ACIT, New Delhi V. M/s. Associated Law Advisers, New Delhi

ITA 5846/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3554 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-11-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 03-07-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 30-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C S AGGARWAL
• Assessee Lawyers: S K MISHRA
• Keywords: Earning of tax free income; Tax effect
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A, NEW DELHI BEFORE SHRI. AMIT SHUKLA, JUDICIAL MEMBER & SHRI O.P. KANT, ACCOUNTANT MEMBER I.T.A. NO.5336 & 5846/DEL/2014 ASSESSMENT YEAR: 2010-11 ASSOCIATED LAW ADVISERS ANTRIKSH BHAWAN 6 TH FLOOR, 22, KASTURBA GANDHI MARG NEW DELHI V. ITO WARD 37(3) NEW DELHI TAN/PAN:AAAFA8774F (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI C.S. AGGARWAL, SR. ADVOCATE RESPONDENT BY: SHRI S. K. MISHRA, D.R. DATE OF HEARING: 09 10 2017 DATE OF PRONOUNCEMENT: 08 11 2017 O R D E R PER AMIT SHUKLA, J.M.: THE AFORESAID CROSS-APPEALS HAVE BEEN FILED BY THE ASSESSEE AS WELL AS BY THE REVENUE AGAINST THE IMPUGNED ORDER DATED 22/8/2014, PASSED BY THE LD. CIT (APPEALS)-XXVIII, NEW DELHI FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) FOR THE ASSESSMENT YEAR 2010-11. 2. WE WILL FIRST TAKE UP THE ASSESSEES APPEAL WHEREIN THE FOLLOWING GROUNDS HAVE BEEN RAISED:- 1. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) -XXVIII HAS ERRED BOTH ON FACTS AND IN LAW IN SUSTAINING AN ADDITION OF RS.35,02,689 IN RESPECT OF CURRENT LIABILITIES I.T.A. NO.5336 & 5846/DEL/2014 2 MADE BY THE INCOME TAX OFFICER, WARD 37(3), NEW DELHI IN COMPUTATION OF TAXABLE PROFITS. 2. THAT THE COMMISSIONER OF INCOME TAX (APPEALS)-XXVIII HAS SIMILARLY FURTHER ERRED BOTH ON FACTS AND IN LAW IN SUSTAINING A DISALLOWANCE MADE OF RS.71,122 MADE BY THE INCOME TAX OFFICER, WARD 37(3), NEW DELHI BY INVOKING THE PROVISIONS OF THE SECTION 14A OF THE INCOME TAX ACT, 1961, AS THE AFORESAID PROVISION HAD NO APPLICATION ON THE FACTS OF THE INSTANT CASE, SINCE THE EXPENDITURE INCURRED AND DEBITED IN THE INCOME & EXPENDITURE A/C HAS ABSOLUTELY NO RELATIONSHIP WITH THE EXEMPTED INCOME. THE OBSERVATIONS MADE IN THE ORDER ARE HIGHLY THEORETICAL AND CONJECTURAL. 3. IT IS THUS PRAYED THAT THE ADDITION OF RS.35,02,689 AND THE DISALLOWANCE MADE OF RS.71,122 UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 BY THE INCOME TAX OFFICER, WARD 37(3), NEW DELHI AND SUSTAINED BY THE COMMISSIONER OF INCOME TAX (APPEALS)- XXVIII MAY KINDLY BE DELETED. 3. THE BRIEF FACTS QUA THE FIRST ISSUE RAISED BY THE ASSESSEE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE PROFESSION OF LEGAL SERVICES, (I.E. IT IS A LAW FIRM). DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER, ON A PERUSAL OF THE BALANCE SHEET, NOTED THAT UNDER THE HEAD CURRENT LIABILITIES, A SUM OF RS.42,91,289/- IS APPEARING AND OUT THE SAID CURRENT LIABILITIES, SUM OF RS.5 LAKHS AND FOR RS.2,88,680/-, THE ASSESSING OFFICER ACCEPTED ASSESSEES REPLY; BUT FOR BALANCE SUMS AGGREGATING TO RS.35,02,609/-, AO SOUGHT ASSESSEES CLARIFICATION TO WHICH ASSESSEE SUBMITTED THAT THESE PAYMENTS ARE IN THE NATURE OF ADVANCE PAYMENT RECEIVED FROM THE CLIENTS FOR MAKING PAYMENT OF FEES TO SENIOR ADVOCATES TO APPEAR ON BEHALF OF THE CLIENTS BEFORE HON'BLE HIGH COURT AND SUPREME COURT AND FOR INCURRING OF EXPENDITURE ON BEHALF OF THE CLIENTS. I.T.A. NO.5336 & 5846/DEL/2014 3 HOWEVER, THE ASSESSING OFFICER REJECTED ASSESSEES CONTENTION ON THE GROUND THAT ASSESSEE IS FOLLOWING CASH SYSTEM OF ACCOUNTING AND ANY INCOME ACTUALLY RECEIVED IN A PARTICULAR YEAR HAS TO BE CONSIDERED AS INCOME OF THAT YEAR AND ANY EXPENDITURE ACTUALLY INCURRED OR PAID IN A PARTICULAR YEAR HAS TO BE TREATED AS EXPENDITURE OF THAT YEAR. THE ASSESSEE-FIRM IS SHOWING THE PROFESSIONAL FEES RECEIVED IN THE PREVIOUS YEAR IN THE PROFIT & LOSS ACCOUNT FOR THE YEAR AND IT PAYS THE PROFESSIONAL CHARGES AFTER DEDUCTING TDS TO THE SENIOR ADVOCATES WHICH WAS RECEIVED BY IT IN THE PREVIOUS YEAR AND THEREFORE, THIS IS CLEAR VIOLATION OF THE PRINCIPLES OF CASH SYSTEM OF ACCOUNTING. ACCORDINGLY, HE