ACIT, Kota V. SHRI RAM KISHAN VERMA PROP, Jaipur

ITA 589/JPR/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54250 (ITAT-JAIPUR)
• Duration Of Justice: 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 20-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 10-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D K MEENA
• Keywords: Gift; Depreciation; Business expenditure; Cost of acquisition; Notional interest; Revised return

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO. 589/ JP/2011 ASSESSMENT YEAR 2006-07 PAN: ADDPK 1093 R A.C.I.T. CIRCLE-1, KOTA V SHRI RAM KISHAN VERMA PROP. M/S RESONANCE, J-02, JAWAHAR NAGAR C.O. NO. 70/JP/2011 IN ITA NO. 589/ JP/2011 ASSESSMENT YEAR 2006-07 SHRI RAM KISHAN VERMA V ADDL. C.I.T. RANGE -1, K OTA PROP. M/S RESONANCE, J-02, JAWAHAR NAGAR (APPELLANT ) (RESPONDENT) DEPARTMENT BY : SHRI D.K. MEENA ASSESSEE BY: SHRI MAHENDRA GARGIEYA DATE OF HEARING: 20-10-2011 DATE OF PRONOUNCEMENT: 31 -10-2011 ORDER PER N.L. KALRA, AM:- THE REVENUE HAS FILED AN APPEAL AGAINST THE ORDER OF THE LD. CIT(A), KOTA DATED 21.3.2011 WHILE THE ASSESSEE HAS FILED C ROSS-OBJECTION. 2 APPEAL OF THE REVENUE NO. 589/JP/2011 2. THE FIRST GROUND OF APPEAL RAISED BY THE REVENUE IS THAT THE LD. C.I.T(A) HAS DELETED ADDITION ON ACCOUNT OF DISALLO WANCE OF ADVERTISING EXPENSES OF RS. 45,000. 2.1 THE ASSESSEE IS RUNNING COACHING CLASSES IN THE NAME AND STYLE OF M/S RESONANCE. THE AO OBSERVED AS UNDER IN RESPECT OF DISALLOWANCE OF ADVERTISEMENT EXPENSES. THE ASSESSEE HAS CLAIMED TOTAL ADVERTISEMENT EXPEN SES AT RS. 2,36,74,310/-. DURING EXAMINATION OF SUCH EXPENSES, IT WAS FOUND THAT FOLLOWING EXPENSES HAVE NOT BEEN INCURRED FOR ADVER TISEMENT. IN ORDER OTHER WORDS, THOUGH THE PAYMENT WAS MADE BUT THE SAME WAS NOT IN CONNECTION TO ANY ADVERTISEMENT OR BUSINESS USE. DATE AMOUNT REMARKS 18-05-2005 5,000 INDIAN STAR CRICKET CLUB 15-06-2005 3000 CRIME OF STATES 18-06-2005 2100 POST EMPLOYEES UNION 15-08-2005 12000 DISTRICT JUDO SANGH 17-10-2005 25000 DISTRICT MAHIL KHEL KHUD COMPETITI ON TOTAL 47,100 THE ASSESSEE WAS REQUIRED TO EXPLAIN DURING THE ASS ESSMENT PROCEEDINGS AS TO WHY SUCH EXPENSE MAY NOT BE DISALLOWED AS EITHER BI LLS ARE NOT THERE OR ADVERTISEMENT IS NOT PROVED. THE ASSESSEE HAS NOT G IVEN ANY SATISFACTORY EXPLANATION. AS THESE EXPENSES HAVE NOT BEEN INCURR ED FOR ADVERTISEMENT OR FOR ANY OTHER BUSINESS PURPOSES, THEREFORE, THE SAME WE RE DISALLOWED AND ACCORDINGLY ADDITION OF RS.45,100/- IS MADE IN THE INCOME OF THE ASSESSEE . 2.2 THE LD. CIT(A) HAS HELD AS UNDER:- THE APPELLANT IS PROPRIETOR OF A COACHING INSTITUTE . THIS IS A HIGHLY COMPETITIVE BUSINESS, WHERE PUBLICITY AND ADVERTISEMENT PLAY A MAJOR PART IN PROMOTION OF BUSINESS. THE AMOUNTS PAID BY APPELLANT TO VARIOUS SPORTS CLUBS AND FOR VARIOUS SPORTS COMPETITION ARE VERY MUCH PART OF ADVERTISEM ENT EXPENSES AND THEREFORE 3 AO IS NOT JUSTIFIED TO MAKE DISALLOWANCE OF `45,100 /-. THE DISALLOWANCE IS DIRECTED TO BE DELETED. GROUND NO.2 IS THUS ALLOWED . 2.3 THE LD. DR HAS RELIED ON THE ORDER OF THE AO. 2.4 BEFORE US THE LD. AR HAS SUBMITTED AS UNDER:- (A) THIS MATTER IS DIRECTLY COVERED BY THE DECISION OF ASSESSEES OWN CASE FOR A.Y.2005-06 VIDE ORDER DATED 08.07.2011 IN ITA NO.9 60/JP/10 & CO. NO.81/JP/10 AT PARA NO. 3.5 (B) WE RELY UPON THE WRITTEN SUBMISSIONS FILED BEFORE THE LD. CIT (A) AND HIS ORDER ON THIS PART. THE SAME ARE REPRODUCED IN VERBATIM: (2) DISALLOWANCE OF RS. 45100/- OUT OF ADVERTISEME NT EXPENSES THE INSTITUTE WAS STARTED ONLY BEFORE 5 YEARS IN CO MPETITION OF A VERY VERY WELL REPUTED AND ESTABLISHED INSTITUTES AND THEREFORE PU BLICITY IS A NECESSITY FOR US. ANY CHANCE OF PUBLICITY IS NOT MISSED BY US AND THE REFORE WE HAVE CONTRIBUTED IN ORGANIZING SPORTS ACTIVITIES AND ALSO RALLIES ETC W ERE OUR BANNER IS EXHIBITED/DISPLAYED. SUCH TYPE OF EXPENSES IS THE N EED OF OUR BUSINESS AND IN SUCH CASES ANY PRINT COPY OF THE PUBLICITY CANNOT BE AVA ILABLE. THE ASSESSING AUTHORITY HAS FAILED TO CONSIDER THE SAID FACT AND BECAUSE NO PRINTED MODE OF ADVERTISEMENT WAS MADE, HAS ERRED IN DISALLOWING THE SAID EXPENSE S. THE PAYMENTS NARRATED/QUOTED BY THE ASSESSING AUTHORITY ARE ENTI RELY THROUGH A/C PAYEE CHEQUES AND IN ALL THESE EVENTS THE INSTITUTE HAS DISPLAYED BANNERS AND ALSO DISTRIBUTED LEAF LETS CONTAINING OUR DETAILS FOR ATTRACTING THE STUDENTS OR THEIR PARENTS FOR GETTING ADMISSION IN OUR INSTITUTE. ALL THESE PAYMENTS ARE MADE FOR THE NEED OF THE BUS INESS AND ARE FOR ADVERTISING OUR INSTITUTE AND NO PAYMENT IS FOR ANY PERSONAL WO RK. THEREFORE THOSE ARE THE ACTUAL PART OF OUR BUSINESS EXPENSES AND REQUESTED TO BE ALLOWED AS DEDUCTION/EXPENSES FROM OUR INCOME. (C). THE DISALLOWANCES HAVE BEEN MADE ON ADHOC BASIS, S IMPLY ON MERE SUSPICION. NO SPECIFIC INSTANCE HAS BEEN GIVEN. IT IS SETTLED THA T A BUSINESSMAN IS THE BEST JUDGE TO TAKE CARE OF ITS OWN INTEREST & TO TAKE DECISIONS AND TH E AO IS NOT SUPPOSED TO INTERVENE THEREIN NOR HE CAN REPLACE THE ASSESSEE. KINDLY REF ER T.T.PVT. LTD. V/S ITO (1980) 121 ITR 551 (KAR), CIT V/S UDHOJI SHRIKRISHNADAS (1983) 139 ITR 827 (MP) AND JK WOOLEN MANUFACTURERS (1969) 72 ITR 612 (SC). SELF MADE VOUCHERS ALSO EVIDENCE THE FACT THAT EXPE NSES HAVE BEEN INCURRED & PAYMENTS MADE. SIMPLY BECAUSE THE VOUCHERS ARE SELF MADE CAN NOT REDUCE THE EVIDENTIARY VALUE OF THE SAME. KINDLY REFER NISAR BIRI SIKKA V/S CIT (2008) 174 TAXMAN 51 (ALL) WHETHER IN MANUFACTURING OF BIDIS, THERE IS INVOLVEMENT OF PAY EES WHICH ARE NORMALLY ILLITERATE AND, THEREFORE, PREPARATION OF SELF MADE VOUCHERS BY ASS ESSEE COULD NOT BE SAID TO BE AGAINST TRADE PRACTICE AND METHOD OF ACCOUNTANCY? HELD, YE S-WHETHER WHEN NO CASE HAD BEEN 4 MADE OUT BY REVENUE THAT VOUCHERS WERE BOGUS AND AM OUNT HAD NOT BEEN PAID, IT COULD BE SAID THAT PAYMENTS WERE NOT VERIFIABLE. FURTHER IT IS SUBMITTED THAT THE APPELLANT HAS MAIN TAINED COMPLETE BOOKS OF ACCOUNT CONSISTING OF CASH BOOK, LEDGER AND JOURNAL. ALL TH E PURCHASES AND SALES ARE FULLY VOUCHED. THE ACCOUNTS ARE AUDITED U/S 44AB OF THE A CT. ALL THE EXPENSES WERE FULLY SUPPORTED BY VOUCHERS AT THE HEAD OFFICE AS ALSO AT DIFFERENT SITE. THE FINANCIAL ACCOUNTS AND THE OTHER SUBSIDIARY RECORDS WERE DULY MAINTAIN ED. THE CIT(A) RIGHTLY DELETED THE DISALLOWANCE. HENCE, THIS GROUND OF THE REVENUE BE DISMISSED. 2.5 WE HAVE HEARD BOTH THE PARTIES. THE ISSUE IS C OVERED BY THE ORDER OF TRIBUNAL IN THE CASE OF THE ASSESSEE. BEFORE THE LD. CIT(A) IT WAS STATED THAT IN ALL THE EVENTS, THE INSTITUTE HAS DISPLACED BANNERS AND ALSO DISTRIBUTED LEAFLETS. SUCH FACTUAL POSITION IS NOT CONTROVERTE D BY THE REVENUE. HENCE THE FIRST GROUND OF APPEAL OF THE REVENUE IS DISMIS SED. 3. THE SECOND GROUND OF APPEAL IS THAT LD. CIT(A) H AS ERRED IN DELETING THE DISALLOWANCE OF PRINTING AND STATIONERY EXPENSE S OF RS. 1,00,000. 3.1 THE AO OBSERVED AS UNDER WHILE MAKING DISALLOWA NCE OF RS. 1,00,000. THE AO NOTED THAT THE ASSESSEE HAS SHOWN TOTAL EXPENSE OF RS.1,36,05, 440/- ON PRINTING AND STATIONERY. ON PERUSAL OF SUCH EXPENSES, IT IS SEEN THAT PART OF SUCH EXPENSE HAVE BEEN INCURRED IN CASH , THAT TOO WITHOUT ANY BILLS, ETC., AND THE VOUCHERS HAVE ALSO BEEN PREPARED BY THE ASSESSEE HIMSELF. THE POSSIBIL ITY OF PART OF SUCH EXPENSES PARTICULARLY FROM THE EXPENSES INCURRED IN CASH, NO T INCIDENTAL TO THE BUSINESS CANNOT BE RULED OUT. THEREFORE, THE COVER UP SUCH P OSSIBLE LEAKAGE OF INCOME, LUMP SUM DISALLOWANCE OF RS.1 LACS IS BEING MADE AN D ACCORDING ADDITION OF RS.1 LAC IS MADE. 3.2 THE LD. CIT(A) DELETED THE ADDITION AFTER OBSER VING AS UNDER:- 5 AO HAS MADE ADHOC DISALLOWANCE MERELY ON THE BASIS OF HIS PRESUMPTION. NO MATERIAL HAS BEEN BROUGHT ON RECORD BY AO TO PROVE THAT EXPENSES CLAIMED UNDER THIS HEAD ARE INFLATED OR EXCESSIVE. THEREFORE NO A DHOC DISALLOWANCE IS JUSTIFIED MERELY ON THE GROUND THAT CERTAIN VOUCHERS ARE SELF MADE. THERE IS NO PROVISION IN THE INCOME-TAX ACT TO MAKE DISALLOWANCE TO COVER UP POSSIBLE LEAKAGE OF INCOME. DISALLOWANCE OF `1,00,000/- IS DIRECTED TO BE DELET ED. GROUND NO.3 IS THUS ALLOWED. 3.3 BEFORE US, THE LD. DR HAS RELIED ON THE ORDER O F AO. 3.4 THE LD. AR HAS SUBMITTED AS UNDER: (A) THIS MATTER IS DIRECTLY COVERED BY THE DECISION OF ASSESSEES OWN CASE FOR A.Y.2005-06 VIDE ORDER DATED 08.07.2011 IN ITA NO.9 60/JP/10 & CO. NO.81/JP/10 AT PARA NO. 4.4 . (B) WE RELY UPON THE WRITTEN SUBMISSIONS FILED BEFORE THE LD. CIT(A) AND HIS ORDER ON THIS PART. THE SAME ARE REPRODUCED IN VERBATIM: THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF RS.1 00000/- ON ESTIMATE BASIS OUT OF PRINTING AND STATIONERY EXPENSES FOR THE REASO N THAT SOME OF THE PAYMENTS WERE IN CASH AND THERE WERE NO SUPPORTING THIRD PAR TY BILLS. HE THEREFORE DISALLOWED THE AFORESAID SUM ON ESTIMATED BASIS TO COVER THE POSSIBLE LEAKAGE OF INCOME TREATING SUCH PAYMENT NOT INCIDENTAL TO BUSI NESS. THE DETAILS OF ALL EXPENSES INCURRED ON ACCOUNT OF PRINTING & STATIONE RY HEAD WAS ALSO SUBMITTED WITH THE ASSESSING AUTHORITY. SIR, ASSESSEE IS RUNNING A COACHING INSTITUTE AND E XPENSES IN RELATION TO PACKING AND DISPATCHING OF MARK-SHEETS OR OTHER INFORMATION TO PARENTS ARE BEING GOT DONE THROUGH PART TIME/CASUAL EMPLOYEES AND PAYMENTS TO THEM ARE MADE THROUGH PAYMENT SHEETS. SIGNATURES OF THE RECIPIENTS ARE OBTAINED ON PAYMEN T SHEETS AND WHEN PAYMENTS ARE MADE FOR WORK DONE DURING RELEVANT PERIODS. SEVERAL TIMES, PETTY ITEMS ARE REQUIRED URGENTLY IN THE INSTITUTE AND THEREFORE THOSE ITEMS OR PROCURED FROM NEARBY SHOP WHO DOES NOT HAVE PROPER BILLS/TIN ETC. THEREFORE, SUCH TYPE OF EXPENSES ARE MADE THROUGH PAYMENT VOUCHERS AND SIGNATURES OF THE PERSON ARE O BTAINED ON SUCH VOUCHERS. IN SUCH CASE EXPENSES ARE FOR THE NEED OF THE BUSINESS AND DISALLOWANCE OF THESE EXPENSES ARE NOT AT ALL JUSTIFIED. 3.5 WE HAVE HEARD BOTH THE PARTIES. THE ASSESSEE H AS BEEN ABLE TO EXPLAIN THE NATURE OF EXPENSES AND ALSO EXPLAINED AS TO WHY SOME EXPENSES ARE SUPPORTED BY INTERNAL VOUCHERS. INTERNAL VOUCHERS CAN BE ACCEPTED WHEN IT IS 6 FOUND THAT EXTERNAL VOUCHERS ARE NOT AVAILABLE. HE NCE WE FEEL THAT THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE O F RS. 1,00,000. 4. THE THIRD GROUND OF APPEAL IS THAT LD. CIT(A) HA S ERRED IN DELETING THE DISALLOWANCE OF RS. 56,812/- OUT OF DIWALI EXPENSES . 