TILAKNAGAR INDUSTRIES LTD, MUMBAI V. DCIT CC 1(1), MUMBAI

ITA 5818/MUM/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 4835 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 28-09-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAHUL HAKANI RYAN SALDANHA
• Keywords: Bogus purchase; Capital asset; Depreciation; Rectification of order; Earning of tax free income; Tax effect; Onus to prove; Revenue expenditure; Capital expenditure; TDS
• Section: 131; 37; 154; 143(3); 133A; 14A; 133(6); 37(1)

Judgement Text

PAGE 1 OF 34 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI MAHAVIR SINGH(JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) ITA NO. 5818 & 5819/MUM/2016 (ASSESSMENT YEARS : 2010-11 & 2011-12) TILAKNAGAR INDUSTRIES LTD C/O M/S S A R A & ASSOCIATES 202, MAY BUILDING, 297/ 299/ 301, PRINCESS STREET, NEAR MARINE LINES FLYOVER, MUMBAI-400 002 PAN : AAACT6047R VS DY.C IT, CC- 1(1), MUMBAI APPELLANT RESPONDEDNT ITA NO. 6321/MUM/2016 (ASSESSMENT YEAR : 2011-12) DY.C IT, CC- 1(1), MUMBAI VS TILAKNAGAR INDUSTRIES LTD C/O M/S S A R A & ASSOCIATES 202, MAY BUILDING, 297/ 299/ 301, PRINCESS STREET, NEAR MARINE LINES FLYOVER, MUMBAI-400 002 PAN : AAACT6047R APPELLANT RESPONDEDNT ASSESSEE BY SHRI K SHIVRAM REVENUE BY SHRI RAHUL HAKANI / RYAN SALDANHA DATE OF HEARING 17-12-2018 DATE OF PRONOUNCEMENT 15-02-2019 PAGE 2 OF 34 O R D E R THIS APPEAL FILED BY THE ASSESSEE IN ITA NO.5818/MU M/2016 IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 47, MUMBAI {HEREINAFTER CALLED AS CIT(A)} DATED 08. 08.2016, FOR THE ASSESSMENT YEARS 2010-11 & 2011-12. SIMILARLY, THE ASSESSEE AS WELL AS THE REVENUE HAVE FILED CROSS APPEALS FOR ASST YEAR 2011 -12 AGAINST THE ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEA LS) 47, MUMBAI DATED 08.08.2016. SINCE, APPEAL FOR ASST YEAR 2010-11 & C ROSS APPEALS FOR 2011-12 ARE HAVING COMMON ISSUES, ALL THE APPEALS ARE HEARD TOGETHER AND ARE DISPOSED OFF UNDER THIS COMMON ORDER. 2. IN THIS CASE, ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL IN ITS APPEAL FOR THE ASST YEAR 2010-11:- THE LD. CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ID ASSESSING OFFICER IN MAKING ADDITIONS ON THE BASIS OF STATEME NTS OF VARIOUS PERSONS RECORDED DURING THE COURSE OF SURVEY UNDER SECTION 133A OF THE ACT ON 13.03.2013 WITHOUT APPRECIATING THE FACT THAT SUCH RECORDED STATEMENT DOES NOT HAVE ANY LEGAL SANCTITY AND CANNOT BE RELIED UPON. THE LD. CIT(A) ERRED IN UPHOLDING THE REOPENING OF THE ASSESSMENT DESPITE THE FACT THAT ALL THE DETAILS WERE BEFORE T HE ID ASSESSING OFFICER DURING THE ORIGINAL SCRUTINY ASSESSMENT PRO CEEDINGS FOR WHICH ORDER U/S 143(3) OF THE ACT WAS PASSED ON 31.01.201 3. THE LD. CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF DEPRECIATION ON ASTROLOGICAL FEES (ARCHITECTURAL FEES) AMOUNTING TO RS. 1,04,67,3177- DESPITE THE FACT THAT: THE PAYMENTS WERE MADE FOR THE SERVICES PROVIDED; THE RECIPIENT HAD OFFERED THE SAME TO TAX; THE WORK WAS EVIDENCED BY VARIOUS E-MAILS / MAPS; THE HON'BLE SETTLEMENT COMMISSION IN THE APPELLANT' S OWN CASE HAD VIDE ORDER DATED 30.09.2015 HELD THE SAME TO BE ALLOWABLE; PAGE 3 OF 34 TDS @ 10% HAVE BEEN DEDUCTED; SERVICE TAX WAS PAID; THERE IS NO EVIDENCE THAT SERVICES WERE NOT PROVIDE D. 4. THE LD. CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF RENTAL CHARGES AMOUNTING TO RS.26,96,640/- ON THE ALLEGED GROUND T HAT THE EXPENSES WERE NOT FOR PURPOSE OF BUSINESS. THE ID CIT(A) FAI LED TO APPRECIATE THAT SUCH SUMS WERE INCURRED FOR GENUINE BUSINESS E XPEDIENCIES. 5. THE LD. CIT(A) ERRED IN UPHOLDING THE DISALLOWAN CE OF HOUSEKEEPING CHARGES AMOUNTING TO RS.26,96,640/- ON THE ALLEGED GROUND THAT THE EXPENSES WERE NOT FOR PURPOSE OF BU SINESS. THE ID CIT(A) FAILED TO APPRECIATE THAT SUCH SUMS WERE INC URRED FOR GENUINE BUSINESS EXPEDIENCIES. 3. GROUND NO 1 IS NOT PRESSED AND HENCE THE SAME IS DISMISSED. 4. GROUND NO 2 IS ALSO NOT PRESSED, HENCE, DISMISSE D. 5. GROUND NO 3 CHALLENGES THE DISALLOWANCE OF DEPRE CIATION ON ASTROLOGY FEES OF RS 1,04,67,317/-. DURING THE YEAR, THE AS SESSEE HAS MADE PAYMENT OF ARCHITECTURAL AND MANAGEMENT CONSULTANCY FEES TO MR . ANAND NAIR OF RS 9,96,50,798/-. SUCH PAYMENTS WERE CAPITALIZED IN TH E BOOKS OF THE ASSESSEE UNDER FIXED ASSETS. THE ASSESSEE CLAIMED DEPRECIA TION OF RS. 1,04,67,317/- ON SUCH CAPITALIZATION. 5.2 THE LD ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN THE NATURE OF SUCH PAYMENT. THE ASSESSEE SUBMITTED THAT THE FEES WERE ARCHITECTURAL MANAGEMENT AND CONSULTANCY FEES. THE AO OBSERVED T HAT THE STAND TAKEN BY THE ASSESSEE WAS PATENTLY WRONG SINCE MR NAIR HAD D ISCLOSED THE FEES AS ASTROLOGICAL FEES IN HIS RETURN OF INCOME. MR. ANA ND NAIR RAISED INVOICE / DEBIT NOTE AS ASTROLOGY FEES. THE LD ASSESSING OFFICER WAS OF THE VIEW THAT THERE IS NO RECORD OF SERVICES RENDERED BY SHRI ANAND NAIR T O JUSTIFY SUCH A HIGH FEES PAGE 4 OF 34 NOT ONLY IN CURRENT YEAR, BUT ALSO, IN SUBSEQUENT Y EARS. ACCORDINGLY, THE AO DISALLOWED THE ENTIRE PAYMENT MADE DURING THE YEAR OF RS 9,96,50,798/-. 5.3 SUBSEQUENTLY ON BEING POINTED OUT THAT OUT OF T OTAL PAYMENT OF RS. 9,96,50,798/-; DEDUCTION HAS BEEN CLAIMED ONLY OF R S. 1,04,67,317/- BEING DEPRECIATION ON RS. 9,96,50,798/-; THE LD ASSESSING OFFICER PASSED A RECTIFICATION ORDER U/S 154 OF THE ACT ON 10.09.201 5 RESTRICTING THE DISALLOWANCE OF ASTROLOGY FEES TO THE AMOUNT CLAIME D IN THE P&L ACCOUNT AMOUNTING TO RS 1,04,67,317/-. THUS, THE AMOUNT OF DISPUTE BEFORE US IS THE DISALLOWANCE OF RS. 1,04,67,317/-. 5.4 THE ASSESSEE CHALLENGED THE ASSESSMENT ORDER BE FORE THE LD. CIT(A). BEFORE CIT(A), THE ASSESSEE SUBMITTED THAT MR ANAND NAIR WAS A QUALIFIED ARCHITECT WHO HAD BEEN ENTRUSTED WITH THE ASSIGNMEN T OF SUCCESSFULLY IMPLEMENTING VARIOUS PROJECTS OF THE COMPANY. SHRI ANAND P NAIR WAS THE PRESIDENT OF THE APPLICANT COMPANY DURING 2006-07. THE ASSESSEE GAVE DETAILS OF SERVICES DONE BY MR NAIR, SAMPLE EMAILS, MAPS AN D DRAWINGS DONE BY HIM. THE ASSESSEE SUBMITTED ALL PAYMENTS WERE BY CHEQUE AFTER DEDUCTING TDS. MR NAIR HAD OFFERED THE SAME TO TAX. THE ASSESSEE SUBM ITTED CONFIRMATION. THE ASSESSEE SUBMITTED THAT IN ITS OWN CASE, THE HONBL E SETTLEMENT COMMISSION HAD HELD THE PAYMENTS TO SHRI ANAND NAIR WERE GENUI NE. THE ASSESSEE SUBMITTED THAT MR NAIR HAD PAID SERVICE TAX IN AMNE STY SCHEME UNDER CATEGORY MANAGEMENT SERVICE . 5.5 THE LD. CIT(A) DID NOT ACCEPT THE SUBMISSION OF THE ASSESSEE. THE CIT(A) OBSERVED THAT THE ASSESSEE HAD CAPITALIZED THE FEES PAID TO MR NAIR AS PART OF THE 100 KLPD BLOCK OF ASSETS WHICH WAS PART OF PLAN T & MACHINERY. HOWEVER, THE ASSESSEE COULD NOT ESTABLISH WHICH PART OF THE 100 KLPD PLANT THE PAYMENT PAGE 5 OF 34 RELATED TO. FURTHER, AN MOU WAS ENTERED INTO BY MR NAIR AND MR AMIT DAHANUKAR AND HIS WIFE MRS. SHIVANI DAHANUKAR IS IN CONNECTION WITH ASTROLOGICAL FEES. THE MOU PROVED THAT MR NAIR WAS PROVIDING THE DAHANUKAR FAMILY WITH ASTROLOGICAL GUIDANCE. FURTHER, IT IS NOT CLEAR WHY MR NAIR WOULD HAVE A SUDDEN CHANGE OF HEART AND PAY SERVICE TAX O N THE SAME. IN THESE CIRCUMSTANCES, THE CIT(A) UPHELD THE DISALLOWANCE O F DEPRECIATION ON ASTROLOGICAL FEES PAID TO SHRI ANAND NAIR OF RS 1, 04,67,317/-. 