ADDED THE ENTIRE AMOUNT OF RS.35,02,609/- APPEARING UNDER THE HEAD CURRENT LIABILITIES TO THE INCOME OF THE ASSESSEE FOR THIS YEAR. 4. BEFORE THE LD. CIT(A), ASSESSEE SUBMITTED THAT THE CURRENT LIABILITIES UNDER THIS HEAD CONSIST OF THREE CATEGORIES OF PAYMENTS RECEIVED FROM THE CLIENTS; FIRSTLY, AMOUNT RECEIVED IN ADVANCE FROM THE CLIENTS FOR PAYMENT OF FEES TO SENIOR ADVOCATES, WHO ARE ENGAGED TO APPEAR ON BEHALF OF THE CLIENTS BEFORE HON'BLE HIGH COURTS AND SUPREME COURT, AS SENIOR ADVOCATES GENERALLY DEMAND FEES IN ADVANCE AND, THEREFORE, IT REQUEST CLIENTS TO REMIT ADVANCE FEES PAYABLE TO THE SENIOR ADVOCATES IN ADVANCE AND ACCORDINGLY BILLS ARE SENT TO THE CLIENTS CLEARLY INDICATING THAT THE AMOUNT IS TOWARDS FEES PAYABLE TO THE SR. ADVOCATES AND NOT TO THE ASSESSEE-FIRM; SECONDLY, ASSESSEE HAS TO INCUR SUBSTANTIAL EXPENDITURE FOR AND ON BEHALF OF THE CLIENTS TOWARDS FEES PAYABLE TO THE REGISTRAR OF COMPANIES AND OTHER AUTHORITIES, FOR PURCHASE I.T.A. NO.5336 & 5846/DEL/2014 4 OF STAMP PAPERS, PREPARATION OF PAPER BOOK, HOTEL AND OTHER EXPENSES OF THE SR. COUNSEL ENGAGED TO HANDLE THE CASES OUTSIDE DELHI AND, THEREFORE, IT REQUESTS THE CLIENTS TO REMIT IN ADVANCE THE ESTIMATED EXPENDITURE TO BE INCURRED FOR SPECIFIED PURPOSES; AND LASTLY, THE ASSESSEE-FIRM SENDS A MEMORANDUM OF FEES (INVOICE) TO ITS FOREIGN CLIENTS BY ELECTRONIC MAIL, WHICH IS FOLLOWED BY A HARD COPY SENT BY POSTAL MAIL AND IN SOME OF THE INSTANCES BY MISTAKE CLIENTS HAVE MAKE DOUBLE PAYMENTS, I.E., ONCE ON RECEIVING THE INVOICE BY THE ELECTRONIC MAIL AND AGAIN ON RECEIVING THE HARD COPY OF THE POSTAL MAIL. IMMEDIATELY ON COMING TO KNOW THAT THE CLIENT HAS MADE DOUBLE PAYMENT BY MISTAKE, IT MAKES A REQUEST TO THE CLIENT FOR REMITTING THE AMOUNT THROUGH WIRE TRANSFER WHICH HAS WRONGLY PAID THE EXTRA AMOUNT. HOWEVER, SOME OF THE CLIENTS INSTRUCTED THAT THE FEES WRONGLY PAID NEED NOT TO BE REMITTED BUT SHOULD BE RETAINED FOR ADJUSTMENT AGAINST FEES FOR FUTURE SERVICES. UNDER ALL THE CATEGORIES, ASSESSEE SUBMITTED THAT IT IS THE MONEY BELONGS TO THE CLIENTS AND IT IS HELD BY THE ASSESSEE-FIRM IN FIDUCIARY CAPACITY, WHICH CANNOT BE APPROPRIATED BY THE FIRM AS ITS INCOME AS INCOME IS NOT REALISED UNLESS SERVICES ARE PERFORMED FOR THE CLIENTS. IN SUPPORT OF SUCH ACCOUNTING PRACTICE, RELIANCE WAS PLACED ON VARIOUS DECISIONS, WHICH HAVE BEEN INCORPORATED AT PAGES 4 & 5 OF THE APPELLATE ORDER. 5. THE LD. CIT (A), INCORPORATED VARIOUS DETAILS OF BILLS AND INVOICES SUBMITTED BY THE ASSESSEE WITH REGARD TO ALL THE THREE CATEGORIES OF CLIENTS AT PAGES 6 TO 8 OF THE APPELLATE ORDER. FROM I.T.A. NO.5336 & 5846/DEL/2014 5 THESE DETAILS, HE POINTED OUT CERTAIN DEFECTS TO SUSTAIN THE ADDITION WHICH, FOR THE SAKE OF READY REFERENCE, ARE REPRODUCED HEREUNDER:- THE PERUSAL OF THE ABOVE EVIDENCE FILED BY THE APPELLANT SHOWS THAT THE APPELLANT HAS TREATED ADVANCE PAYMENT RECEIVED FOR PAYMENT TO SR. ADVOCATES AND FOR PAYMENT TO ITS OWN PARTNERS IN A SIMILAR MANNER. THUS IN RESPECT OF SR. NO.5 BILL HAS BEEN RAISED FOR FEES FOR FILING OF PETITION AND IN RESPECT OF HEARING BY THE SR. COUNSEL AND JR. COUNSEL, BUT THE SAME HAS ALSO BEEN TREATED AS ADVANCE AND DIRECTIONS HAVE BEEN ISSUED TO THE CLIENT TO NOT DEDUCT TDS. THE APPELLANT IS TAKING ALL ADVANCES OUTSTANDING ON THE LAST DAY OF THE FINANCIAL YEAR AS CURRENT LIABILITY AND IN ESSENCE IS NOT TREATING ANY AMOUNT RECEIVED IN ADVANCE AS ITS INCOME EVEN WHERE THE AMOUNT HAS BEEN RECEIVED AGAINST BILL RAISED BY IT FOR ITS OWN PARTNERS/EMPLOYEES. EVEN WHERE BILL HAS BEEN RAISED FOR EFFORTS PUT IN BY LIRA GOSWAMI AND MOHNA M LAI, THE APPELLANT HAS TREATED THE SAME AS ADVANCE AMOUNT. THUS THE APPELLANT HAS NOT MAINTAINED THE ACCOUNT AS PER CASH SYSTEM OF ACCOUNTING. THE EVIDENCE FILED BY IT AS PER SR. NO. 12 ABOVE DOES NOT RELATE TO THE YEAR IN QUESTION. 2. IN RESPECT OF ADVANCE RECEIVED FOR EXPENSES: NO SEPARATE EVIDENCE IN RESPECT OF THIS CATEGORY HAS BEEN FILED BY THE APPELLANT, HOWEVER THIS HAS BEEN DEALT WITH IN ONE ABOVE AND THE APPELLANT HAS TREATED SPECIFIC AMOUNT SPENT AGAINST SPECIFIC EXPENSES AS ADVANCE. 