CREDITORS. WHEN THE CREDITORS ARE ASSESSED TO INCOME TAX, THE ASSESSEE BORROWER IS SATISFIED. THE ASSESSEE IS NOT SUPPOSED TO KNOW THE INTERNAL AFFAIRS OF THE LENDER I.E. ABOUT THE SOURCE OF THE AMOUNT, THE CAP ACITY OF THE LENDER. IT IS WITHIN THE EXCLUSIVE DOMAIN OF THE CREDITOR. IN CIT V. U.M.SHAH, PROPRIETOR, SHRENIK TRADING CO. [1973 90 ITR 396, THE BOMBAY HIGH COURT HAS HELD THAT IF THE PARTIES HAD RECEIVED THE SUMMONS BUT DID NOT APPEAR, THE ASSESSEE COULD NOT BE BLAMED. THE SUPREME COURT HAS VERY RECENTLY HELD (WHILE DISMISS ING THE SPECIAL LEAVE PETITION FILED BY THE DEPARTMENT) IN THE CASE OF CI T V. LOVELY EXPORTS (P) LTD. THAT ADDITION CAN NOT BE MADE UNDER SECTION 68 IN THE HANDS OF THE RECIPIENT WHERE THE DEPOSITOR WHOSE NAME AND ADDRES S HAS BEEN PROVIDED TO THE DEPARTMENT DID NOT COMPLY THE SUMMON. THE HE AD NOTES OF THE JUDGMENT ARE PUBLISHED ON PAGE 168 OF THE TAXMAN VO LUME 172 (PART 1) IN THE CASE OF KAMAL MOTOR COMPANY [2003] 131 TAXMA N 155, THE JURISDICTIONAL RAJASTHAN HIGH COURT HAS HELD THAT W HEN THE CASH CREDITOR IS AN EXISTING INCOME TAX ASSESSEE, IT CAN NOT BE S AID THAT THE CASH CREDITOR IS NOT A MAN OF MEANS. THAT IN VIEW OF ABOVE FACTS AND LEGAL DECISIONS, IT IS HUMBLY SUBMITTED THAT NO ADDITION BE MADE FOR THE NON COMPLIANCE OF SUMMO NS. WITHOUT PREJUDICE TO ABOVE, YOUR HONOUR HAS NOT GIVEN ANY R EASON FOR HOLDING THE VIEW THAT THE CAPACITY TO DEPOSIT IS NOT PROVED WHE N CONFIRMATIONS ISSUED BY THE CREDITORS (WHO ARE ALSO EXISTING INCOME TAX ASSESSEE) ARE AVAILABLE ON RECORD. NO CORROBORATIVE EVIDENCE IS ON RECORD T O THE KNOWLEDGE OF THE ASSESSEE TO NEGATE THE SAID CONFIRMATIONS. 23 30. THE A.O. WAS NOT SATISFIED ABOUT THE REPLY AND MADE ON ADDITION OF RS.3,95,000/- THE LD. CIT (A) HAS DELETED THE ADDITION AFTER OBSE RVING AS UNDER: CONTENTION OF THE AR IS CONSIDERED. WHILE REPLYING THE SHOW CAUSE NOTICE TO THE AO THE APPELLANT HAS REPLIED THAT ALL THE PA RTIES WERE INCOME TAX ASSESSES AND HAVE CONFIRMED THAT THEY HAVE ADVANCED AMOUNTS TO THE APPELLANT. THEIR PAN NOS. WERE ALSO GIVEN IN THE CO NFIRMATION LETTERS. BY SUBMITTING CONFIRMATIONS CONTAINING PANS AND THEIR ADDRESSES THE APPELLANT HAS ESTABLISHED THE IDENTITY OF HE CASH C REDITORS AS WELL AS GENUINENESS OF THE TRANSACTIONS. FOUR OF THEM APPEA RED BEFORE THE AO HAVE ALSO ADMITTED THE CREDITS BEFORE THE A.O. THAT THESE FOUR CREDITORS HAVE ALSO NOT STATED ANYTHING CONTRARY TO THE CONFI RMATIONS FILED. AS EACH CASH CREDITOR HAS GIVEN ADVANCE OF LESS THAN RS.20, 000/-, WHICH IS NOT SUBSTANTIAL AMOUNT AND THE VERY FACT THAT THEY ARE ASSESSED TO TAX SHOULD BE CONSIDERED AS SUFFICIENT TO PROVE THEIR CREDITWO RTHINESS. THE HONBLE RAJ. H.C. IN THE CASE OF KAMAL MOTOR CO. 131 TAXMAN 155 (RELIED UPON BY THE AR) HAS ALSO HELD THAT WHEN CASH CREDITORS IS A N INCOME TAX ASSESSEE IT CANNOT BE SAID THAT HE IS A MAN OF NO MEANS. WHEN T HE AMOUNT GIVEN ON LOAN IS A SMALL AMOUNT AND THE CASH CREDITOR IS ASS ESSED TO TAX THE SOURCE SHOULD BE CONSIDERED AS EXPLAINED. WITH THIS THE AO IS DIRECTED TO DELETE THE ADDITION OF RS.3,95,000/- MADE U/S 68 OF I.T. A CT. 31. WE HAVE HEARD BOTH THE PARTIES. THE LD. CIT (A) , AFTER CONSIDERING THE FACTS, DELETED