5.6 THE LD. SENIOR COUNSEL OF THE ASSESSEE MR. K. S HIVARAM SUBMITTED THAT SHRI ANAND NAIR IS A QUALIFIED ARCHITECT AND DREW T HE ATTENTION OF BENCH TOWARDS THE DIPLOMA CERTIFICATE PART OF PAPER BOOK. THE LD SENIOR COUNSEL ALSO POINTED OUT THE VARIOUS EMAILS SENT BY THE ASSESSEE AND CONTRACTOR TRIOCHEM ENTRUSTED TO CARRY OUT THE FACTORY WORK ASKING FOR GUIDANCE OF MR NAIR. THE LD AR PRODUCED THE MAPS DRAWN BY SHRI ANAND NAIR. HE EXPLAINED THAT MR ANAND NAIRS ROLE WAS TO BUILD THE 100 KLPD GRAIN REFINER Y. THIS WAS A ONE-TIME PROJECT AND ONCE THE REFINERY WAS BUILT, IT WAS THE FLAGSHIP REFINERY OF THE ASSESSEE COMPANY PRODUCING GRAIN BASED ALCOHOL. THE LD. AR FURTHER SUBMITTED THAT AT PAGE 90 OF THE PAPER BOOK FOR AY 10-11, TRI OCHEM HAS DISPATCHED A CD CONTAINING DRAWINGS FOR MR NAIRS APPROVAL THROUGH HIS SECRETARY MR EKESH DESAI. AT PAGE 93-94 OF THE AY 10-11 PAPER BOOK, TH E TRIOCHEM PERSONS SEND AN EMAIL CONTAINING NOTES FOR POINTS TO DISCUSS WIT H MR NAIR. AT PAGE 95 OF THE PAPER BOOK, MR ANAND NAIR SUGGESTS THE INTERCHANGIN G OF THE LAWN AND ONE STRUCTURE. MR EKESH DESAI, WHO IS THE SECRETARY OF NAIR, INSTRUCTS TRIOCHEM TO GET MR NAIRS CONFIRMATION. AT PAGE 96 OF THE PAPER BOOK, MR NAIR GIVES SUGGESTIONS RELATING TO THE BUILDING OF WATER RESER VOIR. AT PAGE 97 OF THE PAPER BOOK, MR NAIR ADVISES THE DIRECTION OF THE FANS. AT PAGE 98 OF THE PAPER BOOK, MR NAIR ADVISES THE NEW BOTTLING HALL LAYOUT. AT PA GE 100 OF THE PAPER BOOK, PAGE 6 OF 34 MR NAIR ADVISES THE CONTROL PANEL TOWER LAYOUT. AT PAGE 102 OF THE PAPER BOOK, MR NAIR ADVISES ABOUT THE ROOFING SHEETS. AT PAGE 1 04 OF THE PAPER BOOK, MR NAIR ADVISES ON A HOST OF ISSUES PERTAINING TO THE TURBINE, BOILER, ELECTRICAL FIXTURES, CABLE TRAYS, LIGHT FIXTURES, CABLE ROUTIN G PLAN, SENSORS ETC. AT PAGE 106 OF THE PAPER BOOK, MR NAIRS APPROVAL REGARDING MCC ROOM DESIGN WAS AWAITED. 5.7. THE LD AR SUBMITTED THAT THE HONBLE SETTLEMEN T COMMISSION IN THE ASSESSEES CASE FOR ASSESSMENT YEAR 2012-13 AND ASS ESSMENT YEAR 2013-14 HAS CONSIDERED THE ISSUE AND HELD THE PAYMENTS MADE TO MR. ANAND NAIR TO BE GENUINE. IT WAS HELD THAT MR NAIR IS A QUALIFIED A RCHITECT / MANAGEMENT CONSULTANT AND THE FEES HAVE BEEN BOOKED AS INCOME IN THE BOOKS OF MR NAIR AND APPLICABLE INCOME TAX WAS PAID. THE LD AR SUBMI TTED THAT MR ANAND NAIR HAS OFFERED THE ENTIRE AMOUNT RECEIVED TO TAX IN HI S INCOME TAX RETURNS. THE PAYMENTS WERE MADE BY ACCOUNT PAYEE CHEQUE AND TDS U/S 194J AT THE RATE OF 10% WAS DEDUCTED. CONFIRMATION OF MR ANAND NAIR WA S SUBMITTED. THE SETTLEMENT COMMISSION IN THE CASE OF SHRI ANAND NAI R HAVE AT INTERNAL PAGE 14-15 HAVE HELD THAT THE INCOME RECEIVED FROM APPEL LANT HAS BEEN PROPERLY TAXED IN HANDS OF ANAND NAIR. THE LD. AR FURTHER P OINTED OUT THAT THE ORDER OF SETTLEMENT COMMISSION IS NEITHER CHALLENGED BY THE ASSESSEE NOR BY THE DEPARTMENT, THEREFORE, THE SAME HAS BECOME FINAL. T HE LD. SENIOR COUNSEL ARGUED THAT SINCE PAYMENT TO MR. ANAND NAIR WAS ACC EPTED GENUINE BY INCOME TAX DEPARTMENT IN ASST YEAR 2012-13 & 2013-1 4 BY THE DEPARTMENT, WITH-OUT ANY CHANGE IN THE FACTS AND CIRCUMSTANCES IN THIS YEAR, THE SAME CANNOT BE CONSIDERED NON-GENUINE. THE ISSUE HAS ALR EADY REACHED FINALITY. THUS, THE ISSUE IS A COVERED ISSUE ALREADY DECIDED IN FAVOR OF THE ASSESSEE. PAGE 7 OF 34 5.8. WITH REGARD TO, NATURE OF PAYMENT AS ASTROLOG Y FEES, IT WAS SUBMITTED THAT THIS NOMENCLATURE WAS USED TO SAVE SERVICE TAX . HOWEVER, SUBSEQUENTLY, SHRI ANAND NAIR HAS PAID SERVICE TAX ON THE FEES RE CEIVED UNDER THE CATEGORY MANAGEMENT CONSULTANCY SERVICES THROUGH A VOLUNTA RY AMNESTY SCHEME. THE SR. COUNSEL DREW OUR ATTENTION TOWARDS RELEVANT PAGES OF PAPER BOOK WHEREBY EVIDENCES IN RESPECT OF SERVICE TAX PAYMENT S ARE PLACED. THE LD AR SUBMITTED THAT THE MOU DATED 16.01.2012 WHICH WAS S O HEAVILY RELIED UPON BY THE LD. CIT(A) DOES NOT CONCERN THE ASSESSEE COMPA NY AS IT IS BETWEEN MR ANAND NAIR AND AMIT DAHANUKAR AND PERTAINS TO SUBSE QUENT PERIOD, HENCE NOT AT ALL RELATED TO THE ASSESSMENT YEAR SUBJECT MATTE R OF APPEAL. THUS, ASSESSEE HAS DISCHARGED ITS ONUS TO PROVE THAT PAYMENTS MADE TO MR ANAND P NAIR WERE FOR BUSINESS PURPOSES AND WERE GENUINE PAYMENTS. D ESPITE, FILING OF CONFIRMATION BY MR ANAND NAIR WHO IS A THIRD PARTY AND NOT A RELATED PARTY, THE LD. AO HAS CHOSEN NOT TO FURTHER EXAMINE HIM. THE L D. A.O. HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO SHOW THAT CASH WAS RECEIVED BACK BY THE ASSESSEE AGAINST SUCH PAYMENT. THE LD. SENIOR COUNSEL FURTH ER ARGUED THAT WHETHER THE EXPENDITURE IS JUSTIFIED; WHETHER REASONABLE OR NOT HAS TO BE SEEN FROM THE BUSINESSMAN POINT OF VIEW; THE AO CANNOT STEP IN TH E SHOES OF ASSESSEE. 5.9. THE LD. SENIOR COUNSEL FURTHER ARGUED THAT THE PAYMENT MADE BY THE ASSESSEE TO MR. ANAND NAIR HAS BEEN OFFERED FOR TAX IN HIS RETURN OF INCOME. HE DREW OUR ATTENTION TOWARDS ORDER OF SETTLEMENT COMM ISSION WHEREBY TOTAL INCOME AFTER SETTLEMENT COMMISSION ORDER WAS OF RS. 80 CRORES APPX ACROSS SEVEN YEARS. MR. ANAND NAIR HAS PAID TAX AND APPLIC ABLE INTEREST ON THIS AMOUNT. THE AR ARGUED THAT THE QUANTUM OF INCOME AN D TAX THEREON SUGGEST THAT THE PAYMENT MADE TO MR. NAIR IS GENUINE AND BO NAFIDE. IT WAS FURTHER ARGUED THAT THE PAYMENT MADE BY THE ASSESSEE HAS AL READY BEEN TAXED IN THE PAGE 8 OF 34 HANDS OF ANAND NAIR, IF TAXED, IN THE HANDS OF THE ASSESSEE BY WAY OF DISALLOWANCE, IT AMOUNTS TO DOUBLE TAXATION; NOT PE RMITTED UNDER INCOME TAX. TO SUPPORT THIS PROPOSITION, THE LD. AR RELIED UPON THE FOLLOWING JUDICIAL PRECEDENTS CIT V. EDWARD KEVENTER (P.) LTD. [1972] 86 ITR 370. (CAL)(HC). SIGMA CORPORATION INDIA LTD V DCIT [2017] 79 TAXMAN N.COM 412 (DELHI) 6. ON THE OTHER HAND, THE LD DEPARTMENTAL REPRESENT ATIVE (DR) RELIED UPON THE ORDER OF THE CIT(A) AND THE AO. THE DEPARTMENT AL REPRESENTATIVE CONTENDED THAT THE PAYMENTS WERE ON THE HIGHER SIDE AND DID NOT COMMENSURATE WITH THE SERVICES PROVIDED. NO FORMAL AGREEMENT WAS THERE. THE NOMENCLATURE OF THE PAYMENT OF ASTROLOGICAL FEES SHOWED THAT IT WAS OF PERSONAL NATURE. THE SUBSEQUENT AGREEMENT BETWEEN D IRECTOR AND THE ASSESSEE CLEARLY ESTABLISHED FACT THAT IT IS PURELY PERSONAL IN NATURE AND IT WAS FURTHER SUPPORTED BY THE CONDUCT OF ASSESSEE. THE A O AS WELL AS THE LD CIT(A) BROUGHT OUT ENOUGH MATERIALS TO PROVE THAT EXPENDIT URE IS NOTHING TO DO WITH BUSINESS ACTIVITY OF THE ASSESSEE. THE ASSESSEE FAI LED TO PROVE NEXUS BETWEEN PAYMENT AND SERVICES RENDERED BY MR. NAIR. THE AO N EVER QUESTIONED GENUINENESS OF PAYMENT, BUT QUESTIONED NEXUS BETWEE N SUCH HUGE PAYMENT AND SERVICES RENDERED, THEREFORE, THERE IS NO REASO N TO DEVIATE FROM THE FINDINGS OF THE LOWER AUTHORITIES AND THEIR ORDERS SHOULD BE UPHELD. 