3. IN RESPECT OF DOUBLE PAYMENT: THE APPELLANT HAS FILED COPY OF ACCOUNT OF , DEG DEUTSCHE INVESTITIONS; GENWORTH FINANCIAL INC.; GLOBAL ENGLISH CORPORATION; NBC UNIVERSAL; AND MARS INC AS EVIDENCE OF DOUBLE PAYMENTS. THE APPELLANT HAS NOT FILED ANY CORRESPONDENCE WITH THE ABOVE PARTY SHOWING THE AMOUNT RECEIVED WERE ON ACCOUNT OF PAYMENT MADE TWICE BY THE PARTIES. ONLY AN ADJUSTMENT BILL NO.053/2008 DATED 5TH MARCH, 2008 (THUS NOT RELATING TO THE I.T.A. NO.5336 & 5846/DEL/2014 6 RELEVANT PERIOD) HAS BEEN FILED SHOWING ADJUSTMENT OF EXCESS AMOUNT PAID BY GENWORTH. THE APPELLANT HAS THUS NOT BEEN ABLE TO SHOW THAT THE AMOUNT RECEIVED AS ADVANCE HAVE BEEN RECEIVED BY IT IN FIDUCIARY CAPACITY. THE ADJUSTMENT OF THE AMOUNT AGAINST BILLS SHOW THAT THE AMOUNTS HAVE BEEN RECEIVED IN ADVANCE AGAINST WORK DONE BY THE APPELLANT OR AGAINST BILLS RAISED BY THE APPELLANT AT A LATER DATE. AS PER CASH SYSTEM OF ACCOUNTING THESE AMOUNTS ARE TO BE TREATED AS THE APPELLANTS INCOME. THE ADDITION MADE BY THE ASSESSING OFFICER IS THEREFORE SUSTAINED. 6. BEFORE US, THE LD. SR. COUNSEL FOR THE ASSESSEE, SHRI C.S. AGGARWAL, AFTER EXPLAINING THE ENTIRE FACTS, SUBMITTED THAT UNDER ALL THE THREE CATEGORIES OF PAYMENT RECEIVED IN ADVANCE FROM THE CLIENTS, MONEY HAS KEPT IN THE FIDUCIARY CAPACITY TO MEET OUT THE EXPENDITURES AND OBLIGATIONS ON BEHALF OF ITS CLIENTS, LIKE MAKING PAYMENT OF FEES TO THE SENIOR ADVOCATES ENGAGED FOR THE PURPOSE OF SUCH CLIENTS OR TO MEET OUT THE LITIGATION EXPENSES, ETC. IN NONE OF THE THREE CATEGORIES, MONEY BELONGED TO THE ASSESSEE AND THE SAME IS RETAINED AS TRUST MONEY. THEREFORE, THE SAME CANNOT BE RECKONED AS INCOME OF THE ASSESSEE EVEN UNDER CASH SYSTEM OF ACCOUNTING. IN SUPPORT, HE RELIED UPON THE FOLLOWING DECISIONS/JUDGMENTS:- (I) K.K. KHULLAR VS. DCIT [2008] 304 ITR 295 (DELHI) (II) CAREER LAUNCHER (INDIA) LTD. VS. ACIT [2011] 139 TTJ 48 (DELHI) (III) CIT VS. OM PRAKASH KHAITAN [2015] 376 ITR 390 (DELHI) I.T.A. NO.5336 & 5846/DEL/2014 7 (IV) MANILAL KHER AMBALAL & CO. VS. A.G. LALLU [1989] 176 ITR 253 (BOMBAY) (V) CIT VS. TANUBHAI D. DESAI [1972] 385 ITR 339 (BOMBAY) (VI) CIT VS. BIJOY KUMAR JAIN [2016] 385 ITR 339 (CAL.) 7. SO FAR AS THE DISCREPANCIES POINTED OUT BY THE LD. CIT(A) IN HIS IMPUGNED ORDER, FOLLOWING REBUTTAL HAD BEEN SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE BEFORE US IN THE FORM OF WRITTEN SUBMISSION WHICH CLARIFIES THE FACTUAL POINTS RAISED BY THE LD. CIT(A):- 1.7 WITH REGARD TO BILL NO. 107/2009 REFERRED TO AT SERIAL NO. 5, ON PAGE 7 OF THE APPELLATE ORDER, THE COMMISSIONER (APPEALS) HAS STATED THAT THE BILL HAS BEEN RAISED FOR FEES FOR FILING OF PETITION AND IN RESPECT OF HEARING BY THE SR. COUNSEL AND JR. COUNSEL, BUT THE SAME HAS ALSO BEEN TREATED AS ADVANCE AND DIRECTIONS HAVE BEEN ISSUED TO THE CLIENT TO NOT DEDUCT TDS'. THE COMMISSIONER (APPEALS) HAS OVERLOOKED THE FACT THAT THE NOTE AT THE END OF THE BILL CLARIFIES THAT 'THIS IS ADVANCE MONEY WHICH SHALL BE USED BY US TO MAKE PAYMENTS FROM TIME TO TIME. (UNDERLINING ADDED). WHILE MAKING PAYMENT TO THE LD' ARBITRATORS WE SHALL BE DEDUCTING TDS. YOU ARE REQUESTED NOT TO DEDUCT TDS ON THIS PAYMENT'. IT IS CLEAR FROM THIS NOTE THAT THE ENTIRE AMOUNT RAISED UNDER THE BILL WAS BY WAY OF ADVANCE, AND NO PART THEREOF WAS TOWARDS FEES FOR SERVICES RENDERED. 1.8 WITH REGARD TO BILL NO. 238/2009 REFERRED TO (ON PAGE 7 OF THE APPELLATE ORDER) AT SERIAL NO. 8, THE COMMISSIONER (APPEALS) HAS STATED THAT IT IS 'TOWARDS FEES OF LIRA GOSWAMI (PARTNER OF THE FIRM), EXPENSES TOWARDS MISCELLANEOUS CHARGES FOR HOTEL AND TAXI AND LOCAL COUNSEL FEES'. THE COMMISSIONER (APPEALS) HAS OVERLOOKED THE FACT THAT THE BILL I.T.A. NO.5336 & 5846/DEL/2014 8 HAS FOUR PARTS, A, B, C AND D. ONLY PART A RELATES TO LEGAL FEES PAYABLE TO THE APPELLANT FIRM, AND THE OTHER THREE PARTS (B, C AND D) RELATE TO MISCELLANEOUS EXPENSES FOR ARBITRATION; LOCAL COUNSEL FEES AND EXPENSES OF LOCAL COUNSEL. THEREFORE, OUT OF THE TOTAL BILL AMOUNTING TO USD 3,524 ONLY USD 700 RELATES TO THE FEES PAYABLE TO THE APPELLANT FIRM WHICH HAS BEEN INCLUDED IN THE PROFESSIONAL RECEIPTS OF THE FIRM. 1.9 WITH REGARD BILLS NOS. 