THE ADDITION AND HAS ALSO RELIED ON THE DEC ISION OF JURISDICTIONAL HIGH COURT. THE FINDING BY LD. CIT (A) IS IN ORDER. IT IS FURTHER S EEN THAT A.O. ISSUED NOTICE ON 26.12.2008 TO THE ASSESSEE AS TO WHY ADDITION BE NOT MADE U/S. 68. THE ASSESSMENT ORDER HAS BEEN PASSED ON 29.12.2008. THE ASSESSEE COULD HAVE GIVEN THE EVIDENCES WHICH WERE AVAILABLE WITH HIM DURING THE PERIOD OF 3 DAYS. NO MATERIAL O BTAINED BY A.O. WAS CONFRONTED TO THE ASSESSEE AND THERE IS NOTHING ON RECORD TO SUGGEST THAT CONFIRMATIONS WERE WRONG. HENCE WE HOLD THAT LD. CIT (A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.3,95,000/- 32. THE THIRD GROUND OF APPEAL IS THAT LD. CIT (A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.32.177. 24 33. THE ORDER OF THE A.O. ON THIS ISSUES IS AS UNDE R: IN THE PRECEDING YEAR FOLLOWING CASH CREDITS WERE A DDED TO THE INCOME OF THE ASSESSEE: S.NO. NAME AMOUNT INTEREST PAID DURING THIS YEAR 1 M/S. SOURABH BARKATIA 50,000/- 8,070/- 2. SMT. GAYTRI JAIN 40,000/- 6,565/- 3. M/S. DAMODAR PRASAD HUF 1,00,000/- 17,542/- TOTAL 32,177/- SINCE THE CASH CREDITS WERE NOT TREATED AS GENUINE IN THE PRECEDING YEAR THE PAYMENT OF INTEREST DURING THIS YEAR TO SUCH CA SH CREDITORS IS DISALLOWED. THE SUM OF RS.32,177/- IS DISALLOWED AN D ADDED TO THE INCOME OF THE ASSESSEE. 34. THE LD. CIT (A) IN HIS ORDER HAS OBSERVED AS UN DER: IT HAS BEEN SUBMITTED BY THE AR THAT THE AO HAS DIS ALLOWED INTEREST OF RS.32,177/- PAID ON BORROWINGS WHICH WERE ADDED U/S 68 OF IT ACT IN THE PRECEDING YEAR. IT WAS SUBMITTED THAT THE INTEREST WAS INCLUDED IN THE AMOUNT OF RS.3263918/- ADDED TO THE INCOME WHILE CO MPUTING THE BUSINESS INCOME AT PAGE 7 OF ASSESSMENT ORDER. THUS WHEN RS. 3263918/- WAS DISALLOWED THEN DISALLOWANCE AGAIN OF INTEREST OF R S.32177/- IS TANTAMOUNT TO DOUBLE DISALLOWANCE. ALSO THAT THE ADDITION MADE U/S 68 IN THE EARLIER YEAR HAS BEEN DELETED BY CIT (A)-3, JAIPUR. WITH TH IS IT WAS REQUESTED THAT ADDITION OF RS.32177/- SHOULD BE DELETED. CONTENTION OF THE AR IS CONSIDERED. IT APPEARS THAT INTEREST OF RS.32177/- HAS BEEN DISALLOWED TWICE AND THEREFORE THE AO IS D IRECTED TO DELETE THE DISALLOWANCE OF RS.32177/- MADE SEPARATELY AS THE S AME WAS INCLUDED IN THE AMOUNT OF RS.3263918/- CONSIDERED FOR COMPUTATI ON OF INCOME. 35. WE HAVE HEARD BOTH THE PARTIES. SINCE THE INTER EST IS IN RESPECT OF CREDITS WHICH HAVE NOT BEEN PROVED AND CREDITS WERE ADDED IN PREC EDING YEAR. IN CASE THE CREDITS STANDS ADDED THEN RS.32,177/- IS TO BE ADDED. THE ASSESSEE WILL FURNISH THE DETAILS OF CREDITS WHICH HAVE BEEN ALLOWED IN EARLIER YEAR IN RESPECT OF CREDITS TO WHOM INTEREST OF 25 RS.32,177/- HAS BEEN DEBITED. THE A.O. WILL VERIFY AND WILL ACCORDINGLY MADE ADDITION. THIS ISSUE IS RESTORED BACK. IN THE RESULT THE APPEAL OF REVENUE IS PARTLY ALLO WED. THE ORDER IS PRONOUNCED IN OPEN COURT ON 14.10.201 1 SD/- SD/- (R.K.GUPTA) (N.L.KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 14.10.2011 *S.KUMAR* COPY FORWARDED TO:- 1. DR. BIMAL ROY SONI, JAIPUR 2. THE INCOME TAX OFFICER, WARD-7(1), JAIPUR. 3. THE CIT 4. THE CIT(A), 5. THE D/R, ITAT, JAIPUR 6. THE GUARD FILE IN ITA NO.580/JP/2011&816/JP/2009 BY ORDER A.R., I.T.A.T., JAIPUR