7. WE HAVE HEARD BOTH THE PARTIES, PERUSED MATERIAL S AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE LOWER AUT HORITIES. THE DISPUTE IN THIS CASE IS THE DEDUCTIBILITY OF PAYMENT TO MR ANAND NAIR. IT IS OBSERVED THAT MR NAIR WAS PRESIDENT OF THE ASSESSEE COMPANY IN 2006. THE ASSESSEE PAGE 9 OF 34 HAS SUBMITTED COPY OF PROFILE OF MR NAIR FROM BLOOM BERG WEBSITE. MR NAIRS NAME, PHOTOGRAPH AND PROFILE ARE APPEARING I N THE ANNUAL REPORT OF THE ASSESSEE OF FINANCIAL YEAR 2005-06, 2006-07, 20 07-08 AND 2008-09 DURING WHICH PERIOD MR NAIR CONTINUED TO ADVISE THE ASSESSEE COMPANY. THIS MEANS THAT THERE WAS A PAST HISTORY / RELATION SHIP OF THE ASSESSEE COMPANY WITH MR NAIR. SUBSEQUENTLY, MR NAIR LEFT T HE ORGANIZATION AND STARTED PRACTICING ON HIS OWN. THE ASSESSEE COMPAN Y ONCE AGAIN UTILIZED THE SERVICES OF MR NAIR AS AN ARCHITECT AND PROJECT CONSULTANT IN THE CURRENT YEAR. ALTHOUGH THERE WAS NO FORMAL AGREEMEN T, THE ASSESSEE HAS ENCLOSED THE DEBIT NOTES WHICH ARE PROOF THAT MR NA IR RENDERED THE SERVICES. IT IS ALSO ON RECORD THAT ALL THE PAYMENT S WERE MADE BY ACCOUNT PAYEE CHEQUES AND APPLICABLE TDS@10% HAS BEEN DEDUC TED. THE ISSUE OF PAYMENT OF ASTROLOGICAL FEES WAS CONSIDERED BY THE HONBLE SETTLEMENT COMMISSION. THE APPELLANT HAD APPROACHED THE HONB LE SETTLEMENT COMMISSION FOR ASSESSMENT YEAR 12-13 AND ASSESSMENT YEAR 13-14. THE HONBLE SETTLEMENT COMMISSION VIDE ORDER DT. 30.9.2 015 AT INTERNAL PAGE 24, PARA 9.7 HAS CONSIDERED THE ISSUE AND HELD THE PAYMENTS TO BE GENUINE. THEY HAVE HELD THAT MR NAIR IS A QUALIFIED ARCHITEC T / MANAGEMENT CONSULTANT AND THE FEES HAVE BEEN BOOKED AS INCOME IN THE BOOKS OF MR NAIR. THE ISSUE WAS CONSIDERED AFTER OBJECTIONS REL ATING TO SAME WERE FILED IN RULE 9 REPORT. FURTHER, AT PARA 8.6 ON PAGE 13 O F THE SETTLEMENT COMMISSION ORDER, THE ISSUE OF PAYMENT TO SHRI ANAN D NAIR WAS DISCUSSED. THE RELEVANT FINDINGS OF HONBLE SETTLEMENT COMMISS ION ARE AS UNDER: ON DISALLOWANCE OF ASTROLOGICAL FEES PAID TO SHRI A NAND NAIR U/S 37 BY THE CIT, THE AR SUBMITTED THAT THE APPLICANT COM PANIES HAD PAID SHRI ANAND NAIR FOR THE FOLLOWING SERVICES: PAGE 10 OF 34 SHRI ANAND NAIR IS A ARCHITECT AND MANAGEMENT CONSU LTANT WHO WAS ASSIGNED THE JOB OF IMPLEMENTING THE PROJECTS O F THE COMPANY AT VARIOUS LOCATIONS. SHRI NAIR AND HIS TEAM PROVIDED MASTER PLAN FOR VAR IOUS PROJECTS AND PLANNED ITS LAND USE; SHRI NAIR PREPARED DETAILED ARCHITECTURAL & STRUCTU RAL PLANS FOR NEW PROJECTS; PREPARED PLANS FOR FIRE FIGHTING, PLUMBING, ELECTRI CAL AND MECHANICAL WORKS. HE WAS ACTIVELY INVOLVED IN TENDER OPENING, BENCH M ARKING PROCESS, NEGOTIATIONS WITH CONTRACTORS AND RECOMMEN DATION OF VENDORS BASED ON THEIR QUALIFICATION AND EXPERIENCE . HE CO-ORDINATED WITH VARIOUS AGENCIES FOR IMPLEMENT ATION OF THE PROJECT BY DEPUTING HIS EMPLOYEES AT SITES FOR QUALITY CHECKING AND BILL VERIFICATION. AT PARA 9.7 ON PAGE 24 OF THE SETTLEMENT COMMISSION ORDER, THE HONBLE SETTLEMENT COMMISSION HAS GIVEN A FINDING A S UNDER: ANOTHER ISSUE RAISED BY THE DEPARTMENT IS REGARDING THE ASTROLOGY FEES PAID BY THE APPLICANT COMPANY TO MR NAIR. MR NAIR IS A QUALIFIED ARCHITECT AND IS ALSO A MANAGEMENT CONSULTANT AS AV ERRED BY THE AR. THE FEES PAID BY THE APPLICANT COMPANY HAS BEEN BOO KED IN THE BOOKS OF SHRI NAIR, HENCE WE ARE OF THE CONSIDERED OPINIO N THAT NO INTERFERENCE IS CALLED FOR. 8. WE FURTHER NOTICED THAT TOTAL MANAGEMENT CONSULT ANCY FEES PAID ACROSS A PERIOD OF FOUR YEARS IS NOT EXCEEDING 9% O F THE TOTAL PROJECT COST. DURING THE ASSESSMENT YEAR 2010-11 AND ASSESSMENT Y EAR 2011-12, THE FOLLOWING PAYMENTS WERE MADE TO SHRI ANAND NAIR: DATE OF AMOUNT (RS) DEPRECIATIO PROJEC PROJEC PROJECT TOTAL PAGE 11 OF 34 CAPITALIZATIO N N CLAIMED (RS) T NAME T START DATE END DATE COST OF PROJEC T 23.11.2009 5,79,79,977/ - 1,01,46,496 /- 50 KLPD APRIL 2008 NOVEMB ER 2009 RS. 62.51 CRORE S 15.03.2011 11,00,00,000 /- 1,92,50,000 /- 100 KLPD MAY 2010 NOVEMB ER 2011 RS. 170 CRORE S FROM THE RETURN OF INCOME OF MR ANAND NAIR, IT IS O BSERVED THAT APART FROM RENDERING SERVICES TO M/S TILAKNAGAR INDUSTRIES LTD , MR NAIR HAS ALSO RENDERED SERVICES TO OTHER COMPANIES. THIS SHOWS THAT MR NA IR WAS A PROFESSIONAL ARCHITECT WHO UNDERTOOK VARIOUS ARCHITECTURAL WORKS FOR DIFFERENT CLIENTS. MR ANAND NAIRS CONFIRMATION IS AT PAGE 120 OF THE PAP ER BOOK WHERE HE CONFIRMED TO HAVE RENDERING SERVICES IN VARIOUS TEC HNICAL, COMMERCIAL AND OPERATIONAL ASPECTS OF SHRIRAMPUR MEGA PROJECTS FOR THE SUBJECT PERIOD. THE MAPS / DRAWINGS OF MR ANAND NAIR HAVE THE SEAL OF A NAND NAIR & ASSOCIATES AT THE BOTTOM RIGHT HAND CORNER WHICH SHOWS THAT THEY ARE GENUINE. THE E-MAILS SHOW CONVERSATIONS BETWEEN THE STAFF OF THE ASSESSE E COMPANY, MR EKESH DESAI (SECRETARY OF MR NAIR) AND MR NAIR HIMSELF. ALL ASPECTS OF THE LAYOUT OF THE 100 KLPD PLANT WERE LOOKED INTO BY SHRI ANAND N AIR. WE FURTHER NOTICE THAT MR. NAIR HAS PROVIDED VARIOUS SERVICES INCLUDING MA STER DEVELOPMENT PLAN FOR VARIOUS PROJECTS & PLANNED ITS LAND USE. HE HAD PRE PARED DETAILED ARCHITECTURAL PLANS BASED ON CONCEPT LEVEL PLANS FOR THESE NEW PR OJECTS. HE HAD ALSO ACTIVELY PARTICIPATED IN VARIOUS TENDER OPENINGS, BENCH MARK ING PROCESSES, SUSTAINED NEGOTIATIONS WITH VARIOUS CONTRACTORS AND RECOMMEND ATION OF VENDORS BASED ON THEIR QUALIFICATIONS AND WORK EXPERIENCE. SHRI. ANAND NAIR HAS HAD PAGE 12 OF 34 COORDINATED WITH VARIOUS AGENCIES FOR ENSURING SUCC ESSFUL IMPLEMENTATION OF PROJECT BY WAY OF DEPLOYMENT OF THEIR EMPLOYEES AT SITE FOR QUALITY CHECKING AT EACH & EVERY STAGE OF THE PROJECT AS WELL AS ASSIST ING IN BILL VERIFICATIONS. SHRI. ANAND NAIR HAS HELPED THE APPLICANT COMPANY WITH VA RIOUS ADVISORY WORKS BEFORE, DURING AND AFTER PROJECT. SHRI. ANAND NAIR HAS ABILITY TO BRING UNDER ONE ROOF, VARIOUS CONTRACTORS, CONSULTANTS AND STAKEHOL DERS OF THE BUSINESS, ALL OF WHOM WERE CAPABLE OF HANDLING MEGA PROJECTS AND SUC CESSFULLY EXECUTING THEM. 9. THE MAIN REASON WHY THE LD CIT(A) DOUBTED THE GE NUINENESS OF PAYMENTS TO MR ANAND NAIR DUE TO THE MOU. WE ARE OF THE CON SIDERED VIEW THAT THE MOU CANNOT BE RELIED UPON DUE TO THE REASONS THAT SAID MOU IS SIGNED AT A LATER DATE IE 16.01.2012 AND IS NOT RELEVANT TO ASSESSMENT YEA R 2010-11 AND ASSESSMENT YEAR 2011-12. ALTHOUGH THE NOMENCLATURE OF THE MOU IS ASTROLOGICAL SERVICES, IT IS REALLY AN INVESTMENT BANKING SERVICES. THE M OU IS HOW TO SELL THE DAHANUKAR FAMILYS STAKE IN M/S TILAKNAGAR INDUSTRI ES LTD AT A SIGNIFICANTLY HIGH PRICE. AT QUESTION 27 OF THE STATEMENT OF MR AMIT DAHANUKAR DATED 15.03.2013, MR DAHANUKAR WAS ASKED ABOUT THE MOU UN EARTHED DURING THE SURVEY. MR DAHANUKAR STATES THAT THESE PAGES ARE A WRITTEN AGREEMENT BETWEEN HIMSELF, HIS WIFE AND ANAND NAIR WHEREIN MR ANAND NAIR WAS RETAINED BY HIM & HIS WIFE FOR ASTROLOGICAL, DESIGN, STRATEGIC THINKING AND MARKET ING INSIGHTS, AND NETWORKING CONSULTANCY SERVICES FOR T HEIR BENEFIT. THUS, IT WAS CLEAR THAT THE MOU WAS NOT FOR TILAKNAGAR INDUSTRIE S LTD BUT WAS FOR THE DAHANUKAR FAMILYS BENEFIT. THE ASSESSEE COMPANY WA S NOT A PARTY TO THE MOU. FURTHER, SHRI ANAND NAIR HAS PAID SERVICE TAX ON THE FEES RECEIVED FROM THE ASSESSEE UNDER THE HEAD MANAGEMENT CONSULTANCY FEES. THUS, IF IT WAS REALLY ASTROLOGY FEES, WHAT WAS THE NEED FOR MR NAIR TO PA Y SERVICE TAX ON THE SAME, PAGE 13 OF 34 THAT TOO UNDER AN AMNESTY SCHEME; I.E. WITHOUT ANY ENFORCEMENT SUCH AS SEARCH AND SURVEY. SHRI ANAND NAIR IS AN UNRELATED PARTY, THEREFORE, THE PAYMENT CANNOT BE DISALLOWED U/S 40A(2)(B) OF THE ACT. THE LD. AO HAS NOT EXAMINED MR ANAND NAIR AT ALL EITHER BY ISSUE OF SUMMON UNDER S ECTION 131 OR BY ISSUE OF NOTICE UNDER SECTION 133(6) OF THE ACT. THE AO COU LD NOT BRING ANY EVIDENCE TO PROVE THAT PAYMENT TO MR. ANAND NAIR IS NOT GENUINE OR WITHOUT ANY CORRESPONDING SERVICES PROVIDED. THE A.O. HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO SHOW THAT CASH WAS RECEIVED BACK BY THE ASSESSEE. EVEN OTHERWISE, THE LD ASSESSING OFFICER IS NOT ALLOWED TO STEP IN TO THE SHOES OF BUSINESSMAN. IT IS SETTLED POSITION OF LAW THAT THE AO CANNOT DISAL LOW EXPENSES U/S 37 OF THE ACT MERELY SINCE HE IS OF THE VIEW THAT THEY ARE UNREAS ONABLE. THE HONBLE CALCUTTA HIGH COURT IN CASE OF CIT V. EDWARD KEVENTER (P.) L TD. [1972] 86 ITR 370.