266/2009, 018/2010 AND 304/2009 REFERRED TO AT SERIAL NOS. 3,4 AND 5 OF THE APPELLATE ORDER, THE COMMISSIONER (APPEALS) HAS OBSERVED THAT THE APPELLANT 'HAS TREATED ADVANCE PAYMENT TO SR. ADVOCATES AND FOR PAYMENT TO ITS OWN PARTNERS IN A SIMILAR MANNER'. THE COMMISSIONER (APPEALS) HAS AGAIN OVERLOOKED THAT THESE THREE BILLS ALSO HAVE THREE PARTS, NAMELY PART A FOR SERVICES RENDERED BY THE APPELLANT FIRM, AND PARTS B, C AND D FOR EXPENSES FOR ARBITRATION AND FEES OF LOCAL COUNSEL ETC. 1.10 THE COMMISSIONER (APPEALS) HAS ALSO STATED THAT 'THE APPELLANT IS TAKING ALL ADVANCES OUTSTANDING ON THE LAST DAY OF THE FINANCIAL YEAR AS CURRENT LIABILITY AND IN ESSENCE IS NOT TREATING ANY AMOUNT RECEIVED IN ADVANCE AS ITS INCOME EVEN WHERE THE AMOUNT HAS BEEN RECEIVED AGAINST BILL RAISED BY IT FOR ITS OWN PARTNER/EMPLOYEES. EVEN WHERE BILL HAS BEEN RAISED FOR EFFORTS PUT IN BY LIRA GOSWAMI AND MOHNA M LAI, THE APPELLANT HAS TREATED THE SAME AS ADVANCE AMOUNT'. (UNDERLINING ADDED). THESE OBSERVATIONS ARE BASELESS. AS STATED ABOVE, THE AMOUNT RAISED ON CLIENTS FOR SERVICES RENDERED BY LAWYERS OF THE APPELLANT FIRM IS INCLUDED IN THE PROFESSIONAL RECEIPTS OF THE APPELLANT FIRM, AND ONLY AMOUNTS RECEIVED IN ADVANCE WHICH COULD NOT BE ADJUSTED DURING THE FINANCIAL YEAR 2009-10 (BECAUSE THE OUTSIDE LAWYERS DID NOT RENDER SERVICES DURING THE FINANCIAL YEAR OR EXPENSES IN CONNECTION WITH ARBITRATION AND COURT PROCEEDINGS WERE NOT INCURRED DURING THE FINANCIAL YEAR) ARE SHOWN AS 'CURRENT LIABILITIES'. 1.11 THE COMMISSIONER (APPEALS) HAS STATED THAT NO SEPARATE EVIDENCE IN RESPECT OF ADVANCE RECEIVED FOR I.T.A. NO.5336 & 5846/DEL/2014 9 EXPENSES HAS BEEN FILED BY THE APPELLANT AND THAT THE 'APPELLANT HAS TREATED SPECIFIC AMOUNT SPENT AGAINST SPECIFIC EXPENSES AS ADVANCE'. (UNDERLINING ADDED). THESE OBSERVATIONS ARE ALSO BASELESS. THE AMOUNT SPENT ON EXPENSES IS ADJUSTED AGAINST THE ADVANCE RECEIVED FROM THE CLIENT AND GOES TO REDUCE THE AMOUNT OF THE ADVANCE RECEIVED FROM THE CLIENT. 1.12 THE COMMISSIONER (APPEALS) HAS OBSERVED ON PAGES 8 AND 9 OF THE APPELLATE ORDER THAT THE APPELLANT HAS NOT FILED ANY CORRESPONDENCE TO SHOW THAT DOUBLE PAYMENT HAD BEEN MADE BY DEG DEUTSCHE INVESTITIONS; GENWORTH FINANCIAL INC.; GLOBAL ENGLISH CORPORATION; NBC UNIVERSAL; AND MARS INC. DURING THE FIVE HEARINGS IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAD CALLED FOR INFORMATION ON A NUMBER OF POINTS SPECIFIED BY HIM, BUT THE ASSESSING OFFICER NEVER ASKED THE APPELLANT TO PROVIDE EVIDENCE TO SHOW THAT CLIENTS HAD MADE DOUBLE PAYMENT. DURING THE COURSE OF THE HEARING, THE COMMISSIONER (APPEALS) ALSO DID NOT ASK THE APPELLANT TO PROVIDE ANY EVIDENCE IN THIS REGARD. THE COMMISSIONER (APPEALS) IS, THEREFORE, NOT JUSTIFIED IN MAKING THIS OBSERVATION. AS STATED IN PARAGRAPH 1.4 ABOVE, ON COMING TO KNOW THAT A CLIENT HAS MADE A DOUBLE PAYMENT, THE PARTNER WHO RAISED THE BILL PHONES THE CONCERNED PERSON IN THE CLIENT'S OFFICE FOR PROVIDING DETAILS FOR RETURNING THIS AMOUNT BY WIRE TRANSFER, BUT, DURING THE TALK ON PHONE, THE CLIENTS ADVISED THAT THE DOUBLE PAYMENT RECEIVED MAY BE ADJUSTED AGAINST FUTURE EXPENSES AND SERVICES, AND THE AMOUNT HAS BEEN SUBSEQUENTLY SO ADJUSTED. TO SUM UP, THEREFORE, THE ADVERSE OBSERVATIONS MADE BY THE COMMISSIONER (APPEALS) ARE NOT JUSTIFIED. 8. THUS, IT WAS SUBMITTED BY SHRI C.S. AGARWAL THAT EVEN UNDER THE CASH SYSTEM OF ACCOUNTING, BASIC PRINCIPLE OF LAW IS THAT INCOME CAN ONLY BE TAXED WHEN IT IS RECOGNIZED AS INCOME BY THE PAYER. EACH AND EVERY RECEIPT CANNOT BE TAXED AS INCOME I.T.A. NO.5336 & 5846/DEL/2014 10 UNLESS SUCH RECEIPTS PARTAKE THE CHARACTER OF INCOME OR HAS ACTUALLY RESULTED AN INCOME AT ALL. HERE IN THIS CASE, IT CANNOT BE IN DISPUTE THAT PAYMENTS WHICH ARE RECEIVED BY THE ASSESSEE (UNDER THE HEAD CURRENT LIABILITIES) ARE IN THE NATURE OF ADVANCE AND ONLY WHEN ACCOUNTS ARE FINALIZED, ASSESSEE CREDIT IT TO THE PROFIT & LOSS ACCOUNT. IN SUPPORT, HE ALSO FILED PHOTOCOPIES OF THE BILLS AND INVOICES AND ALSO DATES OF RECEIPT OF AMOUNT AND HOW THE SAME HAS BEEN ADJUSTED IN THE SUBSEQUENT YEAR. THUS, HE SUBMITTED THAT THE ADDITION CANNOT BE SUSTAINED. 