4.1 THE ORDER OF THE AO ON THIS ISSUE IS AS UNDER: THE ASSESSEE HAS CLAIMED DEEPAWALI EXPENSES AT RS.5 ,68,122/-. THE PERUSAL OF DETAIL OF SUCH EXPENSES REVEALED THAT THERE ARE CER TAIN EXPENSES CLAIMED BY THE ASSESSEE PART OF WHICH ARE OF PERSONAL NATURE. THE ASSESSEE HAS INCURRED EXPENSES FOR RS.45,522/- ON ACCOUNT OF PURCHASE OF SUITING A ND SHIRTINGS. SIMILARLY RS.2,24,125/- WERE INCURRED ON ACCOUNT OF PURCHASE OF ARISTOCRAT TROLLEY BAGS. SUCH TYPES OF EXPENSES INDICATE THAT PART OF EXPENS ES WERE NOT INCIDENTAL TO THE BUSINESS AND ARE OF PERSONAL NATURE. THEREFORE 1/10 TH OF SUCH EXPENSES AMOUNTING TO RS.56,812/- ARE DISALLOWED AND ADDED IN THE TOTA L INCOME. 4.2 THE LD. CIT(A) DELETED THE ADDITION AFTER OBSER VING AS UNDER: IT IS COMMON FOR A BUSINESSMAN TO SEND GIFTS DURING DIWALI TO VARIOUS BUSINESS ASSOCIATES. ALL EMPLOYEES ARE ALSO GIVEN DIWALI GIF TS. IN SUCH A SITUATION EXPENSES INCURRED ON PURCHASE OF SUITING AND SHIRTINGS AND T ROLLY BAGS CANNOT BE CONSIDERED AS EXPENSES OF PERSONAL NATURE. THE TOTA L AMOUNT CLAIMED UNDER THIS HEAD IS REASONALE IN VIEW OF TOTAL TURNOVER OF APPE LLANT AND THEREFORE NO ADHOC DISALLOWANCE IS JUSTIFIED. DISALLOWANCE OF `56,812/ - IS DIRECTED TO BE DELETED. GROUND NO.4 IS THUS ALLOWED. 4.3 BEFORE US THE LD. DR SUBMITTED THAT NATURE OF E XPENSES SHOW THAT ALL THE EXPENSES ARE NOT INCIDENTAL IN BUSINESS. THE A SSESSEE HAS NOT GIVEN THE DETAILS TO WHOM SUCH GIFTS HAVE BEEN GIVEN. HENCE THE AO WAS JUSTIFIED IN DISALLOWANCE ONE-TENTH OF EXPENSES. 4.4 BEFORE US THE LD. AR SUBMITTED AS UNDER: 7 THE ASSESSEE IS RUNNING A COACHING INSTITUTE AND H AVING GOOD NUMBER OF EMPLOYEE AND FOR DAY TO DAY WORKING HE HAS TO GET C O-OPERATION WITH SEVERAL GOVERNMENT DEPARTMENTS. TO HAVE GOOD RELATION AMONG HIMSELF AND THE STAFF AND STUDENTS AS WELL AS TO KEEP GOOD LIASIONING WITH AD MINISTRATIVE AND OTHER AUTHORITIES, HE HAS TO CELEBRATE DEEPAWALI AS A FUN CTION OF THE INSTITUTE AND DISTRIBUTE SWEETS AND OTHER GIFTS. ALL THE EXPENSES FOR WHICH DETAILS WERE FILED WITH THE ASSESSING AUTHORITY ARE INCURRED DURING THE SAI D OCCASION AND EXPENSES ARE FULLY SUPPORTED WITH BILLS/VOUCHERS AND PAYMENT IS ALSO MADE THROUGH CHEQUES. THE ASSESSING AUTHORITY COULD NOTE FIND EVEN A SING LE INSTANCE OF PERSONAL EXPENSES AND THEREFORE MERELY ON PRESUMPTIVE BASIS THE DISALLOWANCE OF EXPENSES HAVE BEEN MADE WHICH IS UNJUSTIFIED AND REQUESTED T O BE DELETED. 4.5 WE HAVE HEARD BOTH THE PARTIES. THE EXPENSES A RE INCIDENTAL TO BUSINESS. SUCH EXPENSES HAVE BEEN INCURRED DURING THE PERIOD WHEN THE ASSESSEE MAY PRESENT DIWALI GIFTS. WE FEEL THAT TH E LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION. 5. THE FOURTH GROUND OF APPEAL IS THAT THE LD. CIT( A) HAS ERRED IN REDUCING THE VEHICLE EXPENSES TO RS. 40,000/- AS AG AINST RS. 1,45,770/- MADE BY THE AO. THE ASSESSEE IN ITS CROSS OBJECTION IS A GGRIEVED AGAINST CONFIRMING THE DISALLOWANCE TO THE EXTENT OF RS. 40 ,000/-. 5.1 THE AO HAS OBSERVED AS UNDER:- THE ASSESSEE HAS CLAIMED TOTAL VEHICLE EXPENSES AT RS.3,16,355/-. ADMITTEDLY THE ASSESSEE IS USING TWO CARS FOR PERSONAL USE ON WHIC H EXPENDITURE OF RS.1,91,576/- WAS INCURRED. THE ASSESSEE HAS ALSO CLAIMED DEPRECI ATION OF RS.4,12,493/- ON SUCH VEHICLES. THE TOTAL EXPENDITURE ON SUCH VEHICL ES ARRIVES AT RS.7,28,848/-. THE ASSESEE REQUIRED TO EXPLAIN AS TO WHY PERSONAL USE OF SUCH VEHICLES MAY NOT BE DISALLOWED AND ADDED IN THE INCOME OF THE ASSESSEE. THE ASSESSEE HAS NOT DISPUTED THE PERSONAL USE AND ACCORDINGLY 1/5 OF SUCH EXPENS ES WHICH ARRIVES AT RS.1,45,770/- ARE TREATED ON ACCOUNT OF PERSONAL USE AND ACCORDI NGLY DISALLOWED AND ADDED IN THE INCOME OF THE ASSESSEE 5.2 THE LD. CIT(A) WHILE REDUCING THE DISALLOWANCE OBSERVED AS UNDER:- 8 SIMILARLY PERSONAL USE IN RESPECT OF VEHICLE EXPENS ES IS ALSO INVARIABLY PRESENT, BUT THE AO SHOULD HAVE RESTRICTED THE DISALLOWANCE IN RESPECT OF TWO VEHICLES USE BY THE APPELLANT. THE DISALLOWANCE MADE BY AO OUT O F ALL THE EIGHT CARS IS NOT JUSTIFIED. MOREOVER DEPRECIATION IS A STATUTORY ALL OWANCE OUT OF WHICH NO DISALLOWANCE IS JUSTIFIED FOR ELEMENT OF PERSONAL U SE. IT WILL BE FAIR AND REASONABLE TO RESTRICT THE DISALLOWANCE OUT OF VEHICLES EXPENS ES TO `40,000/-. GROUND NO.5 IS THUS PARTLY ALLOWED. 5.3 THE LD. DR STATED THAT THE ASSESSEE IS NOT HAV ING ANY OTHER PERSONAL VEHICLE. USE OF VEHICLE FOR PERSONAL PURPOSES CAN NOT BE RULED OUT. IT WAS THEREFORE, SUBMITTED THAT AO HAS RIGHTLY DISALLOWED 1/5 TH OF EXPENSES. 5.4 THE LD. AR SUBMITTED AS UNDER:- (A) THIS MATTER IS DIRECTLY COVERED BY THE DECISIO N OF ASSESSEES OWN CASE FOR A.Y.2005-06 VIDE ORDER DATED 08.07.2011 IN ITA NO.9 60/JP/10 & CO. NO.81/JP/10 AT PARA NO. 6.5. (B) WE RELY UPON THE WRITTEN SUBMISSIONS FILED BEFORE THE LD. CIT(A) AND HIS ORDER ON THIS PART. THE SAME ARE REPRODUCED IN VERB ATIM: (I) SITUATION OF VEHICLES ARE THE SAME AS OF TELEP HONE AS MENTIONED ABOVE. FOR THE WORK OF INSTITUTE 8 CARS ARE MAINTAINED OUT OF WHICH 6 ARE BEING USED BY THE FACULTY MEMBERS AND THE STAFF FOR THE WORK/DUTIES O F THE INSTITUTE. TWO CARS ARE USED BY THE PROPRIETOR FOR PER FORMING ALL THE WORK S RELATING TO INSTITUTE AND TOTAL EXPENSES OF THESE TWO CARS ARE OF RS.195576/- DETAI LED BIFURCATED EXPENSES FILED DURING HEARING. THE ASSESSEE HAD TO VISIT THESE PLA CES AND VEHICLES/HIS CARS WERE USED BY HIM FOR THIS PURPOSE ALSO APART FROM THE LO CAL WORK. THE LEARNED A.O. HAS WITHOUT ANY BASIS AND LOGIC, DISALLOWED 1/5 TH EXPENSES OF THE TOTAL EXPENSES OF 316355/- I.E. RS.63271/- WHILE AT THE MOST 1/5 TH OF RS.195576/- MIGHT BE A JUSTIFIED AND JUDICIOUS APPROACH. THEREFORE THE ADDITION SHOU LD BE DELETED/REDUCED. 