(CAL)(HC)., LATER SLP DISMISSED IN CIT V. EDWAR D KEVENTER (P.) LTD. [1978] 115 ITR 149 (SC ) IN PARA 13 HELD THAT; '13.......... IT IS NOT FOR THE ASSESSING OFFICER T O DICTATE WHAT THE BUSINESS NEEDS OF THE COMPANY SHOULD BE AND HE IS ONLY TO JU DGE THE LEGITIMACY OF THE BUSINESS NEEDS OF THE COMPANY FROM THE POINT OF VIEW OF A PRUDENT BUSINESSMAN. THE BENEFIT DERIVED OR ACCRUING TO THE COMPANY MUST ALSO BE CONSIDERED FROM THE ANGLE OF A PRUDENT BUSINESSM AN. THE TERM 'BENEFIT' TO A COMPANY IN RELATION TO ITS BUSINESS, IT MUST BE REMEMBERED, HAS A VERY WIDE CONNOTATION AND MAY NOT NECESSARILY BE CAPABLE OF BEING ACCURATELY MEASURED IN TERMS OF PO UND, SHILLINGS AND PENCE IN ALL CASES. BOTH THESE ASPECTS HAVE TO BE C ONSIDERED JUDICIOUSLY, DISPASSIONATELY WITHOUT ANY BIAS OF ANY KIND FROM T HE VIEW-POINT OF A REASONABLE AND HONEST PERSON IN BUSINESS.' SIMILARLY, THE HONBLE DELHI HIGH COURT IN CASE OF SIGMA CORPORATION INDIA LTD V DCIT [2017] 79 TAXMANN.COM 412 (DELHI) (HC) HELD AS UNDER; 10. HAVING REGARD TO THE ABOVE POSITION, THIS COUR T IS OF THE OPINION THAT THE ITAT IN THE PRESENT CASE OVERLOOKED THE MATERIA LS THAT WERE TO BE PAGE 14 OF 34 TAKEN INTO ACCOUNT, I.E. REASONABLENESS OF THE EXPE NDITURE HAVING REGARD TO THE PRUDENT BUSINESS PRACTICE FROM A FAIR AND RE ASONABLE POINT OF VIEW. 10. IT IS IMPORTANT NOTE ONE MORE ASPECT OF THE CAS E THAT THE TOTAL INCOME RETURNED BY THE ASSESSEE WAS RS 50.36 CRORES FOR AL L SEVEN YEARS. HOWEVER, THE TOTAL INCOME FINALLY ASSESSED BY THE SETTLEMENT COM MISSION WAS RS 79.97 CRORES FOR ALL SEVEN YEARS. ADDITIONAL INCOME OF RS 30 CR ORES APPX WAS TAXED/ OFFERED FOR TAX BEFORE THE HONBLE SETTLEMENT COMMISSION. MR. ANAND NAIR HAS PAID APPLICABLE INCOME TAX AND INTEREST THEREON ON SUCH INCOME OF RS. 80 CRORS APPX. THIS SHOWS THAT THE ASSESSED INCOME WAS SIGNIFICANT LY HIGH. FURTHER SHRI ANAND NAIR IS AN INDIVIDUAL AND NOT A CORPORATE. NORMALLY IN CASE OF NON-GENUINE PAYMENTS, THE PARTY WHO ISSUES BILL, NEVER MAKE ANY TAX PAYMENT. THUS, THE TRANSACTION LACKS THE BASIC CHARACTERISTICS OF A HA WALA TRANSACTION. HOWEVER, IN THIS CASE, MR NAIR IS OFFERING INCOME FOR TAX @ 30% . WITHOUT ANY EVIDENCE TO PROVE OTHERWISE, THE PAYMENT TO MR. NAIR CAN-NOT BE CONSIDERED NON-GENUINE. THERE IS NO DISPUTE THAT SHRI ANAND NAIR HAS OFFERE D THE ARCHITECT / PROFESSIONAL FEES TO TAX IN HIS PERSONAL RETURN OF INCOME. HENC E, DISALLOWANCE OF THE FEES IN THE HANDS OF THE ASSESSEET WOULD LEAD TO DOUBLE DIS ALLOWANCE. THE HONBLE SUPREME COURT IN LAXMIPAT SINGHANIA VS. CIT [72 ITR 291, 294] OBSERVED THAT IT IS THE FUNDAMENTAL RULE OF THE LAW OF TAXATION THAT, UNLESS OTHERWISE EXPRESSLY PROVIDED, INCOME CANNOT BE TAXED TWICE. THE SAME INCOME CANNOT BE TAXED TWICE; ONCE IN THE HANDS OF ONE PERSON AND AGAIN IN THE HANDS OF ANOTHER PERSON; OR FOR THAT MATTER, IN THE HANDS OF THE SAME PERSON IN TWO DIFFERENT ASSESSMENT YEARS. IN OTHER WORDS, SAME IN COME CANNOT BE DOUBLY TAXED. THE VIEW WAS FURTHER HELD IN JOTI PRASAD AGARWAL VS. ITO [37 ITR 107,111][ALL] THAT THE CHARGE IS TO BE LEVIED ON AN INCOME ONLY ONCE; THE SAME INCOME CANNOT BE CHARGED REPEATEDLY IN THE HANDS OF DIFFERENT PERSONS OR IN PAGE 15 OF 34 THE HANDS OF THE SAME PERSON HAS BEEN IMPLIEDLY APP ROVED BY THE SUPREME COURT IN ITO VS. BAHCU LAL KAPOOR [60 ITR 74, 80] , WHEREIN IT WAS OBSERVED THAT THE ACT DOES NOT ENVISAGE TAXATION OF THE SAME INC OME TWICE OVER. IN CIT VS. MURLIDHAR JHAWAR [60 ITR 95] , THE SUPREME COURT HELD THAT ..THE ITO CANNOT HOWEVER SEEK TO ASSESS THE ONE INCOME TWICE. THE PR INCIPLES THAT EMERGE FROM THESE JUDICIAL PRONOUNCEMENTS IS THAT ONCE THE INCO ME HAS BEEN ASSESSED IN THE HANDS OF ONE ENTITY, THEN THE SAME INCOME CANNO T BE ASSESSED IN THE HANDS OF THE OTHER ENTITY. FURTHER, THE HONBLE BOM BAY HIGH COURT IN THE CASE OF CIT V NOSHIRA D MODY (50 TAXMANN.COM 193) HELD THAT WHERE THE RECIPIENT OF COMMISSION HAS OFFERED THE SAME TO TAX, IT CANNO T BE DISALLOWED U/S 37(1) OF THE ACT IN THE HANDS OF THE PAYER. THEREFORE, WE AR E OF THE CONSIDERED VIEW THAT WHEN SHRI ANAND NAIR HAS OFFERED THE PROFESSIO NAL FEES TO TAX, IT CANNOT BE DISALLOWED IN THE HANDS OF THE PAYER. SHRI ANAND N AIR HAS ALREADY PAID TAX TO GOVERNMENT IN RESPECT OF THE FEES RECEIVED BY HIM F ROM THE ASSESSEE COMPANY. 11 IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT TH E PAYMENT OF FEES TO MR ANAND NAIR CANNOT BE CONSIDERED AS NON-GENUINE, WHE N ALL EVIDENCES CONCLUSIVELY PROVED THAT SAID PAYMENT IS GENUINE AN D IT WAS INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSE. THE ASSESSEE HAS RIGHTLY CAPITALIZED THE SAME UNDER THE HEAD PLANT AND MACHINERY. HENCE, THE AO IS DIRECTED TO ALLOW DEPRECIATION CLAIMED OF RS.1,04,67,317/- ON ARCHITE CT FEES PAID TO SHRI. ANAND NAIR AND CAPITALIZED IN BOOKS UNDER FIXED ASSETS. 12. GROUND NO 4 CHALLENGES THE DISALLOWANCE OF RENT PAID TO MR ANAND NAIR OF RS 26,96,640/-. THE RENT WAS PAID WITH RESPECT TO TWO FLATS AT VAKOLA, MUMBAI [TOTAL AREA 1,212 SQ FEET] PURSUANT TO A LEA VE AND LICENSE AGREEMENT PAGE 16 OF 34 ENTERED INTO ON 1/4/2008 FOR A PERIOD OF THREE YEAR S. THE FLATS WERE TO BE USED FOR ACCOMMODATING THE GUESTS AND EMPLOYEES OF THE A SSESSEE COMPANY WHO COME FROM OUTSTATION. 12.2 DURING THE ASSESSMENT PROCEEDINGS, THE ASSESS EE WAS ASKED TO GIVE REASONS FOR TAKING FLATS OWNED BY SHRI NAIR ON HUGE RENT. THE ASSESSEE STATED THAT IT HAD TAKEN THE FLATS ON RENT FOR USE OF GUEST HOUSE FOR OUTSTATION EMPLOYEES WHO CAME TO MUMBAI. THE AO WAS OF THE VI EW THAT IT WAS A SHAM TRANSACTION. THE FLATS WERE TAKEN ON RENT FOR RS 2 LAKHS A MONTH IE RS 1 LAKH PER FLAT. SUBSEQUENTLY, THE FLATS WERE SOLD FOR RS 38 LAKHS EACH IN 2011-12 TO ONE MRS ANITA MOHAN, SISTER OF MR ANAND NAIR. HE, T HEREFORE DISALLOWED ENTIRE RENT PAYMENT OF RS. 26,96,640/-. THE ASSESSEE CHALL ENGED THE ABOVE DISALLOWANCE BEFORE CIT(A). BEFORE THE CIT(A) IT W AS SUBMITTED THAT THE RENT AGREEMENT WAS FOR 3 YEARS. THE PAYMENT WAS BY ACCO UNT PAYEE CHEQUE AND TDS WAS DEDUCTED. THE ASSESSEE GAVE LIST OF EMPLOY EES STAYING THERE AND CONTENDED THAT THE GUEST HOUSE WAS CHEAPER THAN A H OTEL. THE CONTENTION OF THE ASSESSEE COULD NOT FIND FAVOR FROM CIT(A). THE LD. CIT(A) UPHELD THE DISALLOWANCE OF RENT AS SHE OBSERVED THAT THE GUEST LIST WAS NOT FOR FINANCIAL YEAR 2009-10. THE CIT(A) FURTHER HELD THAT THIS IS ANOTHER GENEROUS PAYMENTS TO SHRI ANAND NAIR. 12.3. THE LD. SENIOR COUNSEL ARGUED THAT, SHRI ANAN D NAIR IS NOT A RELATED PARTY. THE PAYMENTS WERE MADE TO SHRI ANAND NAIR B Y ACCOUNT PAYEE CHEQUE. TDS WAS DULY DEDUCTED U/S 194I OF THE ACT. THE REN T WAS OFFERED TO TAX IN THE HANDS OF SHRI ANAND NAIR. [ COMPUTATION OF TOTAL IN COME OF SHRI ANAND NAIR FOR AY 2010-11 (PAGE 147) WHEREIN GROSS RENT OF RS 24,0 0,000/- WAS DISCLOSED AND AFTER DEDUCTING 30% STANDARD DEDUCTION, NET RENT OF RS 16,80,000/- WAS PAGE 17 OF 34 OFFERED TO TAX.] THE SAMPLE GUEST LIST DEMONSTRATES THAT THE GUEST HOUSE WAS CONSTANTLY USED BY EMPLOYEES AND THEIR FAMILIES FOR PERSONAL / OFFICIAL PURPOSE OR FOR HOLDING INTERVIEWS. THE PAYMENT IS REASONABL E FROM THE POINT OF VIEW OF THE ASSESSEE COMPANY AS IT WOULD HAVE TO INCUR HUGE EXPENSES IF IT WERE TO ACCOMMODATE OUTSTATION GUESTS AND EMPLOYEES IN HOTE LS. ALSO ASSESSEE IS ABLE TO BLOCK PREMISES FOR A PERIOD OF 3 YEARS AND HAVE THE PREMISES WHENEVER IT DESIRES. 