9. ON THE OTHER HAND, THE LD. SR. D.R. STRONGLY RELIED UPON THE ORDER OF THE LD. CIT(A) AND SUBMITTED THAT UNDER THE CASH SYSTEM OF ACCOUNTING, ASSESSEE SHOULD HAVE ACCOUNTED FOR ALL THE RECEIPTS AND WHATEVER PAYMENT HAS BEEN MADE FOR MEETING OUT THE EXPENSES TO OTHER PROFESSIONALS, THE SAME SHOULD BE DEBITED AS EXPENDITURE. THUS, THE ENTIRE RECEIPTS IN THE CASE OF THE ASSESSEE HAS TO BE TREATED AS INCOME AND ANY OUTGOING RELATED FOR EARNING OF INCOME SHOULD BE ALLOWED AS EXPENDITURE AND, THEREFORE, THE ASSESSING OFFICER AND THE LD. CIT(A) HAVE RIGHTLY CONFIRMED THE ADDITION. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER AS WELL AS THE MATERIAL REFERRED TO BEFORE US. THE ASSESSEE IS A LAW FIRM, WHICH IS RENDERING SERVICES MOSTLY TO ITS FOREIGN CLIENTS. THE SYSTEM OF ACCOUNTING ADOPTED BY THE ASSESSEE IS THAT, BILLS AND INVOICES ARE RAISED FOR ADVANCE PAYMENT OF FEES OR EXPENDITURE FROM ITS CLIENTS; FIRSTLY, WHICH ARE IN THE CATEGORY OF MAKING PAYMENT OF FEES TO SENIOR ADVOCATES WHO ARE ENGAGED TO REPRESENT THE MATTERS BEFORE THE HON'BLE HIGH COURT AND SUPREME COURT ON I.T.A. NO.5336 & 5846/DEL/2014 11 BEHALF OF SUCH CLIENTS; SECONDLY , ADVANCE FOR INCURRING EXPENSES LIKE COURT FEES, PAYMENT TO REGISTRAR OF COMPANIES AND VARIOUS OTHER LITIGATION EXPENSES; AND LASTLY, THERE ARE DOUBLE PAYMENTS WHICH IN FEW CASES ARE ADJUSTED AGAINST FUTURE SERVICES OR EXPENDITURE. AFTER DISCHARGING THE PAYMENTS ON BEHALF OF THE CLIENTS, THE BALANCE AMOUNT IS RECOGNIZED AS INCOME WHICH IS OFFERED FOR TAX. THIS SYSTEM OF ACCOUNTING IS BEING ADOPTED FROM EARLIER YEARS WHICH HAS BEEN STATED TO BE ACCEPTED BY THE DEPARTMENT AND IN SUPPORT, SCRUTINY ASSESSMENT FOR ASSESSMENT YEAR 2009-10 HAS ALSO BEEN FILED BEFORE US, WHEREIN SIMILAR SYSTEM OF RECOGNIZING THE INCOME AND THE ACCOUNTING PRACTICE OF THE ASSESSEE HAS BEEN ACCEPTED. UNDER ALL THE THREE CATEGORIES OF PAYMENTS, WHICH HAS BEEN DISCUSSED HEREINABOVE, IT IS SEEN THAT MONEY RECEIVED BY THE ASSESSEE WAS THE MONEY OF THE CLIENTS RECEIVED IN THE FIDUCIARY CAPACITY. IT IS A KIND OF TRUST MONEY OF THE CLIENT, FOR WHICH ASSESSEE HAS TO DISCHARGE CERTAIN OBLIGATIONS WHILE REPRESENTING THE CASE OF ITS CLIENTS BEFORE VARIOUS COURTS AND OTHER LEGAL AND ARBITRATION PROCEEDINGS. FROM PERUSAL OF VARIOUS MEMO OF FEES RAISED TO THE CLIENTS, WE FIND THAT THE AMOUNT WHICH HAS BEEN RAISED TO THE CLIENTS ARE ON ACCOUNT OF ADVANCE PAYMENT FOR FILING OF PROPOSED PETITIONS, FEES FOR SENIOR ADVOCATES FOR VARIOUS HEARINGS, INCLUDING FEES FOR JUNIOR COUNSEL, COURT FEES, MISCELLANEOUS EXPENSES, ETC. IN THE SAID MEMO OF FEES ITSELF, THERE IS A CATEGORICAL NOTE BELOW THAT THIS IS ADVANCE MONEY WHICH SHALL BE USED BY THE ASSESSEE FIRM TO MAKE PAYMENTS FROM TIME TO TIME, LIKE WHILE MAKING PAYMENT TO THE ARBITRATORS AND SENIOR ADVOCATES FOR WHICH TDS WOULD BE DEDUCTED BY THE ASSESSEE AND SPECIFIC REQUEST WAS MADE BY THE CLIENT NOT TO DEDUCT TDS ON SUCH PAYMENT. EVEN IN THE MEMO FEES FOR I.T.A. NO.5336 & 5846/DEL/2014 12 SEEKING ADVANCE MONEY FOR INCURRING EXPENDITURE ALSO, IT IS SEEN THAT VARIOUS HEADS OF PROPOSED EXPENDITURE ARE MENTIONED LIKE PHOTOCOPY; COURIER CHARGES; LOCAL COUNSEL FEES; CHARGES FOR HOTEL AND TAXI CHARGES; CLERK, ETC. THE LEGAL FEE OF THE ASSESSEE FIRM IS SEPARATELY CHARGED BY THE ASSESSEE FOR WHICH INCOME HAS BEEN RECOGNIZED IN THE YEAR OF RECEIPT AND HAS BEEN OFFERED FOR TAXATION. NOWHERE IT IS THE CASE OF THE ASSESSING OFFICER OR THE LD. CIT(A) THAT THE PAYMENT RECEIVED FROM VARIOUS CLIENTS DO NOT CARRY ANY OBLIGATION FOR MAKING PAYMENT FOR SENIOR ADVOCATES ENGAGED TO REPRESENT THE MATTERS OF THE CLIENTS OR FOR INCURRING OF EXPENDITURE ON BEHALF OF THE CLIENTS DURING THE COURSE OF LITIGATION PROCEEDINGS OR ARBITRATION PROCEEDINGS. THE REVENUES CASE IS SIMPLY THAT WHATEVER HAS BEEN RECEIVED FROM THE CLIENTS HAS TO BE RECOGNIZED AS INCOME AND WHATEVER HAS BEEN PAID IS TO BE TREATED AS EXPENDITURE AND THIS HAS BEEN JUSTIFIED ON THE GROUND THAT UNDER THE CASH SYSTEM OF ACCOUNTING, THIS PROCEDURE SHOULD BE FOLLOWED. 