5.5 WE HAVE HEARD BOTH THE PARTIES. IN THE CASE OF THE ASSESSEE FOR THE PRECEDING YEAR, PARTIAL DISALLOWANCE WAS CONFIRMED BY THE TRIBUNAL. FOLLOWING THAT ORDER WE HOLD THAT THE LD. CIT(A) WA S JUSTIFIED IN REDUCING THE DISALLOWANCE. 9 6. THE SIXTH GROUND OF APPEAL BY THE REVENUE IS THA T LD. CIT(A) HAS ERRED IN ALLOWING DEPRECIATION AT THE RATE OF 60% O N PRINTERS. 6.1 THE AO HAS OBSERVED AS UNDER: THE ASSESSEE HAS CLAIMED DEPRECIATION ON THE PRINTE RS @ 60% TREATING THE SAME AS COMPUTERS. THE PRINTERS CANNOT BE TREATED AS COM PUTERS AND THEREFORE HIGHER DEPRECIATION CANNOT BE ALLOWED. THE ASSESSEE WAS CONFRONTED ON THIS ISSUE AND IT IS ARGUED BY THE AR OF THE ASSESSEE THAT THE PRINTER IS PART AND PARTIAL OF TH E COMPUTER. I DONT FIND ANY MERIT IN THE SUBMISSION OF THE ASSESSEE AS THE PRINTERS C ANNOT BE EQUATED WITH THE COMPUTERS AND THEREFORE DEPRECIATION CLAIMED ON THE PRINTERS IS RESTRICTED TO 15% AS AGAINST 60% CLAIMED BY THE ASSESSEEE. -------- THE DEPRECIATION AMOUNTING TO RS.42,056/- IS DISALL OWED FROM DEPRECATION CLAIMED ON COMPUTERS AND PRINTERS. 6.2 THE LD. CIT(A) HAS HELD AS UNDER: FROM THE PERUSAL OF RECORDS IT IS FOUND THAT IN THI S CASE ORIGINAL RETURN WAS FILED ON 30.12.2006, IN WHICH SHORT TERM CAPITAL GAIN OF 1,30,181/- WAS DECLARED AS PER FOLLOWING COMPUTATION: (I) SALE OF HOUSE ON 20.03.2006 1550000 LESS: PURCHASE COST ON 02.06.2003 1700369 SHORT TEM LOSS 150369 (II) SHORT TEM CAPITAL GAIN/INCOME ON UTI MUTUAL FU ND 280550 NET SHORT TEM CAPITAL GAIN 130181 11.3 SUBSEQUENTLY APPELLANT FILED REVISED RETURN ON 04.03.2008 IN WHICH EXEMPTION U/S 10(38) WAS CLAIMED ON LONG TERM CAPIT AL GAIN AS FOLLOWS: (I) SALE OF HOUSE ON 20.03.2006 1550000 LESS: PURCHASE COST ON 02.06.2003 1700369 SHORT TEM LOSS TO C/F FOR SUBSEQUENT YEAR 150369 (II) SHORT TEM CAPITAL GAIN ON SALE/SURRENDERED OF UTI MUTUAL FUND 280550 LESS: EXEMPTED U/S 10(38) 280550 10 11.4 AO HAS NOT GIVEN ANY REASONS IN THE ASSESSMENT ORDER FOR NOT ALLOWING EXEMPTION U/S 10(38) TO THE APPELLANT. IT APPEARS T HAT DUE TO OVERSIGHT AO HAS NOT CONSIDERED THE CLAIM OF THE APPELLANT IN THE REVISED RETURN. AS THE APPELLANT HAS FILED REVISED RETURN WITHIN DUE TIME , THERE IS NO REASON FOR AO NOT TO CONSIDER THIS CLAIM OF APPELLANT, AO IS DIRECTED TO ALLOW EXEMPTION U/S 10(38) TO THE APPELLANT ON LONG TERM CAPITAL GAIN AS PER LAW. GROUND NO.8 IS THUS ALLOWED. 6.3 WE HAVE HEARD BOTH THE PARTIES. PRINTERS AND C OMPUTER PERIPHERALS INCLUDING PRINTERS ARE TO BE CONSIDERED FOR THE ALL OWABLITY OF DEPRECIATION AT 60%. RELIANCE IS PLACED ON THE FOLLOWING DECISIONS :- CIT V. BSES YAMUNA POWERS LTD. 2010-TIOL-636-HC-DE L DCIT V. CLIMATE SYSTEMS (P) LTD.. 2011-TIOL-96/HC- DEL CIT V. DELHI AIRPORT SERVICES 170 CTR 534 DEL DEPRECIATION ON UPS AT 60% AS IT IS PART OF COMPUT ER CIT V. ORIENT CEREMICS & INDIA LTD. 2011-TIOL-68-H C-DEL HENCE WE FEEL THAT THE LD. CIT(A) WAS JUSTIFIED IN DIRECTING THE TO ALLOW DEPRECIATION AT 60%. 7. THE LD. CIT(A) HAS ERRED IN DIRECTING THE AO TO TREAT SURRENDER UNITS OF UTI OPPORTUNITY FUND AS LONG TERM CAPITAL GAIN. 7.2 WE HAVE HEARD BOTH THE PARTIES. THE HON'BLE AP EX COURT IN THE CASE OF CIT V. APPOLLO TYRES LTD. 237 ITR 706 HELD THAT DEEMING PROVISIONS THAT UTI IS A COMPANY BUT IT DOES NOT MEAN THAT UNIT IS SHARE. AS PER PROVISIONS OF SECTION 2(42A) THE PERIOD OF HOLDING IF MORE THA N 12 MONTHS THEN THE GAIN 11 IS LONG TERM. HENCE THE AO WILL VERIFY THE PERIOD OF HOLDING AND IF IT IS MORE THAN 12 MONTHS THE PROFIT WILL BE LONG TERM. HENCE THIS ISSUE IS RESTORED BACK ON THE FILE OF THE AO. 8. 8 TH GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. CI T(A) HAS ERRED IN DELETING THE ADDITION ON ACCOUNT OF DISALLOWANCE O F RS. 119655/- OUT OF STAFF WELFARE EXPENSES. 8.1 THE AO WHILE MAKING THE DISALLOWANCE HAS OBSERV ED AS UNDER:- THE ASSESSEE HAS CLAIMED TOTAL EXPENSES OF RS.5,98, 328/- UNDER THE HEAD STAG WELFARE EXPENSES. ON RANDOM VERIFICATION DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS FOUND THAT MOST OF THESE EXPENS ES HAVE BEEN INCURRED IN CASH AND ALSO THAT PART OF THE EXPENSES ARE CLAIM ON THE BASIS OF SELF MADE VOUCHERS. THESE EXPENSES ALSO INCLUDE CERTAIN EXPENSES WHICH PRIMA FACIE APPEAR TO BE NOT CONNECTED WITH THE BUSINESS AND ARE OF PERSONAL NAT URE. THE ASSESSEE HAS SHOWN EXPENSES FOR RS.13,062/- ON 22-06-2005 ON ACCOUNT O F SILVER ITEM GIFT FOR MARRIAGE OF KAPIL JOSHI. SIMILARLY, EXPENSES FOR RS .32,200/- WERE INCURRED ON ACCOUNT OF TOUR AND TRAVEL BILL OF SH. MANOJ SHARMA AND SMT SHIVANI SHARMA WHO HAPPENED TO BE EMPLOYEES OF THE ASSESSEE. THE EXPEN SES ON ACCOUNT OF LUNCH DINNER AND HOTEL STAY ARE ALSO INCLUDED IN THESE EX PENSES. 