12.4 ON THE OTHER HAND, THE D.R. RELIED UPON THE OR DER OF THE LOWER AUTHORITIES. 13. WE HAVE HEARD BOTH THE PARTIES AND HAVE GONE TH ROUGH THE ORDERS OF THE LOWER AUTHORITIES. IN THIS CASE, THE ASSESSEE HAS PAID RENT OF RS 1 LAKH PER FLAT TO MR ANAND NAIR FOR 2 FLATS. THE RENT WA S PAID BY CHEQUE AND TDS WAS DEDUCTED. THE FLATS WERE USED FOR HOUSING OUTS TATION EMPLOYEES AND CLIENTS. BEFORE US, THE ASSESSEE HAS PRODUCED THE RENT AGREEMENT. THE RENT AGREEMENT IS FOR 3 YEARS AND IS DULY SIGNED BY THE PARTIES. WE ARE OF THE OPINION THAT GUEST HOUSE COULD BE A BETTER AND CHEAPER OPTION THAN THE HOTEL IN TERMS OF COMFORT, PRIVACY AND FAMILIAR SURROUNDINGS. WITH REGARD TO SALE IN SUBSEQUENT YEARS AT A LOW PRICE, IT IS NOTED THAT THE SAME IS A TRANSACTION BETWEEN A BROTHER TO HIS SISTER; T HEREFORE, NOT A CORRECT BENCHMARK TO DETERMINE THE RENT IS EXCESSIVE. FURTH ER, SHRI ANAND NAIR IS NOT A RELATED PARTY. THE PAYMENTS WERE MADE TO SHR I ANAND NAIR BY ACCOUNT PAYEE CHEQUE. TDS WAS DULY DEDUCTED U/S 19 4I OF THE ACT. APPLICABLE SERVICE TAX HAS BEEN CHARGED. THE RENT W AS OFFERED TO TAX IN THE HANDS OF SHRI ANAND NAIR. THE SAMPLE GUEST LIST DE MONSTRATES THAT THE GUEST HOUSE WAS CONSTANTLY USED BY EMPLOYEES AND TH EIR FAMILIES FOR PAGE 18 OF 34 PERSONAL / OFFICIAL PURPOSE OR FOR HOLDING INTERVIE WS. THE PAYMENT IS REASONABLE FROM THE POINT OF VIEW OF THE ASSESSEE C OMPANY AS IT WOULD HAVE TO INCUR HUGE EXPENSES IF IT WERE TO ACCOMMODA TE OUTSTATION GUESTS AND EMPLOYEES IN HOTELS. ALSO ASSESSEE IS ABLE TO B LOCK PREMISES FOR A PERIOD OF 3 YEARS AND HAVE THE PREMISES WHENEVER IT DESIRES. THEREFORE, ONLY FOR THE REASON THAT RENT IS HIGH GENUINENESS O F PAYMENT CANNOT BE QUESTIONED AND DISALLOWANCE BE MADE. BUT, CONSIDERI NG THE SIZE OF FLAT AND THE LOCALITY, WE ARE OF THE VIEW THAT RENT PAYMENT OF RS. 1,00,000/- PER MONTH FOR TWO FLATS APPEARS TO UNREASONABLE AND EXC ESSIVE. FURTHER, THE AO DID NOT BROUGHT ON RECORD ANY COMPARABLE CASES O F SIMILAR NATURE OR FIND OUT MARKET RATE PREVAILING AT THAT TIME. THERE FORE, WE ARE OF THE CONSIDERED VIEW THAT THIS ISSUE NEEDS TO BE REEXAMI NED BY THE AO IN LIGHT OF OUR AFOREMENTIONED OBSERVATIONS AND HENCE, WE SE T ASIDE THIS ISSUE TO THE FILE OF AO AND DIRECT HIM TO CONSIDER AFRESH AF TER AFFORDING AN OPPORTUNITY OF HEARING TO THE ASSESSEE. 14. GROUND NO 5 CHALLENGES THE DISALLOWANCE OF HOUS EKEEPING CHARGES PAID TO J S TRADING OF RS 26,96,640/-. THE HOUSE KEEPIN G CHARGES WAS PAID WITH RESPECT TO TWO FLATS AT VAKOLA, MUMBAI [TOTAL AREA 1,212 SQ FEET] PURSUANT TO A HOUSEKEEPING AGREEMENT ENTERED INTO ON 1/4/2008 FOR A PERIOD OF THREE YEARS. PURSUANT TO THE AGREEMENT, UPFRONT PAYMENT OF RS 72 LAKHS WAS PAID. THE AO DISALLOWED AMOUNT ON THE GROUND THAT IT WAS A SHAM TRANSACTION. THE HOUSEKEEPING CHARGES OF RS 2 LAKHS PER MONTH WAS TO O HIGH AN AMOUNT. NO ORDINARY PERSON WOULD PAY UPFRONT FEES OF RS 72 LAK HS. SUBSEQUENTLY, THE FLATS WERE SOLD FOR RS 38 LAKHS EACH IN 2011-12 TO ONE MR S ANITA MOHAN, SISTER OF MR ANAND NAIR. PAGE 19 OF 34 14.2 THE ASSESSEE FILED APPEAL BEFORE HONBLE CIT(A ). BEFORE THE CIT(A) IT WAS SUBMITTED THAT JS TRADING WAS DOING HOUSE-KEEPING W ORK FOR MANY YEARS. THE PAYMENT WAS BY ACCOUNT PAYEE CHEQUE AND TDS WAS DED UCTED. THE SERVICES INCLUDE CLEANING, MAINTENANCE OF SANITARY WORKS, RE MOVAL OF GARBAGE, POLISHING, PEST CONTROL ETC. THE LD. CIT(A) UPHELD THE DISALLOWANCE OF HOUSE- KEEPING CHARGES AS SHE WAS OF THE OPINION THAT THE AGREEMENT DID NOT REFLECT SUCH SPECIALIZED SERVICES MERITING PAYMENT OF SUCH HIGH AMOUNT. THE AGREEMENT WAS SIGNED BY AMIT DAHANUKAR AND ANAND NA IR. THUS, JS TRADING WAS NOTHING BUT A PARTNERSHIP FIRM OWNED BY MR NAIR . THIS WAS NOT THE FIRST TIME THAT THE ASSESSEE HAS BEEN MAKING GENEROUS PAY MENTS TO SHRI ANAND NAIR. 14.3. THE LD. SENIOR ADVOCATE ARGUED THAT THE FLAT S WERE USED AS GUEST HOUSE. HOUSEKEEPING WAS AN ESSENTIAL SERVICE REQUIR EMENT. JS TRADING IS NOT A RELATED PARTY. THE SAID HOUSEKEEPING CHARGES WERE OFFERED TO TAX IN THE HANDS OF M/S JS TRADING. UNDER THE HOUSE KEEPING AGREEMEN T, JS TRADING WILL PROVIDE HOUSEKEEPING SERVICES MENTIONED AT SCHEDULE 1 ON PA GE 170 OF THE PAPER BOOK WHICH INCLUDES CLEANING, MAINTENANCE OF SANITARY WO RKS, REMOVAL OF GARBAGE, POLISHING, PEST CONTROL ETC. HENCE, OBSERVATION OF LD CIT(A) ARE INCORRECT. 14.4. ON THE OTHER HAND, THE D.R. RELIED UPON THE O RDER OF THE LOWER AUTHORITIES. 15. WE HAVE HEARD BOTH THE PARTIES, PERUSED MATERIA LS AVAILABLE ON RECORD AND HAVE GONE THROUGH THE ORDERS OF THE LOWE R AUTHORITIES. IN THIS CASE, THE ASSESSEE HAS PAID HOUSEKEEPING CHARGES OF RS 1 LAKH PER FLAT TO J S TRADING FOR 2 FLATS. THE HOUSE KEEPING CHARGES W AS PAID BY CHEQUE AND PAGE 20 OF 34 TDS WAS DEDUCTED. APPLICABLE SERVICE TAX HAS BEEN C HARGED AND PAID. BEFORE US, THE ASSESSEE HAS PRODUCED THE HOUSEKEEPI NG AGREEMENT. THE RENT AGREEMENT IS FOR 3 YEARS AND UPFRONT PAYMENT O F RS 72 LAKHS WAS MADE. ALTHOUGH, PAYMENT IS HIGH, BUT FOR THAT REASO N ALONE GENUINENESS OF PAYMENT CANNOT BE DOUBTED, BECAUSE, AS PER THE HOUS EKEEPING AGREEMENT, THE SERVICE PROVIDER HAS PROVIDED HOUSEK EEPING SERVICES BY A TEAM OF PERSONAL EVERY DAY, SUPERVISOR TO ATTEND RO UND THE CLOCK, DESIRED LEVEL OF CLEANLINESS, TOILETERIES / CLEANING MATERIAL IN SUFFICIENT QUANTITY SUCH AS SOAP, DETERGENTS, BRUSHES, VACUUM CLEANERS, MOSQUIT O REPELLENTS, ETC. IN ADDITION, SERVICE PROVIDER HAS DONE DAILY REMOVAL O F GARBAGE, DUSTING, ACID CLEANING, MOPPING, WASHING CARPETS ETC, WEEKLY SERV ICES OF WASHING / SCRUBBING FLOOR AREA, REMOVAL OF DUST, WINDOWS, POLISHING, SH AMPOOING, PEST CONTROL ETC. FURTHER, SINCE THE FLATS WERE USED IN THE GUEST HOU SE, HOUSEKEEPING WAS ESSENTIAL SERVICE. JS TRADING IS NOT A RELATED PART Y. THE SAID HOUSEKEEPING CHARGES WERE OFFERED TO TAX IN THE HANDS OF M/S JS TRADING. APPLICABLE TDS HAS BEEN DEDUCTED. APPLICABLE SERVICE TAX HAVEN BEE N PAID. UNDER THE HOUSE KEEPING AGREEMENT, JS TRADING WILL PROVIDE HO USEKEEPING SERVICES MENTIONED AT SCHEDULE 1 ON PAGE 170 OF THE PAPER BO OK WHICH INCLUDES CLEANING, MAINTENANCE OF SANITARY WORKS, REMOVAL OF GARBAGE, POLISHING, PEST CONTROL ETC. WHETHER THE EXPENDITURE IS JUSTIF IED/REASONABLE OR NOT HAS TO BE SEEN FROM THE BUSINESSMAN POINT OF VIEW A ND AO CANNOT STEP IN THE SHOES OF ASSESSEE AS HELD BY THE HONBLE SUPREM E COURT IN HERO CYCLES (P) LTD. VS. CIT (2015) 379 ITR 347 (SC). THEREFORE, WE ARE OF THE VIEW THAT THE LOWER AUTHORITIES WERE ERRED IN TREATING HOUSEK EEPING CHARGES AS NON GENUINE PAYMENTS. BUT, CONSIDERING THE SIZE OF FLAT , WE ARE OF THE VIEW THAT HOUSEKEEPING PAYMENT OF RS. 1,00,000/- PER MONTH FO R TWO FLATS APPEARS TO UNREASONABLE AND EXCESSIVE. FURTHER, THE AO DID NOT BROUGHT ON RECORD PAGE 21 OF 34 ANY COMPARABLE CASES OF SIMILAR NATURE OR FIND OUT MARKET RATE PREVAILING AT THAT TIME. MOREOVER, THIS ISSUE IS LINKED WITH D ISALLOWANCE OF RENT PAYMENT TO FLATS. SINCE, WE HAVE ALREADY SET ASIDE DISALLOWANCE OF RENT ISSUE TO THE FILE OF AO, WE FEEL THAT THIS ISSUE AL SO NEEDS TO BE REEXAMINED BY THE AO IN LIGHT OF OUR AFOREMENTIONED OBSERVATIO NS AND HENCE, WE SET ASIDE THIS ISSUE TO THE FILE OF AO AND DIRECT HIM T O CONSIDER AFRESH AFTER AFFORDING AN OPPORTUNITY OF HEARING TO THE ASSESSEE . 