11. WE ARE UNABLE TO APPRECIATE SUCH A CONTENTION OF THE REVENUE BECAUSE UNDER THE INCOME TAX ACT, WHAT IS CHARGEABLE TO TAX IS INCOME THAT IS RECEIVED, ACCRUED OR DEEMED TO RECEIVE OR ACCRUE IN INDIA IN THE PREVIOUS YEAR RELEVANT TO THE YEAR FOR WHICH ASSESSMENT IS MADE. IN SHORT, INCOME TAX IS LEVY OF INCOME AND, THEREFORE, ONE HAS TO SEE WHETHER THE RECEIPTS HAS RESULTED INTO INCOME OR NOT. IF ANY AMOUNT OR RECEIPT IS RECEIVED BY THE ASSESSEE FOR DISCHARGING OF ANY OBLIGATION ON OR ON BEHALF OF THE PRINCIPAL, OR MONEY HAS BEEN ENTRUSTED BY THE PRINCIPAL, THEN IT PARTAKES THE CHARACTER OF SOMEBODY ELSES MONEY, I.E. PRINCIPALS MONEY, HERE IN THIS CASE CLIENTS MONEY. IF MONEY HAS BEEN RECEIVED IN THE FIDUCIARY CAPACITY FOR DISCHARGING THE OBLIGATION I.T.A. NO.5336 & 5846/DEL/2014 13 ON OR ON BEHALF OF THE PRINCIPAL/CLIENT, THEN SUCH MONEY RECEIVED FOR DISCHARGING OF OBLIGATION CANNOT BE RECKONED AS INCOME. UNDER THE INCOME TAX ACT EVERY RECEIPT CANNOT BE AN INCOME AS IT HAS TO FALL IN THE CATEGORY OF INCOME FIRST, CHARGEABLE TO TAX AND UNDER A RELEVANT HEAD. MONEY RECEIVED AS TRUST OR IN A FIDUCIARY CATEGORY CANNOT BE IPSO FACTO BE RECOGNISED AS INCOME BELONGING TO THE ASSESSEE CHARGEABLE TO TAX. IN THE CASE OF SOLICITORS AND LAW FIRMS, MONEY ARE RECEIVED IN ADVANCE FOR DISCHARGING OBLIGATIONS ON BEHALF OF CLIENTS LIKE MAKING PAYMENTS FOR ENGAGING OF SENIOR ADVOCATES, WHO GENERALLY CHARGE ADVANCE FEES FOR REPRESENTING ANY LEGAL OR ARBITRATION PROCEEDINGS BEFORE ANY COURT OR LIKEWISE, CERTAIN EXPENDITURES WHICH ARE TO BE INCURRED ON BEHALF OF THE CLIENTS FOR SUCH LEGAL PROCEEDINGS, ESPECIALLY WHEN CLIENTS ARE FOREIGN BASED AND DAY-TO-DAY REQUIREMENT OF MEETING THE EXPENDITURES CANNOT BE EASILY AVAILABLE FROM CLIENTS, THEN AS A MATTER OF PRACTICE, SOLICITORS/LAW FIRMS DEMAND ADVANCE MONEY FOR DISCHARGING SUCH OBLIGATION AND THE BALANCE MONEY IS EITHER REFUNDED OR ADJUSTED AGAINST THE FESS WHICH IS OSTENSIBLY IS INCOME CHARGEABLE TO TAX. SUCH A SYSTEM IN THE CASE OF SOLICITORS HAS BEEN WELL ACCEPTED AND SETTLED BY THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. SANDERSONS AND MORGANS [1970] 75 ITR 433 . THIS JUDGMENT HAS BEEN FOLLOWED BY VARIOUS COURTS AND HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. OM PRAKASH KHAITAN [2015] 376 ITR 390 (DELHI), HAS ACCEPTED SUCH A PRACTICE. IN THE CASE BEFORE THE HONBLE DELHI HIGH COURT, ASSESSEE WAS A PROPRIETOR OF THE FIRM OF SOLICITORS AND ADVOCATES AND WAS FOLLOWING CASH SYSTEM OF ACCOUNTING. HE USED TO RECEIVE ADVANCE FROM HIS CLIENTS FOR VARIOUS LEGAL MATTERS AND SUCH ADVANCES RECEIVED WERE KEPT IN A SEPARATE LEDGER I.T.A. NO.5336 & 5846/DEL/2014 14 ACCOUNT IN THE NAME OF THE CLIENTS WHERE ALL THE EXPENSES WERE DEBITED FROM TIME TO TIME AND AT THE END OF THE YEAR, CREDIT BALANCE IN THE ACCOUNT WHERE MATTERS ARE UNSETTLED, THE SAME WERE CARRY FORWARDED TO THE NEXT YEAR AS SUNDRY CREDITORS AND MATTERS, WHICH ARE SETTLED IN THIS YEAR WERE TRANSFERRED TO THE PROFIT & LOSS ACCOUNT. IN THAT CASE ALSO, THE ASSESSING OFFICER HELD THAT SINCE ASSESSEE ADOPTED CASH SYSTEM OF ACCOUNTING, TAXATION OF THE INCOME CANNOT BE DIFFERED TO THE SUBSEQUENT YEAR AND INCOME IS TO BE TAXED IN THE YEAR IN WHICH IT WAS RECEIVED. THE TRIBUNAL HELD THAT, FIRSTLY, IN THE EARLIER YEAR SIMILAR ADDITION MADE BY THE ASSESSING OFFICER HAD BEEN DELETED AND; SECONDLY THE ISSUE OF LAWYERS ACCEPTING MONEY FROM THE CLIENTS ON ACCOUNT TO DEFRAY THE EXPENSES AND APPROPRIATING FEES AS INCOME ONLY UPON COMPLETION OF A CASE CANNOT BE FAULTED WITH AND THE CHARACTERIZATION OF RECEIPT CAN TAKE PLACE ONLY AT THE TIME OF APPROPRIATION, I.E., IN THE CASE OF FEES ONLY WHEN THE SERVICES WAS OFFERED OR WHEN THE ASSESSEE DECIDES ON THE QUANTUM OF FEES, IS THE CORRECT WAY OF RECOGNIZING THE INCOME. THE ENTIRE ADVANCE RECEIVED CANNOT BE TREATED AS INCOME. THIS FINDING OF THE TRIBUNAL GOT UPHELD BY THE HON'BLE HIGH COURT, WHEREIN THE HON'BLE HIGH COURT CONCLUDED THAT FOR LAWYERS AND LAW FIRMS, CHARACTERIZATION OF RECEIPT CAN TAKE PLACE ONLY AT THE TIME OF APPROPRIATION, I.E., IN CASE OF FEES ONLY WHEN THE SERVICES WERE RENDERED OR AS AND WHEN ASSESSEE DECIDES ON THE QUANTUM OF FEES AND NOT