8.2 THE LD. CIT(A) DELETED THE ADDITION AFTER OBSER VING AS UNDER:- COACHING INSTITUTES ARE HIGHLY COMPETITIVE BUSINESS , WHERE COACHING OF STAFF IS RAMPANT. IT IS ESSENTIAL TO KEEP THE EMPLOYEES IN G OOD HUMOUR AND ALSO MAINTAIN CORDIAL RELATIONS WITH RIVALS IN THE INDUSTRY TO SU RVIVE IN THIS BUSINESS. AS EXPLAINED BY APPELLANT, EXPENSES OF `19,295/- WERE ON ACCOUNT OF GIFT OF SILVER ITEMS ON THE MARRIAGE OF SHRI SAMEER BANSAL, WHO IS SON OF OWNER OF BANSAL CLASSES. AO IS THEREFORE NOT JUSTIFIED TO TREAT THE SAME AS PERSONAL EXPENDITURE. SIMILARLY EXPENSES ON TOUR AND TRAVEL OF EMPLOYEES ARE INCIDENTAL TO THE BUSINESS. I THEREFORE HOLD THAT ADHOC DISALLOWANCE OF `1,19,6 65/- IS NOT JUSTIFIED AND THE SAME IS DIRECTED TO BE DELETED. GROUND NO.9 IS THUS DISALLOWED. 8.3 DURING THE COURSE OF PROCEEDING BEFORE US, T HE LD. DR HAS RELIED ON THE ORDER OF THE AO. IT WAS STATED THAT THE EXPENS ES DEBITED UNDER THIS HEAD ARE NOT INCIDENTAL TO BUSINESS. 12 8.4 BEFORE US, LD. AR HAS SUBMITTED AS UNDER: (A) THIS MATTER IS DIRECTLY COVERED BY THE DECISIO N OF ASSESSEES OWN CASE FOR A.Y.2005-06 VIDE ORDER DATED 08.07.2011 IN ITA NO.9 60/JP/10 & CO. NO.81/JP/10 AT PARA NO. 9.4 . (B) WE RELY UPON THE WRITTEN SUBMISSIONS FILED BEFORE THE LD. CIT(A) AND HIS ORDER ON THIS PART. THE SAME ARE REPRODUCED IN VERB ATIM: A LUMP SUM AMOUNT OF RS.119655/- (10% OF THE TOTAL EXPENSES) HAVE BEEN DISALLOWED BY THE AO FOR THE REASONS THAT THE VOUCH ERS ARE SELF MADE. THESE VOUCHERS ARE ISSUED BY THE PERSON WHO HAS SUPPLIED THE ITEMS/SERVICES REGARDING STAFF WELFARE. AS REGARDS ALLEGED LACK OF AUTHENTIC ITY OF SUCH PAYMENT/VOUCHERS, IT IS SUBMITTED THAT THE LEARNED AO DID PRECIOUS LITTL E TO PROVE THE VOUCHERS OTHERWISE. THE PAYEE IS VERY MUCH IN EXISTENCE AND STILL PROVIDING SUCH SERVICES TO THE INSTITUTE. MERELY BECAUSE SOME PAYMENTS ARE IN CASH (NOT IN VIOLATION OF SECTION 40A(3), NO DISALLOWANCE CAN BE MADE, IF GEN UINENESS OF THE PAYMENT IS NOT SUCCESSFULLY DISPROVED. IT IS SUBMITTED THAT IN OUR INDUSTRY, STAFF IS THE BACK BONE AND SO IS THE TOOL, ASSET AND EVERYTHING ON WHICH ENTIRE BUSINESS IS DEPENDEN T. WE HAVE TO MAKE EVERY EFFORT TO SEE THAT STAFF IS KEPT IN GOOD HUMOUR AND RELATIONS ARE EXTREMELY CORDIAL. CONSIDERING THE NUMBER OF STAFF, NATURE OF SERVICES , ODD WORKING HOURS, THE CLAIM ON ACCOUNT OF STAFF WELFARE WAS NOT EXCESSIVE AND T HEREFORE NO JUSTIFICATION FOR DISALLOWANCE OF ANY PART THEREOF. SHRI KAPIL JOSHI AND SHRI MANOJ SHARMA ARE THE EMPL OYEES OF THE INSTITUTE AND ARE MAJOR PILLARS. TO SATISFY THEIR DEMAND AND NEED AND FOR HAVING BETTER CORDIAL RELATIONS, EXPENSES WERE INCURRED FOR THEIR GIFT OR FOR THEIR TRAVELLING. SIMILARLY, SAMEER BANSAL IS SON OF THE MOST EMINENT COACH-BANS AL CLASSES AND TO KEEP CORDIAL RELATIONS AND TO MAINTAIN HARMONY, THE APPE LLANT HAD TO GIFT CERTAIN ARTICLES ON HIS MARRIAGE. RESULT OF SUCH ACTIVITIES CAN BE SEEN IN FUTURE IN THE FAVOUR OF THE INSTITUTE RUN BY THE APPELLANT. BOTH SHRI KAPIL JOSHI AND SHRI MANOJ SHARMA IS STILL WORKING WITH THE ASSESSEE EVEN IN T HE TIME WHEN SHIFTING OF EMPLOYEES AMONGST INSTITUTES ARE VERY OFTEN. IN THE SAME CONTEXT, NO SHIFTING OF FACULTIES ARE BEING DONE IN BANSAL CLASSES V/S RESO NANCE I.E. THE APPELLANT. THUS, THE EXPENSES INCURRED WERE FOR THE BUSINESS AND DIS ALLOWANCE OF RS.119665/- ON THIS ACCOUNT I.E. STAFF WELFARE IS NOT JUSTIFIED. 8.5 WE HAVE HEARD BOTH THE PARTIES. IN THE IMMEDIA TELY PRECEDING YEAR WE HAVE HELD THAT SUCH EXPENSES ARE NOT SUPPORTED B Y AUTHENTICATED BILLS. THE DISALLOWANCE WAS RESTRICTED TO RS. 35,000 AS AG AINST RS. 71,273/- MADE 13 BY THE AO. DURING THE YEAR ALSO CERTAIN EXPENSES H AVE BEEN CLAIMED ON THE BASIS OF SELF MADE VOUCHERS. THE AO POINTED OUT TH AT THE ASSESSEE HAS DEBITED EXPENSES FOR MAKING GIFTS. THE GIFTS HAVE B EEN GIVEN ON THE MARRIAGE OF MR. SAMER BANSAL WHO IS SON OF OWNER OF BANSAL C LASSES. THIS EXPENDITURE IS BASICALLY A PERSONAL NATURE. FOLLOW ING OUR ORDER FOR THE EARLIER YEAR, WE FEEL THAT IT IS FAIR AND REASONABL E TO RESTRICT THE DISALLOWANCE TO RS. 35,000. 9. 9TH GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN ALLOWING CHARGING INTEREST ON INTEREST FREE LOANS A T 6% INSTEAD OF 12%. 9.1 THE AO IN HIS ORDER HAS OBSERVED AS UNDER:- THE ASSESSEE IN HIS COMPUTATION OF INCOME HAS SHOW N INTEREST ON BANK FDRS FOR RS.3889621/-. AS AGAINST THIS INCOME, INTEREST PAID TO BANK AGAINST OVERDRAFT IS SHOWN AT RS.3873528/- AND NET INTEREST INCOME FO R RS,16,093/- IS SHOWN. ADMITTEDLY ASSESSEE HAS INCURRED INTEREST ON BANK O VERDRAFTS FOR RS.3873528/- BUT THIS DIDNT APPEAR IN THE P/L ACCOUNT BECAUSE THE S AME WAS ADJUSTED/REDUCED FROM THE TOTAL INTEREST INCOME. IN THIS BACKGROUND, THE ASSESSEE VIDE QUESTIONNAIRE DATED 21-01-2008 WAS REQUIRED TO FILE DETAIL AS TO HOW THE INTEREST BEARING BORROWED FUND WERE USED AND AS TO WHETHER ANY INTER EST FREE ADVANCES WERE MADE WHICH WERE INCIDENTAL TO THE BUSINESS AND ON WHICH INTEREST WAS PAID. THE ASSESSEE VIDE WRITTEN REPLY DATED 04-03-2008 ST ATED THAT NO LOAN/ADVANCES GIVEN BY TAKING OVERDRAFT OF THE BANK AND THAT SUCH LOANS/ADVANCES ARE GIVEN OUT OF CAPITAL OF THE ASSESSEE WHICH ARE MORE THAN THE ADVANCES GIVEN. THE ASSESSEE THEREFORE SUBMITTED THE INTEREST BEARING FINDS ARE NOT UTILIZED FOR MAKING INTEREST FREE ADVANCES. I HAVE CAREFULLY CONSIDERED THE WRITTEN SUBMISSION AS WELL AS OTHER RELEVANT FACTS OF THIS CASE THE DETAIL OF LOAN AND ADVANCES GIVEN BY THE ASSESSEE ARE MENTIONED IN SCHEDULE-VIII OF THE AUDIT REPORT. THE ASSESSEE WAS SPECIFICALLY REQUIRED AS TO WHICH ADVANCES ARE RELEVANT AND INCIDENTAL TO THE B USINESS AND WHICH ADVANCES ARE NOT CONNECTED WITH THE BUSINESS OF THE ASSESSEE . THE ASSESSEE VIDE WRITTEN REPLY DATED 25-11-2008 FILED SUCH DETAIL AND ON PER USAL OF THE SAME, IT WAS FOUND THAT THE FOLLOWING ADVANCES WERE GIVEN TO THE FAMIL Y MEMBERS, FRIENDS OR OTHER CLOSELY RELATED PERSONS. 14 (LIST OF PARTIES KINDLY REFER ASSESSMENT ORDER) AS THE ASSESSEE HAS INCURRED INTEREST ON THE BANK O VERDRAFTS AND PART OF SUCH INTEREST BEARING FUNDS WERE NOT UTILIZED FOR BUSINE SS PURPOSES THEREFORE, THE ASSESSEE WAS REQUIRED TO EXPLAIN WHY INTEREST MAY N OT DISALLOWED TO THE EXTENT OF INTEREST INCURRED ON MAKING INTEREST FREE ADVANCES. THE ASSESSEE VIDE WRITTEN SUBMISSIONS STATED THAT AS PRUDENT MAN THE ASSESSEE HAD TAKEN FRDRS FOR A LONGER PERIOD FOR EARNING HIGHER RATE OF INTEREST A ND THAT IF THE PREMATURE PAYMENT OF FDR WOULD HAVE BEEN TAKEN ON FDR FOR SHO RTER PERIOD WOULD HAVE BEEN TAKEN, THE LESS INTEREST WOULD HAVE BEEN EARNE D. IT WAS AGAIN EMPHASIZED THAT CAPITAL OF THE ASSESSEE IS MUCH MORE AND HE HA S GIVEN THESE FUNDS OUT OF HIS OWN CAPITAL. IT WAS FURTHER CLAIMED THAT NO EXPENSE S WERE CLAIMED IN THE P/L ACCOUNT AND ASSESSEE IS THE BEST JUDGE OF HIS AFFAI RS. I HAVE GIVEN A CAREFUL CONSIDERATION TO THE WRITTEN SUBMISSION OF THE ASSSESSEE AND IT WAS FOUND THAT PART OF THE ADVANCES MENTIONE D ABOVE WERE NOT AT ALL CONNECTED WITH THE BUSINESS OF THE ASSESSEE. THE CL AIM OF THE ASSESSEE THAT HE IS HAVING SUBSTANTIAL CAPITAL AND THAT SUCH ADVANCES W ERE GIVEN FROM HIS OWN CAPITAL IS ALSO NOT CORRECT AS SUCH CAPITAL WAS FOU ND TO BE UTILIZED IN THE FORM OF FIXED ASSETS AND OTHER MOVEABLE ASSETS. THE FACTS D ISCUSSED ABOVE WOULD ALSO INDICATE THAT IF SUCH ADVANCES WOULD NOT HAVE BEEN MADE TO FAMILY MEMBER OR FRIENDS, THE INTEREST LIABILITY WOULD HAVE BEEN LES SER. AS REGARD THE CLAIM OF THE ASSESSEE THAT NO EXPENSES IS CLAIMED IN THE P/L ACC OUNT. THEREFORE, KEEPING IN VIEW THE ABOVE FACTS, IT IS HELD THAT PART OF THE I NTEREST BEARING FUNDS IN THE ABOVE MENTIONED CASES WERE UTILIZED FOR OTHER THAN BUSINE SS USE AND ACCORDINGLY INTEREST ON SUCH FRIENDLY LOANS ADVANCES WHICH ARRI VES AT RS.9,11,326/- @12% IS DISALLOWED OUT OF TOTAL INTEREST OF RS.38,89,621/- AND ADDED IN THE INCOME OF THE ASSESSEE . -----. 9.2 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE, RESTRICTED THE DISALLOWANCE TO 6% BY OBSERVING AS U NDER: FROM THE PERUSAL OF RECORDS, IT IS FOUND THAT THE S AME ISSUE WAS CONSIDERED AND DECIDED BY MY PREDECESSOR IN THE CASE OF APPELLANT FOR A.Y.2005-06 VIDE HIS ORDER DATED 29.04.2010 IN APPEAL NO.466/07-08. IT WAS HEL D IN THAT ORDER THAT INTEREST FREE ADVANCES ARE GIVEN BY APPELLANT FOR PERSONAL A ND NON BUSINESS PURPOSE. IN THE CASE OF SHRI MUKESH JAIN IT WAS ADMITTED BY APP ELLANT THAT LOAN OF `48,00,000/- WAS GIVEN TO HIM BECAUSE HE HELPED THE APPELLANT IN PAST DURING THE PERIOD OF HIS EDUCATION. AT THE SAME TIME CAPITAL O F APPELLANT WAS BLOCKED IN FIXED ASSETS. THEREFORE APPELLANT HAD NO LIQUID ASSETS AS PART OF HIS CAPITAL, OUT OF WHICH INTEREST FREE LOANS COULD HAVE BEEN ADVANCED. AO WAS THEREFORE DIRECTED TO MAKE DISALLOWANCE OUT OF INTEREST @ 6% PER ANNUM. S INCE FACTS OF THE CASE ARE IDENTICAL FOR THIS YEAR, I DO NOT SEE ANY REASON TO COME TO A DIFFERENT CONCLUSION. 15 DISALLOWANCE OUT OF INTEREST IS THEREFORE JUSTIFIED . HOWEVER AO HAS MADE THE DISALLOWANCE@ 12%. HE IS DIRECTED TO RESTRICT THE D ISALLOWANCE @ 6%. GROUND NO.10 OF THE APPEAL IS THUS PARTLY ALLOWED. 9.3 BEFORE US, THE LD. DR HAS SUPPORTED THE ORDER OF TH E AO. 9.4 THE LD. AR HAS SUBMITTED AS UNDER:- (A) THIS MATTER IS DIRECTLY COVERED BY THE DECISIO N OF ASSESSEES OWN CASE FOR A.Y.2005-06 VIDE ORDER DATED 08.07.2011 IN ITA NO.9 60/JP/10 & CO. NO.81/JP/10 AT PARA NO. 10.4 (B) THAT THERE IS NO PROVISION IN LAW TO COMPEL A PERSO N TO EARN INCOME AS HELD IN THE CASE OF SHOORJI BALLABH DAS & CO. 44 ITR 146 (SC). (C) THE LAW IS SETTLED THAT IN SUCH CASES IT IS ALWAY S FOR THE AO TO HAVE ESTABLISHED A PHYSICAL NEXUS BETWEEN THE INTEREST BEARING FUNDS AND THE INTEREST FREE ADVANCES SO MADE, WHICH CONDITION HAS NOT BEEN PROPERLY FULFILLED IN THE PRESENT CASE IN AS MUCH AS THE PECULIAR FACTS OF TH E CASE SUGGEST THAT THE ASSESSEE ADMITTEDLY MADE INVESTMENTS OF ITS SURPLUS FUNDS IN FDRS AND ON THE SECURITY OF WHICH, HE AVAILED OVERDRAFT FACILITY WITH ONLY EXTR A COST OF HALF PERCENT INTEREST. IN OTHER WORDS, THERE WAS NO BORROWING MADE TO MEET FI NANCIAL REQUIREMENT AND ON THE CONTRARY THESE WERE ASSESSEES OWN FUNDS WHICH HAVE BEEN UTILIZED EVEN FOR THE SUBJECTED ADVANCES. HENCE, THESE FACTS