16. IN THE RESULT, APPEAL FILED BY THE ASSESSEE FOR ASST YEAR 2010-11 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ITA NO.5819/MUM/2016 (ASST YEAR 2011-12) 17. THIS APPEAL WAS FILED BY THE ASSESSEE AGAINST T HE ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 47, MUMBAI { HEREINAFTER CALLED AS CIT(A)} DATED 08.08.2016, FOR THE ASSESSMENT YEAR 2 011-12 WHEREBY THE LD. CIT(A) HAS PARTLY ALLOWED THE APPEALS FILED BY THE ASSESSEES ARISING OUT OF THE ORDER PASSED U/S 143(3) R.W.S. 147 OF THE INCOME TA X ACT, 1961. 18. IN THIS CASE, ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE LD. CIT(A) ERRED IN UPHOLDING THE AC TION OF THE ASSESSING OFFICER IN MAKING ADDITIONS ON THE BASIS OF STATEM ENTS OF VARIOUS PERSONS RECORDED DURING THE COURSE OF SURVEY UNDER SECTION 133A OF THE ACT ON 13.03.2013 WITHOUT APPRECIATING THE FACT THAT SUCH RECORDED STATEMENT DOES NOT HAVE ANY LEGAL SANCTITY AND CANNOT BE RELIED UPON. 2. THE LD. CIT(A) ERRED IN UPHOLDING THE DI SALLOWANCE OF DEPRECIATION ON ASTROLOGICAL FEES (ARCHITECTURAL FE ES) AMOUNTING TO RS. 1,92,50,0007- DESPITE THE FACT THAT: THE PAYMENTS WERE MADE FOR THE SERVICES PROVIDED; THE RECIPIENT HAD OFFERED THE SAME TO TAX; PAGE 22 OF 34 THE WORK WAS EVIDENCED BY VARIOUS E-MAILS / MAPS; THE HON'BLE SETTLEMENT COMMISSION IN THE APPELLAN T'S OWN CASE HAD VIDE ORDER DATED 30.09.2015 HELD THE SAME TO B E ALLOWABLE; TDS @ 10% HAVE BEEN DEDUCTED; SERVICE TAX WAS PAID; THERE IS NO EVIDENCE THAT SERVICES WERE NOT PROVIDE D. 19. GROUND NO 1 IS NOT PRESSED AND HENCE THE SAME I S DISMISSED. 20. GROUND NO 2 CHALLENGES THE DISALLOWANCE OF DEPR ECIATION ON ASTROLOGY FEES AMOUNTING TO RS 1,92,50,000/- (ON TOTAL PAYMEN T OF RS. 7,00,00,000/-; CAPITALIZED IN THE BOOKS). DURING THE YEAR, THE A SSESSEE HAS CLAIMED DEPRECIATION ON ARCHITECTURAL AND MANAGEMENT CONSUL TANCY FEES PAID TO MR ANAND NAIR TO THE TUNE OF RS 1,92,50,000/-. 20.1 THIS GROUND OF APPEAL IS SAME AS GROUND NO 3 OF THE ASSESSEES APPEAL FOR ASSESSMENT YEAR 2010-11 IN ITA 5818/MUM/2016, B UT FOR FIGURES. SINCE, WE HAVE ALREADY DECIDED THE ISSUE OF DEPRECIATION ON A STROLOGY FEES PAID TO MR. NAIR IN FAVOUR OF ASSESSEE IN ITA. NO. 5818/MUM/201 6, FOR SIMILAR REASONS WE DECIDE GROUND NO. 2 OF THIS APPEAL IN FVAOUR OF ASS ESSEE AND ACCORDINGLY, DIRECT THE AO TO ALLOW DEPRECIATION AS CLAIMED BY THE ASSE SSEE. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT THE PAYMENT OF FEES TO MR A NAND NAIR WAS GENUINE. THE ASSESSEE HAS RIGHTLY CAPITALIZED THE SAME UNDER THE HEAD PLANT AND MACHINERY. HENCE, GROUND NO 3 OF THE ASSESSEES APPEAL IS ALLO WED. THE ASSESSEE IS ENTITLED TO RELIEF OF DEPRECIATION CLAIMED OF RS.1, 92,50,000/-. 21. GROUND NO. 3 IS GENERAL, NOT PRESSED, HENCE, DI SMISSED. 22. IN THE RESULT, ASSESSEE APPEAL IS PARTLY ALLOWE D. PAGE 23 OF 34 ITA 6321/MUM/2016-AY.2011-12 23. THIS APPEAL WAS FILED BY THE DEPARTMENT AGAINST THE ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 47, MUMB AI {HEREINAFTER CALLED AS CIT(A)} DATED 08.08.2016, FOR THE ASSESSMENT YEAR 2 011-12 WHEREBY THE LD. CIT(A) HAS PARTLY ALLOWED THE APPEALS FILED BY THE ASSESSEES ARISING OUT OF THE ORDER PASSED U/S 143(3) R.W.S. 147 OF THE INCOME TA X ACT, 1961. 24. IN THIS CASE, DEPARTMENT HAS RAISED THE FOLLOWI NG GROUNDS OF APPEAL:- (/). 'ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN /AW, THE LD.CIT(A) ERRED IN GRANTING RELIEF ON THE DISALLOWA NCE OF DEPRECIATION MADE BY ASSESSING OFFICER IN RESPECT O F THE CAPITAL EXPENDITURE MADE BY THE ASSESSEE COMPANY IN THE FOR M OF BOGUS INFLATION OF EXPENDITURE OF RS. 26,25,14,887/- PAID TO M/S. TRIOCHEM SUCROTECH ENGINEERING & PROJECTS P. LIMITED.' (II) 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT SPECIALLY ADJUDICATING THE ISSUE OF DEPRECIATION ON THE INFLATED COST OF RS. 26,25,14,8 87F- OF THE PLANT AND MACHINERY AS REVEALED DURING THE COURSE OF SURV EY AT THE PREMISES OF TRIOCHEM SUCROTECH ENGINEERING & PROJEC TS P. LTD AND CONSEQUENTLY SURVEY AT PREMISES OF THE ASSESSEE ?' (III) 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) IN NOT APPRECIATING THE FACT THAT TH E ISSUE OF INFLATED COST OF RS. 26.25 CR. OF THE PROJECT WAS NOT ADJUDI CATED BY THE ITSC WHICH LEFT THE ISSUE TO THE FILE OF LD. COMMISSIONE R OF INCOME TAX (APPEAL) ERRED IN NOT ADJUDICATING THE SAME WHICH R ESULTED IN ALLOWING DEPRECIATING ON INFLATED COST OF THE PROJE CT ?' (IV) ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.54,61,338/- MADE U/S 14A OF THE IT ACT 1961 ON T HE GROUND THAT INVESTMENT HAD BEEN MADE BY THE ASSESSEE IN SUBSIDI ARIES COMPANIES AND THE SAME DOES NOT QUALIFY FOR DISALLO WANCE U/S 114A OF THE IT ACT 1961? PAGE 24 OF 34 25. GROUND NO. 1 (SUB GROUNDS (I), (II) & (III) OF THE DEPARTMENT APPEAL CHALLENGE THE RELIEF GIVEN BY THE CIT(A) ON THE DEP RECIATION ATTRIBUTABLE TO PLANT & MACHINERY PURCHASED FROM M/S TRIOCHEM SUCROTECH ENGINEERING & PROJECTS P LTD. 25.2 THE BACKGROUND OF THE CASE IS THAT THERE WAS A SURVEY ACTION ON THE ASSESSEE ON 13.03.2013. DURING THE COURSE OF THE S URVEY, CERTAIN DISCREPANCIES WERE FOUND RELATED TO VARIOUS CAPITAL EXPENDITURE A ND REVENUE EXPENDITURE. THE ASSESSEE WAS ALLEGED TO HAVE RECEIVED CASH BACK FRO M THE PARTIES AND CLAIMED DEPRECIATION ON BOGUS CAPITALIZATION. AMONG THE VA RIOUS PARTIES, ONE OF THE PARTIES WAS M/S TRIOCHEM SUCROTECH ENGINEERING & PR OJECTS PVT LTD. FROM 2010 ONWARDS, M/S TRIOCHEM SUCROTECH ENGINEERING & PROJE CTS PVT LTD WAS CONSTRUCTING A GRAIN BASED REFINERY FOR THE ASSESSE E AT SHRIRAMPUR, NASIK. THE ASSESSEE HAD CAPITALIZED THE COST OF THE REFINERY I N ITS BOOKS OF ACCOUNTS FOR THE FIRST TIME DURING ASSESSMENT YEAR 2011-12. 25.3 THE LD ASSESSING OFFICER HELD THAT THE ASSES SEE HAS BOOKED BOGUS CAPITALIZATION IN RESPECT OF PURCHASES FROM M/S TRI OCHEM SUCROTECH ENGINEERING & PROJECTS P LTD. TO THE EXTENT OF RS.26,25,14,887/ - AND RECEIVED BACK CASH TO THE EXTENT OF RS. 24.24 CRORES. ACCORDINGLY, THE AO HAD MADE ADDITION ON ACCOUNT OF CASH BACK RECEIVED OF RS. 22.43 CRORES IN ASST YEAR 2010-11 & OF RS. 1.81 CRORES IN ASST YEAR 2011-12. THE AO FURTHER HELD THAT DEPRECI ATION ON SUCH INFLATED CAPITALIZATION OF RS. 26,25,14,887/- CAN-NOT BE AL LOWED. HOLDING SO, THE LD. AO COMPUTED THE AVERAGE RATE OF DEPRECIATION CLAIMED T O BE 9.65%. ACCORDINGLY, HE DISALLOWED DEPRECIATION OF RS 2,53,32,686/- (I.E. 9 .65% OF RS. 26,25,14,887/-) IN RESPECT OF CAPITALIZATION RELATED TO M/S TRIOCHEM S UCROTECH ENGINEERING & PAGE 25 OF 34 PROJECTS P LTD. THE LD ASSESSING OFFICER ALSO DISA LLOWED DEPRECIATION OF OTHER ASSETS WHICH WERE ALLEGED TO BE BOGUS DURING THE SU RVEY AMOUNTING TO RS. 6,90,11,884/-. THE TOTAL DISALLOWANCE MADE ON ACCOU NT OF DEPRECIATION ON ASSETS HELD TO BE BOGUS AT RS. 9,43,44,570/- (I.E. 6,90,11 ,884/- RELATED TO OTHER THAN TRIOCHEM PLUS RS. 2,53,32,686/- RELATED TO TRIOCHEM SUCROTECH ENGINEERING & PROJECTS PVT LTD. THERE IS NO DISPUTE IN RESPECT OF DISALLOWANCE OF RS. 6,90,11,884/- BEFORE US AS PART OF SUCH ADDITION IS CONFIRMED AND PART RELIEF HAS BEEN GRANTED BY CIT(A) AND BOTH THE ASSESSEE AND TH E DEPARTMENT HAS ACCEPTED THE SAME. THE DEPARTMENT HAS ONLY CONTESTED THE DEP RECIATION ATTRIBUTABLE TO M/S TRIOCHEM SUCROTECH ENGINEERING & PROJECTS P LTD AMOUNTING TO RS 2,53,32,686/-. THUS, THERE ARE TWO ADDITIONS IN RES PECT OF TRANSACTION WITH M/S TRIOCHEM SUCROTECH ENGINEERING & PROJECTS P LTD.; O NE ADDITION ON ACCOUNT OF CASH BACK RECEIVED DURING THE YEAR OF RS. 1.81 CROR ES WHICH WAS NOT CHALLENGED BY THE DEPARTMENT AND ANOTHER DEPRECIATION OF RS. 2 ,53,32,686/- CLAIMED ON ALLEGED BOGUS CAPITALIZATION OF RS. 26,25,14,887/- CHALLENGED BEFORE US. 25.4 THE MAIN GRIEVANCES OF THE DEPARTMENT IS THAT THIS ISSUE RELATED TO DEPRECIATION HAS NOT BEEN ADJUDICATED BY THE CIT(A) AT ALL IN ITS ORDER, THEREFORE, THE MATTER OUGHT TO BE SET ASIDE TO THE CIT(A) TO G IVE A PROPER FINDING. 