BEFORE THAT. EVEN THE OTHER JUDGMENTS, WHICH HAS BEEN RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE ARE ALSO TO THE SIMILAR EFFECT. THUS, WE HOLD THAT THE AMOUNTS, WHICH ARE APPEARING UNDER THE HEAD CURRENT LIABILITIES, CANNOT BE TAXED AS INCOME IN THIS YEAR, AS THE ADVANCE MONEY CANNOT PARTAKE THE CHARACTER OF AN INCOME, I.T.A. NO.5336 & 5846/DEL/2014 15 BECAUSE THE ASSESSEE WAS ENTRUSTED WITH THE MONEY FOR DISCHARGING OF VARIOUS LEGAL OBLIGATIONS ON BEHALF OF ITS CLIENTS AND HELD THE MONEY IN FIDUCIARY CAPACITY AND THE MONEY WAS RECOGNISED AS CLIENTS MONEY IN ITS ACCOUNTS. ACCORDINGLY, THE ADDITION OF RS.35,02,609/- IS DELETED. 12. SO FAR AS THE SECOND ISSUE OF DISALLOWANCE UNDER SECTION 14A OF RS.71,122/- IS CONCERNED, THE BRIEF FACTS ARE THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.38,057/- AND INCOME FROM MUTUAL FUNDS OF RS.8,59,847/-,WHICH WERE CLAIMED AS EXEMPT FROM TAX UNDER SECTION 10(34) AND 10(35). 13. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, ASSESSEE WAS REQUIRED TO GIVE DETAILS OF EXPENDITURE INCURRED IN RELATION TO THE EXEMPT INCOME AS TO WHY EXPENSES SHOULD NOT BE ADDED BACK IN TERMS OF PROVISIONS OF SECTION 14A. IN RESPONSE ASSESSEE SUBMITTED THAT FROM THE PERUSAL OF THE PROFIT & LOSS ACCOUNT AND BALANCE SHEET AS WELL AS BANK STATEMENTS, IT CAN BE SEEN THAT NO EXPENDITURE WHATSOEVER HAS BEEN INCURRED FOR FOR THE PURPOSE OF EARNING OF EXEMPT INCOME. FURTHER, SO FAR AS INCOME IN RESPECT OF UNIT OF MUTUAL FUNDS WERE CONCERNED, THE SAME HAS BEEN OFFERED FOR TAXATION, THEREFORE, QUA THIS AMOUNT, RULE 8D CANNOT BE APPLIED. THE ASSESSING OFFICER HOWEVER OBSERVED THAT ASSESSEES REPLY IS NOT FOUND SATISFACTORY AND HELD THAT DISALLOWANCE HAS TO BE MADE UNDER SECTION 14A IN ACCORDANCE TO RULE 8D AND ACCORDINGLY, WORKED OUT THE DISALLOWANCE UNDER SECTION RULE 8D(2)(III) AT RS.71,122/-. THIS DISALLOWANCE HAS BEEN CONFIRMED BY THE LD. CIT(A) ALSO. I.T.A. NO.5336 & 5846/DEL/2014 16 14. BEFORE US, SHRI C.S. AGARWAL SUBMITTED THAT WHEN ASSESSEE HAD SUBMITTED BEFORE THE ASSESSING OFFICER THAT NONE OF THE EXPENDITURE DEBITED TO THE PROFIT & LOSS ACCOUNT CAN BE ATTRIBUTED FOR THE PURPOSE OF EARNING OF EXEMPT INCOME AND ASSESSEE HAS ALSO DEMONSTRATED BEFORE THE ASSESSING OFFICER ABOUT THE NATURE OF ACCOUNTS AND EXPENSES, THEN THE ASSESSING OFFICER SHOULD HAVE FIRST SATISFIED HIMSELF ABOUT THE CORRECTNESS OF THE ASSESSEES CLAIM AND THEN ONLY COULD HAVE PROCEEDED TO APPLY RULE 8D. HERE IN THIS CASE, THE ASSESSING OFFICER HAS NOT EXAMINED THE NATURE OF ACCOUNTS OR THE EXPENDITURE AND HAS SIMPLY PROCEEDED TO MAKE DISALLOWANCE UNDER RULE 8D, WHICH CANNOT BE UPHELD. IN SUPPORT, HE RELIED UPON THE JUDGMENTS OF THE HON'BLE DELHI HIGH COURT IN THE CASES OF CIT VS. TAIKISHA ENGINEERING INDIA LTD. REPORTED IN [2015] 370 ITR 338 (DELHI); AND CIT VS. I.P. SUPPORT SERVICES INDIA (P.) LTD. REPORTED IN [2015] 378 ITR 240 (DELHI). 15. ON THE OTHER HAND, THE LD. SR. D.R. STRONGLY RELIED UPON THE ORDER OF THE LD. CIT(A) AND SUBMITTED THAT THE ASSESSING OFFICER DID REJECT ASSESSEES EXPLANATION ON THE GROUND THAT IT IS NOT FOUND SATISFACTORY. THIS ITSELF GOES TO SHOW THAT THE ASSESSING OFFICER WAS SATISFIED THAT ASSESSEES CLAIM IS NOT CORRECT AND, THEREFORE, HE IS JUSTIFIED IN PROCEEDING TO MAKE DISALLOWANCE UNDER RULE 8D. 16. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT FIND GIVEN IN THE IMPUGNED ORDER. THE ASSESSEE BEFORE THE ASSESSING OFFICER HAD CATEGORICALLY SUBMITTED THAT THE LOOKING TO THE NATURE OF EXPENDITURE DEBITED IN THE PROFIT & LOSS ACCOUNT AS WELL AS POINTED FROM OTHER DETAILS LIKE BANK I.T.A. NO.5336 & 5846/DEL/2014 17 STATEMENTS AND BALANCE SHEET THAT NO EXPENDITURE WHATSOEVER HAS BEEN INCURRED FOR EARNING OF INCOME BY WAY OF DIVIDENDS WHICH VERY PALTRY SUM. IT WAS FURTHER SUBMITTED THAT THE INCOME IN RESPECT OF UNITS OF MUTUAL FUNDS AND GROSS AMOUNT OF INCOME HAS BEEN OFFERED FOR TAXATION. AFTER SUCH A CLAIM, UNDER THE PROVISIONS OF SUB SECTION (2) & (3) OF SECTION 14, IT WAS INCUMBENT UPON THE ASSESSING OFFICER HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE AND THE NATURE OF EXPENSES