CAN NOT BE KEPT AT PAR WITH A CASE WHERE AN ASSESSEE RUNNING SHORT OF FUND MAKES BORRO WING, BEAR INTEREST COST AND THEN DIVER THE SAME/ PART TO NON INTEREST BEARING A DVANCES. AS A MATTER OF FACT, IT CAN NOT BE DENIED THAT THE ASSESSEE CERTAINLY ACTED AS A PRUDENT BUSINESS BY EARNING INTEREST INCOME OF `38.90 LACS AGAINST WHIC H PAID `38.73 LACS ONLY, AND THUS EARNED `16,093/-. NEEDLESS TO SAY BY NOT INVES TING IN FDRS THE ASSESSEE, OF COURSE WOULD NOT HAVE INCURRED INTEREST COST BUT AT THE SAME TIME WOULD NOT HAVE EARNED INTEREST. THE NET RESULT WOULD HAVE BEEN LOS S TO THE REVENUE. KINDLY REFER CIT V/S RADICO KHAITAN LTD. (2005) 274 ITR 354 (ALL .) WHICH SUPPORT ON THIS ASPECT. THEREFORE, THE DECISION IN ABHISHEK INDUSTRIES IS CLEARLY DISTINGUISHABLE ON FACT AS ELABORATED IN THE W/S CIT(A). 4. WHILE REJECTING CONTENTION OF THE ASSESSEE OF THE A VAILABILITY OF LARGER INTEREST FREE FUNDS, THE AO PROCEEDED ON THE ASSUMPTION THAT SUCH FUNDS ALREADY STOOD INVESTED IN THE FIXED ASSETS AND OTHER ASSETS, WITHOUT EXAMINING TH E ACCOUNTS TO ASCERTAIN THE NEXUS BETWEEN THE TWO. UNLESS THIS IS DONE NO CHARGING OF NOTIONAL INCOME IS PERMISSIBLE NOR ANY DISALLOWANCE COULD HAVE AT ALL BEEN MADE. KINDLY REFER CIT V/S HOTEL SAVERA (1999) 239 ITR 79 5 (MAD.), SHREE DIGVIJAY CEMENT CO. LTD. V/S CIT (198 2) 138 ITR 45 (GUJ), GANESH CHAWALA V/S ITO (2008) 9 DTR 162 (JP), GUJARAT NARM ADA VALLEY FERTILIZERS CO. LTD. V/S DCIT (2001) 73 TTJ 787 (AHD) AND CIT V/S T IN BOX CO. (2003) 260 ITR 637 (DEL). 16 5. PAST HISTORY/LATER YEARS: NOTABLY IN THE PAST ALSO THE APPELLANT HAS BEEN MAK ING SUCH CLAIM AND THE SAME STOOD ALLOWED. THE FACTS AN D CIRCUMSTANCES BEING SAME, THERE APPEARS NO SPECIAL REASON TO TAKE A DEPARTURE. SIMI LARLY IN THE LATER YEARS ALSO THE APPELLANT CONTINUES MAKING PAYMENTS BUT NO DISALLOW ANCES IS REPORTED. KINDLY REFER CIT V/S SRIDEV ENTERPRISES (1991) 192 ITR 165 (KAR). 6. LASTLY , WE RELY UPON THE WRITTEN SUBMISSIONS (PB 5-7) FILED BEFORE THE LD. CIT(A) AND HIS ORDER ON THIS PART. THE SAME ARE REPRODUCED IN VERBATIM: (10) ADDITION ON ACCOUNT OF DISALLOWANCE OF RS.911 326/- AND BANK OVERDRAFT: THE LEARNED ASSESSING OFFICER HAS DISALLOWED RS.911 326/- OUT OF THE INTEREST PAYMENT ON THE GROUND THAT THE ASSESSEE HAS ADVANCE D INTEREST FREE LOANS OUT OF THE FUNDS TAKEN ON LOAN/BANK DRAFT. IN THE ABOVE CONNECTION, IT IS SUBMITTED THAT THE A SSESSEE HAS NEVER TAKEN ANY LOAN TO ADVANCE ANY INTEREST FREE LOANS ETC. THE LOAN IS GIVEN OUT OF HIS OWN CAPITAL. IT IS WORTH HIGHLIGHTING THAT THE CAPITAL OF THE AP PELLANT AS ON 1.4.2005 WAS RS.57074967/- AND ON 01.04.2006, IT WAS RS.82193256 /- AND THE TOTAL LOAN/ADVANCE AMOUNT (WHICH WERE CONSIDERED BY AO TO BE OTHERWISE THAN FOR BUSINESS) WERE ONLY OF RS.11600000/-. IT WILL BE APPRECIATED THAT THE ASSESSEE EARNED INT EREST INCOME DURING THE YEAR EVEN AFTER PAYMENT OF INTEREST. THEREFORE IT WAS IL LOGICAL FOR THE AO TO HAVE DISALLOWED ANY PART OF INTEREST PAYMENT. LIKE A PRUDENT MAN, THE ASSESSEE HAS TAKEN FDR OF T HE SURPLUS FUND OUR OF HIS OWN FUNDS (AND NOT OUT OF BORROWED FUNDS) FOR LONG PERIODS WHEN HE DID NOT NEED THE FUNDS. ON THE SAID FDRS, HE EARNED INTEREST INC OME OF RS.3889621/-. AS AND WHEN HE NEEDED FUNDS, INSTEAD OF ENCASHING FDRS PRE MATURELY, HE TOOK OVERDRAFTS FROM THE BANK ON THE SECURITY OF FDRS, A T A NOMINALLY HIGHER RATE OF INTEREST ON SUCH BORROWINGS, TOTAL INTEREST PAYABLE CAME TO RS.3873528/-. ACCORDINGLY THE APPELLANT REDUCED THE FDR INTEREST INCOME BY THE AFORESAID AMOUNT OF RS.3873528. THUS, NET INTEREST INCOME WAS RS.16093 WAS CREATED TO PROFIT AND LOSS. IT DOES NOT STAND TO LOGIC AS TO H OW THE AO COULD DISALLOW AN AMOUNT WHICH HAS NOT BEEN CLAIMED AS DEDUCTION. TO SAY, THAT THE INTEREST AMOUNT HAS BEEN CLAIMED AS DEDUCTION INDIRECTLY IS NOT COR RECT. THE APPELLANT COULD HAVE ENCASHED THE FDRS AND GIVEN THE PROCEEDS AS INTERES T FREE LOANS, AND THEN THERE WOULD HAVE BEEN NO QUESTION OF ANY SUCH DISALLOWANC E BY THE AO. IN THE PROCESS THE INCOME OF THE ASSESSEE WOULD HAVE BEEN STILL LO WER BECAUSE OF TOSS OF INTEREST ON ACCOUNT OF PREMATURE TERMINATION ENCASHMENT OF F DRS. THE AO, INSTEAD OF APPRECIATING THIS HELD IT ADVERSELY AGAINST THE ASS ESSEE. ASSESSEE CHOSE TO EARN MORE AND HE IS MADE TO SUFFER THIS DISALLOWANCE, WH EREAS HAD HE ENCASHED FDRS 17 AND GIVEN THE PROCEEDS AS INTEREST FREE LOAN, THE A O COULD NOT HAVE DONE ANYTHING. THIS APPROACH OF THE AO IS UNJUST, INEQUITABLE AND ILLOGICAL. THE QUOTED CASES BY THE ASSESSING AUTHORITY ARE EIT HER NOT RELEVANT OR NOT SIMILAR TO THE FACT AS NARRATED ABOVE AND HENCE NOT APPLICA BLE IN OUR CASE, THE FDRS WERE OUT OF OWN FUNDS (IT IS NOT DISPUTED BY THE AO ) AND ASSESSEE MERELY, TO ENSURE THAT HE DOES NOT LOSE INTEREST ON THEM, TOOK OVERDRAFT AT NOMINALLY HIGHER RATES AND USED THE FINDS AS NEEDED. TO DISREGARD, T HE ENTIRE SERIES OF TRANSACTION, AND TO BE GUIDED MERELY BY IMMEDIATE LINK IS NEITHE R JUDICIOUS NOR EQUITABLE. IN THE CASE OF CIT V/S RADICO KHAITAN LTD. 274 ITR 354 (ALL.) IT IS ALSO HELD THAT WHEN ASSESSEE IS HAVING SURPLUS FUNDS, IT COULD NOT BE SAID THAT THE LOAN ADVANCED TO SISTER CONCERN CAME OUT OF THE BORROWED MONEY. I N THE CASE OF THE APPELLANT, IT IS NOT THE CASE OF THE DEPARTMENT THAT FDRS WERE BO UGHT OUT OF BORROWED FUNDS. THEY WERE OUT OF SURPLUS FUNDS OF THE APPELLANT INS TEAD OF GIVING INTEREST FREE ADVANCES BY ENCASHING FDRS, HE CHOSE A BETTER AND M ORE BENEFICIAL ROUTE OF TAKING OVERDRAFT AT NOMINALLY HIGHER RATE. THIS ARR ANGEMENT WHICH BENEFITED THE ASSESSEE AND CONSEQUENTLY THE REVENUE CANNOT BE HEL D AGAINST THE ASSESSEE IN THE MANNER DONE BY THE AO. WITHOUT PREJUDICE TO ABOVE, RATE OF INTEREST CHARGE D/CALCULATED BY LEARNED A.O. IS ALSO ON A HIGHER SIDE. BANKS WERE CHARGING 1/2% TO 3/4% ABOVE THE INTEREST ON FDRS PAID BY THEM AND IN THE YEAR UNDER CONSIDERATI ON, THE FDR INTEREST RATE WAS 6% TO 7% IN WORST CASE SCENARIO, THE AO COULD H AVE DISALLOWED ONLY THE % INTEREST WHICH THE APPELLANT PAID TO THE BANK OVER AND ABOVE THE FDR INTEREST RATE. IT WILL BE APPRECIATED THAT THE ASSESSEE COUL D HAVE BROKEN THE FDR AND ADVANCED THE LOANS TO THE PARTIES WITHOUT ATTRACTIN G ANY SUCH REACTION OF THE AO. IT IS NOT DISPUTED BY THE AD THAT THE FDR FUNDS WER E THE FUNDS OF THE APPELLANT AND THOSE FDRS WERE NOT TAKEN OUT OF BORROWED FUNDS . INSPITE OF ABOVE FACTS, THE A.O. HAS APPLIED CALCULATED THE INTEREST @ 12% WHIC H IS ABSOLUTELY ILLOGICAL AND ARBITRARY AND EXCESSIVE. ADDITION ON THIS ACCOUNT D ESERVES TO BE DELETED IN TOTO. IN CONFORMATION FROM BANKS, BANK FDR, FDR RATE & RATE OF OVERDRAFT IS ENCLOSED (PB 52-55) FOR YOUR REFERENCE. HENCE DISALLOWANCE OF INTEREST ON THIS ACCOUNT IS UNJUSTIFIED AND REQUESTED TO BE DELETED. THE LD. CIT (A) WAS NOT JUSTIFIED IN STILL PARTLY S USTAINING THE DISALLOWANCE UPTO 6%. HENCE, THE DISALLOWANCE BE DELETED IN FULL. 18 9.5 WE HAVE HEARD BOTH THE PARTIES. THE ISSUE STAND S COVERED BY OUR ORDER IN THE CASE OF THE ASSESSEE FOR EARLIER ASSESSMENT YEAR. IT WILL BE USEFUL TO REPRODUCE PARA 10.4 FROM THE ORDER DATED 8.7.2011:- WE HAVE HEARD BOTH THE PARTIES. THE ASSESSEE IS H AVING SUFFICIENT CAPITAL. IF THERE ARE MIXED FUNDS THAT NON INTERES T BEARING FUNDS ARE TO BE CONSIDERED AS UTILIZED FOR NON INTEREST BEARING ADVANCES. IT IS THE ASSESSEE WHO HAS TO TAKE A BUSINESS DECISIONS. FEE S IS GENERALLY RECEIVED AT THE BEGINNING AND SURPLUS FUNDS ARE USE D FOR MAKING FIXED DEPOSITS AS RECEIPTS ARE IN ADVANCES WHILE EXPENSES ARE SPREAD OUT THROUGHOUT THE YEAR. SINCE INTEREST FREE ADVANCES ARE LESS THAN THE CAPITAL AND THE AO HAS NOT BROUGHT ON RECORD ANY NE XUS OF INTEREST BEARING LOANS BEING USED THE AO COULD NOT HAVE DISA LLOWED THE INTEREST. THERE IS NO ONUS ON THE ASSESSEE TO ESTA BLISH THAT INTEREST FREE ADVANCES RE OUT OF INTEREST BEARING ADVANCES IF NON INTEREST BEARING FUNDS ARE MORE. RELIANCE IS PLACED ON THE DECISI ON OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. RELIANCE UT ILITIES AND POWER LTD. 313 ITR 340 AND HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V. BHARTI TELEVENTURE LTD. 2010 TIOL-51/H.C/DEL HI. THERE IS NO PROVISION IN THE ACT WHICH MAY COMPEL AN ASSESSEE TO EARN INCOME. THE ASSESSEE IN THE CROSS OBJECTION IS AGGRIEVED A GAINST CONFIRMING OF ADDITION. AFTER CONSIDERING THE FACTS AS ABOVE, WE FEEL THAT THE AO WAS NOT JUSTIFIED IN MAKING ANY DISALLOWANCE. HENCE, DISAL LOWANCE IS DELETED. 19 FOLLOWING OUR ORDER FOR THE EARLIER ASSESSMENT YEAR , WE FEEL THAT THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE. ASSESSEES CROSS OBJECTIONS NO. 70/JP/2011 10 THE FIRST ISSUE RAISED IN THE CROSS OBJECTIONS I S AGAINST PARTIAL CONFIRMATION OF DISALLOWANCE OUT OF TELEPHONE EXPEN SES AND VEHICLE EXPENSES AND DEPRECIATION. THE ISSUE IN RESPECT OF DISALLOWANCE OF VEHICLE EXPENSES AND DEPRECIATION STANDS DEALT WHILE CONSID ERING THIS ISSUE BASED BY THE REVENUE IN ITS GROUND OF APPEAL. FOLLOWING OUR FINDING GIVEN ABOVE, WE HOLD THAT THE LD. CIT(A) WAS JUSTIFIED IN SUSTAININ G PARTIAL DISALLOWANCE OF VEHICLE EXPENSES AND DEPRECIATION. 11. IN RESPECT OF TELEPHONE EXPENSES, WE HAVE HELD WHILE DECIDING THE APPEAL OF THE ASSESSEE IN EARLIER YEAR, THAT PARTIA L DISALLOWANCE IS REQUIRED TO BE MADE FOLLOWING OUR FINDING FOR THE EARLIER ASSE SSMENT YEAR, WE FEEL THAT THE LD. CIT(A) WAS JUSTIFIED IN CONFIRMING THE PART IAL DISALLOWANCE OF TELEPHONE EXPENSES TO THE EXTENT OF RS. 25,000/-. 12. SECOND GROUND OF CROSS OBJECTIONS OF THE ASSESS EE IS THAT THE LD. CIT(A) HAS ERRED IN PARTIAL CONFIRMATION OF CHARGIN G NOTIONAL INTEREST OF RS. 9,11,326/-. THIS ISSUE HAS ALSO BEEN CONSIDERED WH ILE DECIDING THE APPEAL OF THE REVENUE. THIS ISSUE HAS ALSO BEEN DECIDED IN T HE IMMEDIATELY PRECEDING 20 YEAR. FOLLOWING OUR FINDING FOR THE EARLIER ORDER, WE HOLD THAT THE DISALLOWANCE IS TO BE DELETED. 13 IN THE RESULT, THE APPEAL OF THE REVENUE AND THE CROSS OBJECTIONS OF THE ASSESSEE ARE PARTLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 31- 10-2011 SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED; 31 /10/2011 SURESH COPY FORWARDED TO :- 1. THE A.C.I.T. CIRCLE1, KOTA 2. SHRI RAM KISHAN VERMA 3. THE LD. CIT 4. THE LD. CIT(A) 5. THE LD.DR 6. THE GUARD FILE (ITA NO.39/JP /11) A.R, ITAT, JAIPUR 21 22 23 24 25 26