25.5. ON THE OTHER HAND, THE LD. SENIOR COUNSEL H AS RELIED UPON THE ORDER OF CIT (A) AND POINTED OUT THAT UNDER GROUNDS NO. 6 & 7; B EFORE CIT(A), THE ASSESSEE HAS CHALLENGED THE ISSUE RELATED TO DEPRECIATION AND CA SH BACK RECEIVED RESPECTIVELY. THE LD. CIT (A) HAS GIVEN CATEGORICAL FINDINGS IN B OTH THE ISSUES UNDER PARA 5.4 (SUB PARAS 5.4.1 TO 5.4.4) AND UNDER PARA 5.5 (SUB- PARAS 5.5.1 TO 5.5.2 RESPECTIVELY). THEREFORE, THERE IS NO MERITS IN THE ARGUMENTS OF LD. DR FOR RESTORING MATTER BACK TO THE FILE OF LD. CIT(A). PAGE 26 OF 34 26. WE HAVE HEARD BOTH THE PARTIES AND HAVE GONE TH ROUGH THE ORDERS OF THE LOWER AUTHORITIES. WE FIND THAT WHILE DEALING W ITH THE ISSUE RELATED TO CASH BACK RECEIVED FROM M/S TRIOCHEM SUCROTECH ENGI NEERING & PROJECTS P LTD, THE LD CIT (A) HAS GIVEN THE FOLLOWING FINDING. 5.5.2 ------- FROM A PERUSAL OF THE ASSESSMENT ORDER PASSED IN TH E CASE OF M/S. TRIOCHEM A.Y. 2010-11 THE AO NOTED THAT INFORMATION ON PARTIES ISSUING BOGUS BILLS WAS RECEIVED FROM THE SALES TAX DEPARTMENT BY THE INCOME TAX DEPARTMENT AND RESULTED IN SURVEY U/ S 133A ON M/S. TRIOCHEM. IN THE STATEMENT RECORDED FROM SHRI. NITI N DESHPANDE DURING THE SURVEY, HE ADMITTED TO THE DEBITING OF B OGUS EXPENSES TO THE TUNE OF RS. 24.24 CRORES. THE AO DISMISSED THE ARGUMENT OF SHRI. NITIN DESHPANDE THAT THIS AMOUNT WAS PASSED ON TO M /S. TILAKNAGAR INDUSTRIES. IN THE ASSESSMENT ORDER OF M/S. TRIOCHE M THE AO REJECTED THEIR ARGUMENT THAT THE SUPPLEMENTARY CONTRACT WAS WITHOUT SUBSTANCE AND WAS PUT IN PLACE ONLY TO ENABLE SIPHO NING OFF FUNDS FOR BEING PASSED ON TO M/S. TILAKNAGAR INDUSTRIES, POIN TING OUT THE VARIOUS CLAUSES OF THE SUPPLEMENTARY AGREEMENT WHIC H ENUMERATED THE ADDITIONAL MODIFICATIONS AND ENHANCED SPECIFICA TION OF THE INSTRUMENTATION ORIGINALLY PROPOSED. IN THE COURSE OF ASSESSMENT OF M/S. TRIOCHEM THE AO NOTED THAT THERE WAS NO EVIDEN CE THAT IT WAS COERCED INTO AGREEING INTO SIGNING AN INFLATED CONT RACT. HE ALSO REJECTED THE ASSERTION THAT THE BOGUS PURCHASES WER E DONE AT THE BEHEST OF M/S. TILAKNAGAR INDUSTRIES. THE STATEMENT S OF SHRI. S. K. JAIN AND SHRI. SURESH PARIKH WERE ALSO ANALYZED BY THE A O IN THE ASSESSMENT ORDER OF M/S. TRIOCHEM AND HE CONCLUDED THAT THESE STATEMENTS HAVE BEEN ONLY GIVEN TO ACCOMMODATE M/S. TRIOCHEM AS THE CONCERNED PARTIES CANNOT REMEMBER CRITICAL DETA ILS AND ARE UNABLE TO PROVIDE INFORMATION REGARDING PERSONS IN M/S. TILAKNAGAR INDUSTRIES WHO WERE ALLEGEDLY GIVEN THIS MONEY. IN THIS BACKGROUND THE AMOUNT OF BOGUS EXPENSES HAS BEEN ADDED BACK IN THE HANDS OF M/S. TRIOCHEM. PERUSAL OF THE SUBMISSIONS MADE BY T HE APPELLANT, BEAR OUT THE OBSERVATIONS MADE BY THE AO OF M/S. TR IOCHEM AS IT IS SEEN THAT THE EXISTENCE OF THE PLANT IN QUESTION IS FOUND ATTESTED TO BY THE SALES TAX AUTHORITIES AND THE INDEPENDENT CH ARTERED ENGINEER. M/S. TRIOCHEM HAS NOT BEEN SHOWN TO BE RELATED TO T HE APPELLANT COMPANY. GENERATION OF CASH THROUGH BOGUS BILLING I S GENERALLY DONE PAGE 27 OF 34 THROUGH MOST COST EFFECTIVE MEANS AVAILABLE WITH MI NIMUM PAYOUT FOR THE PARTY WISHING TO GENERATE THE CASH. IN THE PRESENT CASE, THE APPELLANT HAS SHOWN THAT PAYMENTS TO M/S. TRIOCHEM BORE ADDITIONAL TAXES INCLUDING CENVAT @3% AND VAT @ 12.5%. FURTHER , THE FACT THAT RECEIPTS FROM TRIOCHEM ARE SHOWN PARALLEL TO E XPENDITURE INCLUDING HANDING OVER OF AMOUNTS TO AMIT TANDON IS APPARENT FROM THE WORKSHEETS. AS NOTED BEFORE, IT IS AN ACCEPTED PRINCIPLE THAT THE SAME INCOME CANNOT BE SUBJECTED TO TAX TWICE. THUS CONSIDERING ALL FACTS, I FIND THAT THE ADDITION OF RS. 1,81,00,000/ - CANNOT BE SUSTAINED IN THE HANDS OF THE APPELLANT CONCERN AND THE SAME IS DELETED. ACCORDINGLY, GROUND NO. 7 RAISED BY THE APPELLANT I S ALLOWED. 27. WE, FIND THAT THE CIT(A) HAS RECORDED CATEGORIC AL FINDING THAT IN THE ASSESSMENT ORDER OF M/S TRIOCHEM, THE AO REJECTED T HEIR ARGUMENT THAT THE SUPPLEMENTARY CONTRACT WITH THE PRESENT APPELLA NT WAS WITHOUT SUBSTANCE. THE AO ADDED THE AMOUNT OF RS 24 CRORES IN THE HANDS OF M/S TRIOCHEM. THUS, THE VERY FOUNDATION OF ADDITION MAD E IN THE HANDS OF THE ASSESSEE (BEING STATEMENT OF THE MR. NITIN DESHPAND E) WAS REJECTED BY THE INCOME TAX DEPARTMENT ITSELF IN THE CASE OF TRIOCHE M. THE ASSESSEE HAS PAID HUGE CENVAT AND VAT WHICH CAN-NOT BE FOUND IN BOGUS TRANSACTION. THE PLANT IS IN EXISTENCE AS ATTESTED BY THE SALES TAX AUTHORITIES AND THE INDEPENDENT CHARTERED ENGINEER. M/S. TRIOCHEM HAS N OT BEEN SHOWN TO BE RELATED TO THE APPELLANT COMPANY. GENERATION OF CAS H THROUGH BOGUS BILLING IS GENERALLY DONE THROUGH MOST COST EFFECTIVE MEANS AVAILABLE WITH MINIMUM PAYOUT FOR THE PARTY WISHING TO GENERATE TH E CASH WHICH IS NOT THERE IN THE PRESENT CASE. WE FURTHER NOTE THAT THE INCOME TAX DEPARTMENT HAS NEITHER CHALLENGED THE ABOVE ADDITION ON ACCOUN T OF CASH BACK RECEIVED OF RS. 1.81 CRORES NOR CHALLENGED THE ABOV E FINDINGS OF CIT(A) WITH REFERENCE TO TRANSACTION WITH TRIOCHEM. THUS, THE A BOVE FINDINGS OF CIT(A) HAS REMAINED UN-CHALLENGED AND FINAL. PAGE 28 OF 34 28. WE FIND THAT THE LD. CIT(A) HAS DEALT WITH THE ISSUE RELATED TO DEPRECIATION DISALLOWANCE IN GROUND NUMBER 6 OF GRO UNDS OF APPEAL (PARA 5.4, SUB PARAS 5.4.1 TO 5.4.4). THE RELEVANT PORTIO NS OF THE ORDERS ARE REPRODUCED BELOW: 5.4 IN GROUND NO. 6, THE APPELLANT HAS CHALLENGED THE DISALLOWANCE OF DEPRECIATION AMOUNTING TO RS. 9,43,44,570/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTED THAT THE INCRE ASE IN GROSS BLOCK OF P&M DURING THE YEAR INCLUDED FICTITIOUS ASSETS ACQU IRED DURING THE YEAR AS ALSO THE INFLATED COST OF THE PROJECT EXECUTED BY M /S TRIOCHEM. THE AO ALSO OBSERVED THAT THE INFLATION OF THE COST OF THE PROJ ECT EXECUTED BY M/S TRIOCHEM WAS WORKED OUT TO RS. 26,25,14,887/- WHICH INCLUDED PURCHASE OF COMPUTERS OF RS. 3,64,86,410/- ON WHICH DEPRECIATIO N @50.45% WORKED OUT TO RS. 1,84,07,393/-. FURTHER THE AO NOTED THAT IN THE PRECEDING YEARS, THE COMPUTERS/PERIPHERALS HAS BEEN TREATED AS PLANT AND MACHINERY AND HENCE WERE LIABLE FOR DEPRECIATION @15%. THE AO THE N WORKED OUT DISALLOWANCE AS UNDER: PLANT & MACHINERY PARTICULARS AMOUNT (RS) TOTAL FICTITIOUS CAPITAL ASSETS PURCHASES DURING THE YEAR 40,43,28,369 LESS COMPUTERS INCLUDED