DEBITED, TO EXAMINE THE CORRECTNESS OF THE CLAIM THAT WHETHER ANY EXPENDITURE IN RELATION TO THE EXEMPT INCOME HAS BEEN INCURRED OR NOT. IF THE ASSESSING OFFICER FAILS TO SATISFY HIMSELF IN THIS REGARD, THEN OSTENSIBLY HE CANNOT PROCEED TO APPLY RULE 8D. THE LAW DOES NOT ENVISAGES THAT WHEREVER THERE IS AN EXEMPT INCOME, EXPENDITURE HAS TO BE DISALLOWED. IT IS REQUIRED TO BE SEEN, WHETHER EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE IN RELATION TO THE EARNING OF EXEMPT INCOME OR NOT AND THIS CAN BE EXAMINED HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE AND THE NATURE OF EXPENDITURE DEBITED. HERE IN THIS CASE, THE ASSESSING OFFICER HAS FAILED TO SATISFY HIMSELF ABOUT THE CORRECTNESS OF THE ASSESSEES CLAIM AND, THEREFORE, IN VIEW OF THE PRINCIPLE LAID DOWN BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF H.T. MEDIA LTD. VS. PR. CIT REPORTED IN 85 TAXMANN.COM 113 (DELHI), THE ASSESSING OFFICER CANNOT PROCEED TO MAKE DISALLOWANCE UNDER SECTION 14A. THE HON'BLE JURISDICTIONAL HIGH COURT HAS ONCE AGAIN REITERATED THAT IT IS MANDATORY AND INCUMBENT UPON THE ASSESSING OFFICER TO RECORD SUCH SATISFACTION AND IN THE ABSENCE OF SUCH SATISFACTION NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A. THE HON'BLE HIGH COURT CONCLUDED THAT; FIRSTLY, WHERE THERE WAS A FAILURE BY ASSESSING OFFICER TO COMPLY WITH MANDATORY REQUIREMENT OF I.T.A. NO.5336 & 5846/DEL/2014 18 SECTION 14A(2) READ WITH RULE 8D(1)(A) TO RECORD HIS SATISFACTION AS REQUIRED THEREUNDER, THEN QUESTION OF APPLYING RULE 8D(2)(III) DOES NOT ARISE; AND SECONDLY, WHERE ASSESSING OFFICER HAD FAILED TO ESTABLISH ANY DIRECT NEXUS BETWEEN INVESTMENTS MADE BY ASSESSEE AND INTEREST EXPENDITURE INCURRED, THEN IT NOT CORRECT TO REMAND THE MATTER CONCERNING DELETION OF DISALLOWANCE OF INTEREST UNDER CLAUSE (II) OF RULE 8D(2) TO ASSESSING OFFICER FOR FRESH DETERMINATION. ACCORDINGLY, ON THE FACTS OF THE PRESENT CASE DISALLOWANCE OF RS.71,122/- MADE BY THE ASSESSING OFFICER IS DIRECTED TO BE DELETED. ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS ALLOWED. 17. NOW WE WILL TAKE UP THE REVENUES APPEAL WHEREIN THE FOLLOWING GROUND HAS BEEN RAISED:- 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) GROSSLY ERRED IN DELETING THE ADDITION OF RS.33,57,275/- WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS NOT INVESTED THE AMOUNT ARISING FROM LONG TERM CAPITAL GAIN IN ITS OWN NAME AND HENCE, THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 54EC. 18. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE TAX EFFECT ON THE DISPUTED AMOUNT IS ONLY RS.6,91,599/- BECAUSE HERE THE ISSUE IS, WHETHER LONG TERM CAPITAL GAIN OF RS.33,57,275/- DERIVED BY THE ASSESSEE IS LIABLE FOR EXEMPTION UNDER SECTION 54EC OR NOT. EVEN IF THE EXEMPTION IS NOT ALLOWED, THEN CAPITAL GAIN CHARGEABLE TO TAX IS @ 20% PLUS CESS AND IF TAX IS CALCULATED ON SUCH CAPITAL GAIN, THEN IT WORKS OUT TO I.T.A. NO.5336 & 5846/DEL/2014 19 RS.6,91,599/- WHICH IS MUCH LESS THAN THE REVISED LIMIT OF RS.10 LAKHS AS PER CBDT CIRCULAR NO.21/2015 DATED 10/12/2015. 19. THE LD. D.R. TOO ADMITTED THAT THE TAX EFFECT IS MUCH BELOW THE PRESCRIBED MONETARY LIMIT OF RS.10 LAKHS, THEREFORE, THE APPEAL OF THE REVENUE IS NOT MAINTAINABLE. ACCORDINGLY, WE HOLD THAT THE REVENUES APPEAL IS NOT MAINTAINABLE AND IS DISMISSED IN LIMINE ON THE GROUND THAT THE MONETARY LIMIT FOR FILING OF APPEAL IS MUCH BELOW THE MONETARY LIMIT OF RS.10 LAKHS. 20. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH NOVEMBER, 2017. SD/- SD/- [O. P. KANT] [AMIT SHUKLA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED:8 TH NOVEMBER, 2017 JJ:0111 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR I.T.A. NO.5336 & 5846/DEL/2014 20 DATE 1. DRAFT DICTATED ON 2. DRAFT PLACED BEFORE AUTHOR 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 5. APPROVED DRAFT COMES TO THE SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON 7. FILE COMES BACK TO PS/SR. PS 8. UPLOADED ON 9. FILE SENT TO THE BENCH CLERK 10. DATE ON WHICH FILE GOES TO THE AR 11. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 12. DATE OF DISPATCH OF ORDER.