IN THE ABOVE AMOUNT FOR WHICH DISALLOWANCE IS MADE SEPARATELY 3,64,86,410 NET AMOUNT OF PLANT AND MACHINERY (FICTITIOUS PURCHASES DURING THE YEAR OTHER THAN COMPUTERS) 36,78,41,959 ADD INFLATED PROJECT COST OF TRIOCHEM 26,25,14,887 TOTAL P&M FOR DISALLOWANCE OF DEPRECIATION 63,03,56,846 AGAINST TOTAL BLOCK OF RS 239,39,96,953 THE DEPRECIATION OF RS 23,12,26,946 HAS BEEN ACCORDINGLY, THE DEPRECIATION ATTRIBUTABLE TO NON GENUINE P&M PAGE 29 OF 34 CLAIMED. ACCORDINGLY THE AVERAGE RATE OF DEPRECIATION IS WORKED OUT AT 9.65% AVERAGE. @9.65% AMOUNTS TO RS 6,08,29,435/-. REMARKS AMOUNT OF DEPRECIATION DISALLOWED (RS) FICTITIOUS / NON-EXISTENT DEPRECIATION 1,84,07,393/- EXISTING COMPUTERS (DEPRECIATION RESTRICTED TO 15%) 1,51,07,742/- P&M (OTHER THAN COMPUTERS) 6,08,29,435/- TOTAL DEPRECIATION ALLOWED 9,43,44,570/- 29. THE LD. CIT (A) THEN REPRODUCED THE SUBMISSION S OF THE ASSESSEE AT PARA 5.4.1, PAGE 17-20. THEREAFTER, CIT (A) HAS ANALYZED THE ASSESSMENT ORDER, SUBMISSION OF THE ASSESSEE, ORDER OF THE SETTLEMENT COMMISSIONS, FINDINGS IN EARLIER YEARS AND SUBSEQUENT YEARS. AFTER DETAILED ANALYSIS OF EACH PARTY, THE LD. CIT (A) HAS RESTRICTED THE DISALLOWANCE OF DEPR ECIATION TO RS. 3,03,06,714/-. THAT MEANS, THE CIT(A) HAS MADE FURTHER DISALLOWANC E OF RS. 92,81,009/- IN REVENUE EXPENDITURE AS THE PAYMENT MADE TO ONE PART Y WAS NOT CAPITALIZED, BUT, CHARGED TO P&L A/C. THE RELEVANT RULING OF LD CIT(A) READ AS UNDER (PARA 5.4.4 ON PAGE 25): 5.4.4 . THE AO IS THEREFORE DIRECTED TO LIMIT THE DISALLOWA NCE UNDER THIS HEAD TO RS. 3,03,06,714/- AND MAKE FURTHER DISALLOWANCE OF REVENUE EXPENSES OF RS. 92,81,009/-. ACCORDINGLY, THE GROUND RAISED BY THE APPELLANT IS PARTLY ALLOWED. PAGE 30 OF 34 30. A REFERENCE TO THE ABOVE WOULD SHOW THAT WHILE DECIDING GROUND NO. 7, THE LD. CIT(A) HAS GIVEN A CATEGORICAL FINDING THAT PAYMENT TO M/S TRIOCHEM IN RESPECT OF PURCHASE OF P&M IS GENUINE AND DOES NOT CALL FOR ANY INTERFERENCE. THIS FINDING WAS NOT AT ALL CHALLENGED BY THE DEPAR TMENT. WHILE DEALING WITH GROUND NO. 6 OF THE ASSESSEE APPEAL BEFORE CIT(A), SPECIFIC REFERENCE WAS GIVEN UNDER PARA 5.4 FOR DISALLOWANCE OF DEPRECIATI ON IN RESPECT OF TRANSACTION WITH TRIOCHEM. THE LD.CIT (A) HAS ANALYSED EACH AND EVERY PARTY ALLEGED TO BE BOGUS AND HER ANALYSIS WAS SO MINUTE THAT SHE HAS E VEN IDENTIFIED A PAYMENT OF RS. 92,81,009/- IN RESPECT OF ONE PARTY WHEREBY SUCH PAYMENT WAS DEBITED IN P&L ACCOUNT AND DIRECTED TO BE DISALLOWED OVER A ND ABOVE THE ADDITION MADE BY AO. THE LD. DR COULD NOT PINT OUT ANY OTHER INFIRMITY IN THE ORDER OF CIT(A), BUT, SIMPLY ARGUED THAT NO EXPRESS FINDING WAS GIVEN IN RESPECT OF TRANSACTION WITH TRICOHEM, THEREFORE, MATTER MAY BE SET ASIDE TO CIT(A). IN VIEW OF OUR FINDINGS HEREINABOVE, WE ARE OF THE CON SIDERED OPINION THAT THE LD. CIT (A) HAS ADEQUATELY DEALT WITH THIS ISSUE AND WE DO NOT FIND ANY INFIRMITY WHATSOEVER IN THE ORDER OF CIT(A). ACCORDINGLY, GRO UND NO. 1, SUB GROUNDS (I, II & III) OF DEPARTMENTAL APPEAL ARE DISMISSED. 31. GROUND NO 1(IV) OF THE DEPARTMENT APPEAL CHALLE NGES THE DELETION OF THE DISALLOWANCE U/S 14A OF THE ACT BY THE LD. CIT(A) O F RS 54,61,338/-. DURING THE YEAR, THE ASSESSEE DISALLOWED AN AMOUNT OF RS 3,43, 305/- UNDER SECTION 14A OF THE ACT. THE ASSESSING OFFICER WAS OF THE VIEW THA T RULE 8D WAS APPLICABLE. THE AO QUANTIFIED THE DISALLOWANCE AT RS 49.97 LAKH S UNDER RULE 8D(II) AND RS 8.09 LAKHS UNDER RULE 8D(III). THE AO DISALLOWED T HE EXCESS OVER THE SUMOTO DISALLOWANCE AMOUNTING TO RS 54,61,338/-. THE ASSES SEE FILED APPEAL BEFORE THE HONBLE CIT(A). THE CIT(A) DELETED THE DISALLO WANCE ON THE GROUND THAT THERE WAS NO EXEMPT INCOME EARNED DURING THE YEAR, THE NET WORTH WAS PAGE 31 OF 34 SUFFICIENT, THE INVESTMENTS WERE STRATEGIC IN NATUR E. AGGRIEVED, THE DEPARTMENT HAS FILED APPEAL BEFORE US. 32. THE D.R. ARGUED THAT THE ASSESSEE HAD INVESTED IN SHARES OF SUBSIDIARY COMPANIES. AS PER RECENT RULING OF HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD V/S CIT 402 ITR 640 (SC) , THE COURT HELD THAT STRATEGIC INVESTMENT IN COMPANIES WERE TO BE INCLUDED FOR PUR POSE OF RULE 8D COMPUTATION. 33 THE A.R. ARGUED THAT THE INTEREST CANNOT BE DISA LLOWED SINCE, NOT A SINGLE RUPEE OF DIVIDEND INCOME WAS EARNED. HENCE, FOLLO WING THE RECENT DELHI SPECIAL BENCH DECISION OF ACIT V VIREET INVESTMENT (P.) LTD [2017] 82 TAXMANN.COM 415 (DELHI - TRIB.) (SB) NO DISALLOWANCE CAN BE MADE. FURTHER, THE INVESTMENTS OF RS 25.81 CRORES WERE ENTIRELY MA DE OUT OF THE OWNED FUNDS WHICH WERE RS 401.92 CRORES. HENCE, NO 14A DISALLO WANCE CAN BE MADE FOLLOWING THE BOMBAY HIGH COURT DECISION IN CIT V HDFC BANK (2014) 366 ITR 505 (BOM). THE AR FURTHER SUBMITTED THAT FOR ASSESSMENT YEAR 2 010-11, THE LD. CIT(A) DELETED THE IDENTICAL ADDITION. THE DEP ARTMENT APPEAL TO ITAT WAS DISMISSED DUE TO LOW TAX EFFECT. IN THE REOPENING, THE AO ONCE AGAIN MADE ADDITION U/S 14A WHICH WAS DELETED BY CIT(A) AND HA S REMAINED UNCHALLENGED BY THE DEPARTMENT. FOR ASSESSMENT YEAR 2009-10, ASS ESSMENT YEAR 2012-13 ONWARDS, THERE WAS NO 14A DISALLOWANCE. 34. WE HAVE HEARD BOTH THE PARTIES AND HAVE GONE TH ROUGH THE ORDERS OF THE LOWER AUTHORITIES. IN THIS CASE, THE ASSESSEE HAS MADE INVESTMENTS IN SHARES OF SUBSIDIARY COMPANIES OF RS 26 CRORES. TH E AO INVOKED SECTION 14A OF THE ACT AND DISALLOWED AN AMOUNT OF RS 54,61 ,338/- AS PER RULE 8D. PAGE 32 OF 34 THE CIT(A) DELETED THE DISALLOWANCE ON THE GROUND T HAT NO DIVIDEND WAS EARNED. HAVING CONSIDERED ARGUMENTS OF BOTH SIDES, WE ARE UNABLE TO ACCEPT THE SUBMISSIONS OF THE DEPARTMENTAL REPRESEN TATIVE. THERE IS NO DOUBT THAT INVESTMENT IN SUBSIDIARIES OUGHT TO BE I NCLUDED FOR 14A DISALLOWANCE. HOWEVER, OTHER FACTORS HAVE ALSO TO B E LOOKED INTO LIKE NET WORTH, INVESTMENT AMOUNT, RECEIPT OF DIVIDEND ETC. WE NOTE THAT AS AGAINST NET WORTH OF THE ASSESSEE AS ON 31.03.2011 OF RS. 4 01.92 CRORES, INVESTMENT STOOD AT RS. 25.85 CRORES. THUS, THE ASS ESSEE HAS ADEQUATE OWN FUNDS. HENCE, FOLLOWING THE HONBLE BOMBAY HIGH COU RT DECISION OF CIT V HDFC BANK (2014) 366 ITR 505 (BOM) , NO INTEREST COULD BE DISALLOWED. IT IS ALSO ON RECORD THAT THE ASSESSEE HAS NEITHER RECEIV ED ANY DIVIDEND INCOME NOR CLAIMED ANY INCOME TO BE EXEMPT. SINCE THERE IS NO EXEMPT INCOME EARNED, THERE IS NO QUESTION OF INVOKING SECTION 14 A OF THE ACT AS HELD HONBLE SPECIAL BENCH IN THE CASE OF ACIT V VIREET INVESTMENT (P.) LTD [2017] 82 TAXMANN.COM 415 (DELHI - TRIB.) (SB). THUS, EVEN ON THIS COUNT, NO DISALLOWANCE U/S 14A COULD BE MADE. IN VIEW OF THE ABOVE, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO ERROR IN FINDINGS OF LD. CIT(A) AND HENCE, WE ARE INCLINED UPHOLD CIT(A) FINDINGS AND REJECT GROUND T AKEN BY THE REVENUE. 35. GROUND NO 2 & 3 OF GROUNDS OF APPEAL ARE GENERA L, NOT PRESSED, HENCE, DISMISSED. 36. IN THE RESULT, REVENUE APPEAL IS DISMISSED. 37. AS A RESULT, APPEALS FILED BY THE ASSESSEE FOR AY 2010-11 AND 2011-12 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE AND THE APPE AL OF THE REVENUE FOR AY 2011- 12 IS DISMISSED. PAGE 33 OF 34 ORDER PRONOUNCED IN THE OPEN COURT ON 15-02-2019 . SD/- SD/- (MAHAVIR SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 15 TH FEBRUARY, 2019 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI