Broach Textile Mills Ltd., Bharuch V. The Jt.CIT., Bharuch Range, Bharuch

ITA 607/AHD/2014

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 5202 (ITAT-SURAT)
• Duration Of Justice: 7 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 20-07-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 28-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS ANUPMA SINGLA
• Keywords: Capital asset; Depreciation; Business expenditure; Services rendered outside India; Bad and doubtful debts; Difference of opinion; Corroborative evidences; Revenue expenditure; Capital expenditure; TDS
• Section: 271(1)(c); 43B; 143(3); 142(1); 195; 113; 13; 37; 28

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER (VIRTUAL HEARING) . . ./ I.T.A NO.607/AHD/2014 [ [ / ASSESSMENT YEAR: 2005-06 . . ./ I.T.A NO.980/AHD/2017 [ [ / ASSESSMENT YEAR: 2005-06 BROACH TEXTILE MILLS LTD., 16, ANUKUL TOWER IV, B/H CENTRAL BANK, M.G.ROAD, BHARUCH 392001. [PAN: AAACB 6244 J] VS. THE JOINT COMMISSIONER OF INCOME TAX, BHARUCH RANGE, BHARUCH. / APPELLANT /RESPONDENT [ /ASSESSEE BY SHRI RAJESH C. SHAH CA /REVENUE BY MRS. ANUPMA SINGLA SR. DR / DATE OF HEARING : 02 . 02 .20 2 1 / PRONOUNCEMENT ON: 2 1 . 0 4 .202 1 / O R D E R PER PAWAN SINGH, JUDICIAL MEMEBER: 1. THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF LD.COMMISSIONER OF INCOME TAX (APPEALS)-I, BARODA, HEREINAFTER REFERRED AS LD. CIT(A) DATED 03.12.2013 AND 01.02.2017, BOTH FOR THE ASSESSMENT YEAR (AY) 2005-06. IN ITA NO. 607/AHD/2014, THE ASSESSEE HAS CHALLENGED THE CONFIRMATION OF ADDITIONS IN QUANTUM ASSESSMENT AND ITA NO.980/AHD/2017 IS AGAINST THE PENALTY LEVIED UNDER SECTION 271(1)(C) ON CERTAIN ADDITIONS. FOR APPRECIATIONS OF FACTS THE APPEAL IS ITA NO.607/AHD/2014 IS TREATED AS LEAD CASE. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT THE C.I.T.(APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF THE EXCISE DUTY OF RS.2936235 AND INTEREST OF RS. 1511014 (WRONGLY MENTIONED BY THE A.O. AS RS. 1507014) PAID ON 4-5-2004 PURSUANT TO THE INTERIM ORDER DT. 15-4-2004 RECEIVED BROACH TEXTILE MILLS LTD VS. JCIT, ITA NO.607/AHD/2014 & 980/AHD/2017 FOR A.Y. 2005-06 2 BY THE ASSESSEE ON 24-4-2004 AS WELL AS THE BALANCE PROVISION OF RS. 15114 BASED ON THE FINAL SETTLEMENT ORDER DT. 11-4-2005 PAID ON 26-4-2005 BEFORE THE DUE DATE OF FILING THE RETURN IN VIEW OF THE MERCANTILE SYSTEM OF ACCOUNTING BEING FOLLOWED ON THE GROUND THAT THE LIABILITY WAS NOT CRYSTALISED DURING THE YEAR. IT IS SUBMITTED THAT THE ENTIRE EXPENDITURE IS ADMISSIBLE AS AN EXPENDITURE IN THE YEAR UNDER APPEAL ITSELF AND, HENCE, THE ADDITION OF RS. 4462362 BE DELETED. 2. THAT THE C.I.T.(A) FURTHER ERRED IN CONFIRMING THE DISALLOWANCE OF DEPRECIATION OF RS. 12200 ON THE COST OF THE FURNITURE OF RS. 122000 ACQUIRED ON 22-5-2004 AND PROVIDED AT THE RESIDENCE OF THE EMPLOYEE OF SUDARSHAN SERVICES LTD. WHO WAS LOOKING AFTER THE WORK OF THE APPELLANT AND THE PROFESSIONAL FEES AND THE RENT WAS ALSO BEING PAID TO THE SAID COMPANY. IT IS SUBMITTED THAT THE SAME WAS PROVIDED AS PER THE TERMS AGREED UPON AND, HENCE, THE SAID DEPRECIATION BE ALLOWED. 3. THAT THE C.I.T.(A) ALSO ERRED IN CONFIRMING THE DISALLOWANCE OF SUNDRY BALANCES WRITTEN OFF AGGREGATING TO RS. 17,89,592 AS PER THE DETAILS GIVEN IN THE STATEMENT OF FACTS ON THE GROUND THAT THE SAME IS NOT ADMISSIBLE AS A TRADING LOSS . IT IS SUBMITTED THAT THE SAID DISALLOWANCE IS UNCALLED FOR AND THE SAME DESERVES TO BE DELETED. 4. THAT THE C.I.T.(A) ALSO ERRED IN NOT ALLOWING THE ELECTRICITY EXPENSES OF RS. 154383 IN RESPECT OF THE RESIDENCE OF THE EMPLOYEES AS WELL AS THE DIRECTOR THOUGH THE SAME WAS REQUIRED TO BE BORNE BY THE APPELLANT AS PER THE TERMS AGREED UPON AND EVEN THE HOUSE RENT RECOVERY OF RS. 1,22,979 WAS MADE AS PER THE SAID TERMS. IT IS SUBMITTED THAT THE SAME CONSTITUTES BUSINESS EXPENDITURE OF THE APPELLANT AND ACCORDINGLY THE SAME BE ALLOWED. 5. THAT THE C.I.T.(APPEALS) FURTHER ERRED IN CONFIRMING THE DISALLOWANCE OF BROKERAGE AND COMMISSION AGGREGATING TO RS. 18,28,565 ON ACCOUNT OF THE ALLEGED FAILURE TO DEDUCT THE TAX AT SOURCE THOUGH THE PROVISIONS OF SEC. 195 WERE NOT APPLICABLE AS THE SAID PAYMENT WAS NOT CHARGEABLE TO INCOME TAX UNDER THE I. T. ACT. IT IS, THEREFORE, SUBMITTED THAT THE SAID ADDITION IS BAD-IN-LAW AND THE SAME BE DELETED . 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN MANUFACTURING AND TRADING OF COTTON AND BLENDED SYNTHETIC YARN. THE ASSESSEE FILED ITS RETURN OF INCOME FOR RELEVANT ASSESSMENT YEAR ON 29.10.2005 DECLARING LOSS OF RS.10 CRORE (APPROX.). THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) ON 24.12.2007. THE ASSESSING OFFICER (AO) WHILE PASSING THE BROACH TEXTILE MILLS LTD VS. JCIT, ITA NO.607/AHD/2014 & 980/AHD/2017 FOR A.Y. 2005-06 3 ASSESSMENT ORDER BESIDES THE OTHER ADDITIONS AND DISALLOWANCE MADE ADDITION ON ACCOUNT OF DISALLOWANCE OF EXCISE DUTY OF RS.29,36,235/- AND INTEREST THEREON OF RS.15,11,014/- BY TAKING VIEW THAT LIABILITY FOR PAYMENT OF EXCISE DUTY WAS NOT CRYSTALLIZED DURING THE RELEVANT FINANCIAL YEAR, DISALLOWANCE DEPRECIATION OF FURNITURE OF RS.18,200/- (COST OF FURNITURE RS.1,22,000/- AND CLAIMED DEPRECIATION @15%), BY TAKING VIEW THAT THE FURNITURE WAS NOT USED FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE AND THAT IT WAS USED BY THE EMPLOYEE OF SISTER CONCERN OF ASSESSEE, DISALLOWED SUNDRY BALANCE WRITTEN OFF OF RS.18,03,983/- BY TAKING VIEW THAT CORRESPONDING INCOME OF THESE ITEMS WERE NOT OFFERED FOR TAXATION IN EARLIER YEARS AND CERTAIN CLAIMS WERE MADE ON ACCOUNT OF CAPITAL ITEMS, DISALLOWED ELECTRICITY EXPENSES OF RS.1,54,383/-AT THE RESIDENCE OF EMPLOYEES AND DIRECTOR OF ASSESSEE BY TAKING VIEW THAT IT WAS NOT BUSINESS EXPENDITURE OF THE ASSESSEE AND FURTHER DISALLOWED BROKERAGE AND COMMISSION PAYMENT OF RS.8,28,565/- IN ABSENCE OF TAX DEDUCTION AT SOURCE (TDS) UNDER SECTION 195 OF THE ACT. ON APPEAL BEFORE THE LD. CIT(A), THE ASSESSEE WAS ALLOWED MINOR RELIEF ON DEPRECIATION ON FURNITURE AND ON SUNDRY BALANCE WRITTEN OFF AND ALL OTHER ADDITIONS WERE UPHELD. FURTHER AGGRIEVED, THE ASSESSEE HAS FILED PRESENT APPEAL BEFORE THIS TRIBUNAL . 3. WE HAVE HEARD THE SUBMISSIONS OF THE LEARNED AUTHORISED REPRESENTATIVE (LD. AR) FOR THE ASSESSEE AND THE LEARNED SENIOR DEPARTMENTAL REPRESENTATIVE (SR. DR) FOR THE REVENUE AND WITH THEIR ASSISTANT GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES . GROUND NO.1 RELATES TO DISALLOWANCE OF EXCISE DUTY OF RS.29,36,235/- AND BROACH TEXTILE MILLS LTD VS. JCIT, ITA NO.607/AHD/2014 & 980/AHD/2017 FOR A.Y. 2005-06 4 INTEREST OF RS.15,11,014/- (WRONGLY MENTIONED BY THE AO OF RS.15,07,014/-). THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE CONTENTION OF THE AO AND LD.CIT(A) THAT BECAUSE THE FINAL SETTLEMENT ORDER WAS PASSED ON 11-04-2005 FALLING IN F.Y. 2005-06, THE LIABILITY CANNOT BE SAID TO HAVE ARISEN IN THE F.Y. 2004-05 RELEVANT TO THE A.Y.2005-06 IS ABSOLUTELY JUSTIFIED BECAUSE THE INTERIM ORDER WAS PASSED BY THE EXCISE AUTHORITIES ON 15-04-2004 DIRECTING TO PAY RS.29,36,235/- AND RS.15,11,014/- WITHIN 30 DAYS WHICH WAS EVENTUALLY ACTUALLY PAID ON 04-05-2004. THE ADDITIONAL LIABILITY OF RS.15,114/- ONLY WAS DETERMINED BY THE AUTHORITIES IMMEDIATELY AFTER THE END OF THE YEAR. THE ASSESSEE HAS BEEN FOLLOWING MERCANTILE SYSTEM OF ACCENTING AND, THEREFORE, ANY LIABILITY PERTAINING TO THE PERIOD PRIOR TO THE END OF THE F.Y. 2004-05 KNOWN BEFORE FINALIZATION OF ACCOUNTS WAS REQUIRED TO BE PROVIDED AS PER THE ACCOUNTING STANDARDS. SINCE THE SAME WAS PAID ON 26-04-2005 AFTER THE RECEIPT OF THE FINAL SETTLEMENT ORDER WHICH WAS MUCH BEFORE THE DUE DATE FOR FILING THE INCOME TAX RETURN (ITR) FOR A.Y. 2005-06, THE SAME IS ADMISSIBLE AS PER THE PROVISIONS OF SECTION 43B OF THE ACT. IN VIEW OF THE FACTS AND THE LEGAL POSITION, THE ENTIRE EXPENSES OF RS.29,36,2385/- AND RS.15,11,014/- AGGREGATING TO RS.44,62,362/- ARE ADMISSIBLE FOR DEDUCTION. 4. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUPPORTED THE ORDER OF LOWER AUTHORITIES. THE LD. DR FURTHER SUBMITS THAT THE LIABILITY WAS NOT CRYSTALIZED DURING THE YEAR UNDER CONSIDERATION, THUS, THE ASSESSEE WAS NOT ELIGIBLE FOR DEDUCTION ON ACCOUNT OF PAYMENT OF EXCISE DUTY AND INTEREST THEREON, DURING THE YEAR UNDER CONSIDERATION. BROACH TEXTILE MILLS LTD VS. JCIT, ITA NO.607/AHD/2014 & 980/AHD/2017 FOR A.Y. 2005-06 5 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND THE PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER DISALLOWED PAYMENT OF EXCISE DUTY AND INTEREST THEREON BY TAKING VIEW THAT LIABILITY FOR PAYMENT OF EXCISE DUTY WAS NOT CRYSTALLIZED DURING THE RELEVANT FINANCIAL YEAR. THE LD CIT(A) AFFIRMED THE ACTION OF ASSESSING OFFICER BY TAKING VIEW THAT THE AMOUNT OF RS. 29,36,235/- AND INTEREST THEREON OF RS. 15,11,014/- WAS PAID BY ASSESSEE ON 04.05.2004. THE LIABILITY WAS NOT CRYSTALLIZED TILL 31.03.2005. THE LIABILITY WAS CRYSTALLIZED ONLY ON THE FINAL ORDER PASSED BY SETTLEMENT COMMISSION ON 11.05.2005. BEFORE US THE LD. AR FOR THE ASSESSEE VEHEMENTLY SUBMITTED THAT INTERIM ORDER WAS PASSED BY THE EXCISE AUTHORITIES ON 15-04-2004 DIRECTING TO PAY RS.29,36,235/- AND RS.15,11,014/- WITHIN 30 DAYS WHICH WAS EVENTUALLY ACTUALLY PAID ON 04-05-2004 AND THAT THE ADDITIONAL LIABILITY OF RS.15,114/- ONLY WAS DETERMINED BY THE EXCISE AUTHORITIES IMMEDIATELY AFTER THE END OF THE YEAR. BEFORE US, THE ASSESSEE HAS FILED COPY OF THE ORDER OF SETTLEMENT COMMISSION CUSTOMS AND CENTRAL EXCISE DATED 15.04.2004, WHEREIN THE ASSESSEE WAS DIRECTED TO PAY THE LIABILITY OF RS. 29,36,234/-WITHIN 30 DAYS FROM THE RECEIPT OF THE ORDER. THUS, IT CANNOT BE SAID THAT THE LIABILITY WAS NOT CREATED DURING THE RELEVANT FINANCIAL YEAR. HENCE, WE FIND MERIT IN THE SUBMISSIONS OF THE LD AR FOR THE ASSESSEE THAT THE LIABILITY WAS CRYSTALLIZED DURING THE RELEVANT FINANCIAL YEAR, MOREOVER, THE ASSESSEE MADE THE PAYMENT OF LIABILITY OF EXCISE DUTY OF RS. 29,36,234/- AND THE INTEREST THEREON BEFORE THE DUE DATE OF FILING RETURN OF INCOME. THEREFORE, WE DIRECT THE ASSESSING OFFICER TO DELETE THE ENTIRE BROACH TEXTILE MILLS LTD VS. JCIT, ITA NO.607/AHD/2014 & 980/AHD/2017 FOR A.Y. 2005-06 6 DISALLOWANCE OF EXCISE DUTY AND INTEREST THEREON. IN THE RESULT THIS GROUND OF APPEAL IS ALLOWED. 6. GROUND NO.2 RELATES TO DISALLOWANCE OF DEPRECIATION OF RS.12,200/- ON FURNITURE ON 22.05.2004 PROVIDED AT THE RESIDENCE OF EMPLOYEE OF SUDARSHAN SERVICES LTD. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD PURCHASED AND PROVIDED FURNITURE OF RS.1,22,000/- TO MR. ANIRUDDH BUDHEKA, AN EMPLOYEE OF SUDARSHAN SERVICES LTD., AS HE WAS LOOKING AFTER THE WORK OF THE APPELLANT AND SUDARSHAN SERVICES LTD. WAS PAID PROFESSIONAL FEES AS WELL AS THE RENT FOR THE PREMISES PROVIDED TO THE APPELLANT. THE LD.AR FURTHER SUBMITTED THAT THERE WAS A CLEAR NEXUS BETWEEN THE PAYMENT AND THE BUSINESS PURPOSE OF THE APPELLANT AND THEREFORE IS CLEARLY ADMISSIBLE. THE FURNITURE WAS SOLD TO HIM IN THE NEXT YEAR FOR RS.1,03,700/-. 7. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUBMITS THAT THERE WAS NO NEXUS BETWEEN THE PAYMENTS ON ACCOUNT OF PURCHASE OF FURNITURE. THE FURNITURE WAS NOT PURCHASED FOR THE PURPOSE OF BUSINESS OF ASSESSEE. THE EXPENSES CLAIMED BY ASSESSEE WAS NOT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 8. WE HAVE CONSIDERED THE CONTENTION OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER DISALLOWED THE DEPRECIATION ON FURNITURE BY TAKING VIEW THAT BY TAKING VIEW THAT THE FURNITURE WAS NOT USED FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE AND THAT IT WAS USED BY THE EMPLOYEE OF SISTER CONCERN OF ASSESSEE. BEFORE LD.CIT(A) THE ASSESSEE MADE SIMILAR SUBMISSIONS AS MADE BEFORE US. IT WAS FURTHER STATED THAT THE ASSESSING OFFICER ERRED IN MAKING EXCESS DISALLOWANCE @ 15% INSTEAD OF 10%. THE LD.CIT(A) AFTER BROACH TEXTILE MILLS LTD VS. JCIT, ITA NO.607/AHD/2014 & 980/AHD/2017 FOR A.Y. 2005-06 7 CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HELD THAT ANIRUDDH BHUDEKA IS NOT THE EMPLOYEE OF THE ASSESSEE AND THAT THE EXPENSES WERE NOT FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. HOWEVER, THE DISALLOWANCE OF DEPRECIATION WAS RESTRICTED TO 10%. BEFORE US THE ASSESSEE HAS NOT FILED ANY EVIDENCE TO PROVE THE FACT THAT ANIRUDDH BUDHEKA WAS HAVING ANY CASUAL CONNECTION OF EMPLOYMENT WITH THE ASSESSEE. THEREFORE, WE DO NOT FIND ANY MERIT IN THE GROUND OF APPEAL RAISED BY THE ASSESSEE. HENCE, THE FINDING OF THE LD. CIT(A) IS AFFIRMED. 9. GROUND NO.3 RELATES TO DISALLOWANCE OF SUNDRY BALANCE WRITTEN OFF AGGREGATING TO RS.17,88,952/- AS TRADING LOSS. THE LD.AR FOR THE ASSESSEE EXPLAINED THE OF SUNDRY BALANCES WRITTEN OFF OF EACH AMOUNT IN THE FOLLOWING MANNER BY FILING WRITTEN NOTE THEREOF AS UNDER: A) REVERSAL OF EXPORT REBATE CREDITED TWICE EARLIER IN THE BOOKS IS ADMISSIBLE TO THE EXTENT OF RS. 8,842/- AS EXCESS INCOME WAS BOOKED EARLIER. B) ADVANCE OF RS. 1,304/- GIVEN TO WORKERS HAD TO BE WRITTEN OFF AS THE SAME WAS NOT REPAID OR ADJUSTED AGAINST THE WAGES PAYABLE. THIS IS CLEARLY A TRADE LOSS ADMISSIBLE UNDER SECTION 28 OF THE ACT. C) UNENCASHABLE SOILED NOTES (CURRENCY NOTES*) OF THE VALUE OF RS. 5,565/- WERE WRITTEN OFF AS THE SAME WERE NOT ACCEPTED BY THE BANK. THIS IS CLEARLY A TRADE LOSS ADMISSIBLE U/S 28 OF THE ACT. D) ON RECONCILING THE ACCOUNTS OF VARIOUS PARTIES, IT WAS NOTICED THAT THERE WERE SOME DIFFERENCES IN THE OPENING BALANCES OF SOME PARTIES. SUCH DIFFERENCES AGGREGATING TO RS. 1,04,359/- WERE WRITTEN OFF. THIS IS ALLOWABLE. E) SOME OF THE TRADE DEPOSITS GIVEN DURING THE COURSE OF THE BUSINESS FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE WERE NOT REFUNDED BY THE OTHER PARTIES. TOTAL AMOUNT WAS RS. 13,555/-. SUCH LOSSES ARE INHERENT IN THE BUSINESS AND, THEREFORE, ALLOWABLE UNDER SECTION 37 OR 28. BROACH TEXTILE MILLS LTD VS. JCIT, ITA NO.607/AHD/2014 & 980/AHD/2017 FOR A.Y. 2005-06 8 F) SIMILARLY, THE ADVANCES OF RS. 81,900/- GIVEN FOR SUPPLY OF STORES ITEMS WERE NOT REFUNDED BY THE SUPPLIERS THOUGH ITEMS WERE NOT SUPPLIED. SUCH LOSSES ARE INHERENT IN THE BUSINESS AND, THEREFORE, ALLOWABLE UNDER SECTION 37 OR 28. G) THE ASSESSEE HAD PAID RS. 2,16,367/- FOR PURCHASE OF ADVANCE LICENSE FOR IMPORTING FLEX FIBERS. HOWEVER, LATER ON DUE TO THE MARKET CONDITIONS AND IMPORT POLICIES, FLEX FIBERS WERE NOT IMPORTED AND, THEREFORE, SUCH LICENSE COULD NOT BE USED. THEREFORE, ON EXPIRY OF THE LICENSE PERIOD, THE SAME WAS WRITTEN OFF. SUCH LOSSES ARE INHERENT IN THE BUSINESS AND, THEREFORE, ALLOWABLE UNDER SECTION 37 OR 28. H) THE ASSESSEE HAD PAID RS. 75,200/- FOR SOME TECHNO ECONOMIC VIABILITY REPORT BUT THE SAID PROJECT COULD NOT BE GONE THROUGH FOR SOME REASON OR THE OTHER. SUCH LOSSES ARE INHERENT IN THE BUSINESS AND, THEREFORE, ALLOWABLE UNDER SECTION 37 OR 28. I) THE APPELLANT HAD GIVEN AN ADVANCE OF RS. 12,82,500/- TO SLM- MANEKLAL INDUSTRIES LTD. FOR PURCHASE OF MACHINERY. HOWEVER, THE SAME COULD NOT BE PURCHASED FOR SOME TIME DUE TO SOME REASON OR THE OTHER BY MAKING FURTHER PAYMENTS. SUBSEQUENTLY, UNFORTUNATELY, THE SAID COMPANY CLOSED DOWN ITS ACTIVITIES AND WAS CONVERTED INTO B.I.F.R. IN VIEW OF THIS, IT BECAME IMPOSSIBLE TO RECOVER THE ADVANCE GIVEN AND ULTIMATELY, THE AMOUNT WAS WRITTEN OFF TO P & L ACCOUNT BY WAY OF A TRADE LOSS. SINCE THE ADVANCE WAS GIVEN IN THE COURSE OF BUSINESS, THE LOSS AMOUNTS TO TRADE LOSS ELIGIBLE FOR DEDUCTION UNDER SECTION 28 OF THE ACT. ALTHOUGH IT WAS FOR PURCHASE OF MACHINERY, SINCE THE SAME COULD NOT BE PURCHASED UNDER THE ABOVE CIRCUMSTANCES, THE LOSS IS ADMISSIBLE ON THE BASIS OF THE WRITE OFF IN THE BOOKS OF ACCOUNT. IT WILL BE APPRECIATED THAT A CLOSED COMPANY WOULD NOT GIVE ANY SUPPORTING LETTER OR DOCUMENT. (*ADDED BY US) 10. THE LD.AR FOR THE ASSESSEE FURTHER SUBMITS THAT THE AFORESAID AMOUNTS WERE DULY WRITTEN OFF IN THE BOOKS OF ACCOUNT AND THE TAX AUDIT REPORT ALSO SUPPORTED THE SAME. SUCH WRITE OFFS DO NOT CALL FOR ANY DOCUMENTARY EVIDENCES. AS PER THE AMENDED PROVISIONS OF SECTION 36 RELATING TO BAD DEBTS, IT IS SUFFICIENT, IF THE AMOUNTS ARE WRITTEN OFF IN THE BOOKS OF ACCOUNT AND NO LEGAL ACTIONS OR DOCUMENTARY PROOFS ARE REQUIRED. SIMILARLY, FOR ALLOWING THE ABOVE LOSSES, WRITE OFF SHOULD BE ACCEPTED BECAUSE NO BUSINESSMAN IS INTERESTED IN LOSING THE MONEY BROACH TEXTILE MILLS LTD VS. JCIT, ITA NO.607/AHD/2014 & 980/AHD/2017 FOR A.Y. 2005-06 9 AND THERE IS NO CONTRARY EVIDENCE TO SHOW THAT THESE ARE NOT GENUINE ENTRIES. 11. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUBMITTED THAT ASSESSEE HAS NOW SHOWN INCOME RELATED WITH THE BALANCE WRITTEN OFF DURING THE PREVIOUS YEAR AND HAS NOT FULFILLED THE CONDITION OF SECTION 36(2) OF THE ACT. THE ASSESSEE HAS NOT FILED SINGLE DOCUMENT TO SUBSTANTIATE ITS CONTENTION FOR JUSTIFYING THE CLAIM OF BED DEBTS. THE ASSESSING OFFICER CLEARLY GAVE HIS FINDING THAT SOME OF THE ITEMS WERE HAVING CAPITAL IN NATURE. 12. WE HAVE CONSIDERED THE CONTENTION OF BOTH THE PARTIES AND PERUSED THE ORDER OF THE LOWER AUTHORITIES. THE ASSESSING OFFICER DISALLOWED SUNDRY BALANCE WRITTEN OFF OF RS.18,03,983/- BY TAKING VIEW THAT CORRESPONDING INCOME OF THESE ITEMS WERE NOT OFFERED FOR TAXATION IN EARLIER YEARS AND CERTAIN CLAIMS WERE MADE ON ACCOUNT OF CAPITAL ITEMS. BEFORE LD CIT(A), THE ASSESSEE EXPLAINED THAT THE SAID LOSS WAS CLAIMED ON ACCOUNT OF TRADING LOSS AND NOT BED DEBTS, THEREFORE, IT WAS NOT REQUIRED TO OFFERED IN CORRESPONDING INCOME IN EARLIER YEARS. FOR THE AMOUNT CLAIMED AGAINST THE PURCHASE OF MACHINE FROM SLM- MANEKLAL INDUSTRIES, THE ASSESSEE EXPLAINED THAT ADVANCE WAS GIVEN AS PER TRADE PRACTICE AND THEREFORE, NON-REALIZATION WAS TO BE ALLOWED AS TRADE LOSS. IT WAS ALSO EXPLAINED THAT ADVANCE GIVEN FOR PURCHASE OF STORE ITEMS CANNOT BE CONSIDERED AS FOR ACQUIRING CAPITAL ASSET. THE LD. CIT(A) NOT ACCEPTED THE EXPLANATION FURNISHED BY THE ASSESSEE BY TAKING VIEW THAT THE ASSESSEE HAS NOT PROVIDED ANY DOCUMENTARY EVIDENCES AND CONFIRMED THE ACTION OF ASSESSING OFFICER. BEFORE US THE LD. AR FOR THE ASSESSEE FURNISHED DETAIL EXPLANATION WITH REGARD TO BROACH TEXTILE MILLS LTD VS. JCIT, ITA NO.607/AHD/2014 & 980/AHD/2017 FOR A.Y. 2005-06 10 VARIOUS CLAIMS, WHICH WE HAVE RECORDED IN PARA 9(A) TO (I) (SUPRA). SO FAR AS CLAIM NO.(I) OF REVERSAL OF EXPORT REBATE CREDITED TWICE IN THE BOOKS TO THE EXTENT OF RS.8,842/- IS CONCERNED, THE ASSESSEE EXPLAINED THAT EXCESS INCOME WAS BOOKED EARLIER AND IS ADMISSIBLE TO THE EXTENT OF SUCH AMOUNT. WE FOUND THAT THE ASSESSEE HAS REASONABLY EXPLAINED THE RIGHT OF TO THAT EXTENT. CLAIM NO.(II) WITH REGARD TO RS.1,304/-, WHICH WAS GIVEN TO WORKERS, AND HAS NOT BEEN REPAID OR ADJUSTED AGAINST THE WAGE PAYABLE. THIS AMOUNT IS ALSO CLEARLY ADMISSIBLE UNDER SECTION 28 OF THE ACT. CLAIM NO.(III) RELATES TO UNCASHABLE SOILED NOTES OF RS.5,565/- IS ALSO CLEARLY A TRADE LOSS UNDER SECTION 28 OF THE ACT. CLAIM NO.(IV) RELATES TO DIFFERENCE IN OPENING BALANCE OF VARIOUS PARTIES OF RS.1,04,359/-. WE FOUND THAT THE ASSESSEE HAS CLAIMED THIS AMOUNT RELATES TO BIRLA CELLULOSIC, FUTURA POLY AND VARDHAMAN SYNTEX, WHICH WAS DUE TO DIFFERENCE IN OPENING BALANCE OF THOSE PARTIES. THEREFORE, CONSIDERING THE FACT THE ASSESSEE HUGE TURNOVER AND SOME DIFFERENCE MAY OCCUR DUE TO HUMAN ERROR, THEREFORE, THIS AMOUNT IS ALSO ALLOWED TO BE WRITE OFF. CLAIM NO.(V) RELATES TRADE DEPOSIT GIVEN IN THE COURSE OF BUSINESS OF RS.1,355/-. THE SAID AMOUNT WAS DEPOSITS WITH GUJARAT GAS, AHMED ELECTRICALS, INDIAN OILS, BHARAT PETROLEUM AND BSES LTD., AND SHEETAL CORPORATION. SINCE THE AMOUNT WAS GIVEN DURING THE COURSE OF BUSINESS AND WAS NOT REFUNDED BY VARIOUS PARTIES. THUS, THIS AMOUNT IS ALSO ALLOWED AS BUSINESS LOSS. CLAIM NO.(VI) RELATES TO ADVANCES GIVEN FOR SUPPLY OF STORE ITEMS OF RS.89,100/-, WHICH WAS NOT REFUNDED NOR THE ITEMS WERE SUPPLIED. THIS AMOUNT WAS ALSO PAID AS A BUSINESS ACTIVITIES AND LOSS THEREOF IS ALLOWABLE UNDER BUSINESS LAW. BROACH TEXTILE MILLS LTD VS. JCIT, ITA NO.607/AHD/2014 & 980/AHD/2017 FOR A.Y. 2005-06 11 CLAIM NO.(VII) RELATES TO PURCHASE OF ADVANCE LICENSE FOR IMPORTING FLEX FIBER OF RS.2,16,367/-. THE ASSESSEE CLAIMED THAT DUE TO MARKET CONDITIONS THE FLEX FIBERS WERE NOT IMPORTED AND SUCH LICENSE COULD NOT BE USED AND ON EXPIRY OF LICENSE PERIOD IT WAS WRITE OFF. WE FIND THAT ASSESSEE CLAIM IS ADMISSIBLE UNDER SECTION 28 OF THE ACT IN BUSINESS LOSS. CLAIM NO.(VIII) RELATES TO PAYMENT TO TECHNO ECONOMIC VIABILITY REPORT BUT THE PROJECT WAS NOT UNDERTAKEN FOR BUSINESS REASONS. WE FIND THAT EXPENSES INCURRED ON SUCH TECHNO ECONOMIC VIABILITY ARE ADMISSIBLE UNDER SECTION 37 OF THE ACT AND ARE ALLOWABLE EXPENSES. CLAIM NO.(IX) RELATES TO ADVANCE PAID TO SLM MANIEKLAL OF RS.1,28,25,200/-. THE ASSESSEE CLAIMED THAT ADVANCE WAS GIVEN PURCHASE OF MACHINERY, MACHINERY COULD NOT BE PURCHASED IN TIME. THE SAID COMPANY WAS DECLARED AS SICK BY BOARD OF INDUSTRIAL FINANCIAL AND RECONSTRUCTION (BIFR) AND IT BECAME IMPOSSIBLE TO RECOVER THE ADVANCE. IN OUR VIEW, THIS AMOUNT IS ALSO ADMISSIBLE AS A BUSINESS LOSS. IN THE RESULT, THIS GROUND OF APPEAL WHICH CONSIST OF SEVERAL CLAIMS AS REFERRED ABOVE ARE ALLOWED. 13. GROUND NO.4 RELATES TO DISALLOWANCE OF ELECTRICITY EXPENSES OF RS.1,54,383/- IN RESPECT OF RESIDENCE OF EMPLOYEES & DIRECTOR. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT THE APPELLANT HAD GIVEN A RESIDENTIAL BUNGALOW AND THE STAFF QUARTERS TO THE MANAGING DIRECTOR AND SOME EMPLOYEES AS PER THE TERMS OF THE APPOINTMENT AND, THEREFORE, THE ELECTRICITY EXPENSES BORNE BY THE APPELLANT WERE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE APPELLANT AND, THEREFORE, ALLOWABLE IN COMPUTING THE TOTAL INCOME. AS A MATTER OF FACT, EVEN HOUSE RENT RECOVERY OF RS.1,22,979/- WAS MADE FROM THEM WHICH BROACH TEXTILE MILLS LTD VS. JCIT, ITA NO.607/AHD/2014 & 980/AHD/2017 FOR A.Y. 2005-06 12 HAS BEEN IGNORED BY THE A.O. IT IS TRUE THAT AT PRESENT, DUE TO LAPSE OF TIME, IT IS NOT POSSIBLE TO FURNISH A COPY OF THE TERMS OF APPOINTMENT OR A BOARD RESOLUTION BUT IT SHOULD BE CONSIDERED THAT THE ANNUAL ACCOUNTS WERE DULY AUDITED AND THERE WAS NO ADVERSE REMARK OF THE AUDITORS ON THE SAME. THE SAME ARE, THEREFORE, ALLOWABLE. 14. THE LD.AR FOR THE ASSESSEE FURTHER SUBMITTED THAT WITHOUT PREJUDICE TO THE ABOVE, IT IS ALSO SUBMITTED THAT IF THE ELECTRICITY EXPENSES OF RS.1,54,383/- ARE NOT TO BE ALLOWED, THE RECOVERY AGAINST THE SAME SHOULD NOT BE TAXED OR IN SHORT, NET ELECTRICITY EXPENSES OF RS.31,404/- BE DIRECTED TO BE DISALLOWED IN THE INTEREST OF JUSTICE. 15. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUPPORTED THE ORDER OF LOWER AUTHORITIES. THE LD. DR FOR THE REVENUE SUBMITS THAT THE ASSESSEE HAS NOT FURNISHED ANY DOCUMENTARY EVIDENCE THAT SUCH EXPENSES WERE BORN BY ASSESSEE. EXPENSES INCURRED BY THE ASSESSEE WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. NO DOCUMENTARY EVIDENCE IN THE FORM OF RESOLUTIONS OF THE BOARD OF DIRECTORS OF ASSESSEES COMPANY OR ANY AGREEMENT WITH THE EMPLOYEE OR THEIR TERMS OF CONTRACT OF EMPLOYMENT IS FILED. 16. WE HAVE CONSIDERED THE CONTENTION OF BOTH THE PARTIES AND PERUSED THE ORDER OF LOWER AUTHORITIES. THE ASSESSING OFFICER MADE DISALLOWANCE OF ELECTRICITY EXPENDITURE AT THE RESIDENCE OF EMPLOYEES AND DIRECTOR OF ASSESSEE BY TAKING VIEW THAT IT WAS NOT BUSINESS EXPENDITURE OF THE ASSESSEE AND IT WAS PURELY PERSONAL EXPENSES. THE LD. CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER BY SIMILAR VIEW THAT IT WAS NOT FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. BEFORE US THE LD AR FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE PROVIDED BROACH TEXTILE MILLS LTD VS. JCIT, ITA NO.607/AHD/2014 & 980/AHD/2017 FOR A.Y. 2005-06 13 RESIDENTIAL BUNGALOW TO ITS MANAGING DIRECTOR AND STAFF QUARTERS TO ITS EMPLOYEE AND RECOVERED RENT OF RS. 1,22,979/-, WHICH IS OFFERED FOR TAX. IT WAS FAIRLY CONCEDED THAT DUE TO LAPSE OF TIME THE ASSESSEE IS UNABLE TO FILE DOCUMENT LIKE BOARD RESOLUTION OR APPOINTMENTS LETTER OF THE EMPLOYEE, HOWEVER, THE ACCOUNTS OF THE ASSESSEE ARE DULY AUDITED AND NO ADVERSE COMMENTS WERE MADE BY AUDITORS. CONSIDERING THE FACTS THAT DURING THE ASSESSMENT THE ASSESSEE PROVIDED THE COMPLETE DETAILS OF THE VARIOUS PREMISES ON WHICH THE ASSESSEE BORE THE ELECTRICITY EXPANSES AS RECORDED BY ASSESSING OFFICER IN PARA 10 OF HIS ORDER HOWEVER, THE ASSESSING OFFICER HAS NOT INVESTIGATED THE GENUINENESS OF THE CLAIM BY MAKING INDEPENDENT INQUIRES . THE LOWER AUTHORITIES HAVE NOT DISPUTED ABOUT THE ALLOTMENT OF VARIOUS RESIDENTIAL UNIT, BUT DISALLOWED THE CLAIM FOR THE WANT OF EVIDENCE, MOREOVER THE ASSESSEE HAS RECOVERED RENT OF RS. 1,22,979/-, WHICH IS OFFERED FOR TAXATION, THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS WE DIRECT THE ASSESSING OFFICER TO ALLOW THE ENTIRE ELECTRICITY EXPENDITURE. IN THE RESULT THIS GROUND OF APPEAL IS ALLOWED. 17. AS WE HAVE ALLOWED THE FULL RELIEF TO THE ASSESSEE ON PRIMARY SUBMISSIONS OF THE LD. AR FOR THE ASSESSEE HENCE, THE CONSIDERATION OF HIS ALTERNATIVE SUBMISSION HAS BECOME ACADEMIC. 18. GROUND NO.5 RELATES TO DISALLOWANCE OF BROKERAGE & COMMISSION PAYMENT OF RS. 8,28,565/- TO NON-RESIDENT WITHOUT TDS UNDER SECTION 195 OF ACT. THE LD.AR FOR THE ASSESSEE SUBMITS THAT THE APPELLANT HAD PAID BROKERAGE AND COMMISSION AGGREGATING TO RS. 8,28,565/- (WRONGLY TYPED AS RS. 1828565/- IN THE GROUNDS OF APPEAL) TO NON- RESIDENT AGENTS FOR SERVICES RENDERED OUTSIDE INDIA IN RESPECT OF THE BROACH TEXTILE MILLS LTD VS. JCIT, ITA NO.607/AHD/2014 & 980/AHD/2017 FOR A.Y. 2005-06 14 EXPORTS BY THE APPELLANT TO EGYPT, RUSSIA, REPUBLIC OF YEMEN AND SYRIA AS PER THE DETAILS OF EXPORT BILLS AND COMMISSION GIVEN ON PAGE NO. 14 OF THE PAPER BOOK. THE SAME WAS DISALLOWED U/S 40(A)(I) ON THE GROUND THAT NO TAX WAS DEDUCTED UNDER SECTION 195 OF THE ACT. SINCE THE SERVICES WERE RENDERED Y THE AGENTS OUTSIDE INDIA, THE COMMISSION PAID TO THEM WAS NOT CHARGEABLE TO TAX IN INDIA AND, THEREFORE, THE PROVISIONS OF SECTION 195 OF THE ACT WERE NOT AT ALL APPLICABLE. THEREFORE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS UNJUSTIFIED AND AGAINST THE PROVISIONS OF LAW. THE COMMISSION PAID OUTSIDE INDIA FOR RENDERING THE SERVICES OUTSIDE INDIA SO AS TO ATTRACT THE PROVISIONS OF SECTION 195 OF THE ACT. THEREFORE, ALSO THE PROVISIONS OF SEC. 195 WERE NOT ATTRACTED. THE A.O. AND CIT(A) HAD RELIED UPON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF VIJAY SHIP BREAKING CORPORATION REPORTED IN 261 ITR 113(GUJ) ALTHOUGH THE ISSUE WAS RELATING TO PAYMENT OF INTEREST WHICH IS ABSOLUTELY INAPPLICABLE. IN FACT, THE SAID DECISION HAS BEEN REVERSED BY THE HONBLE SUPREME COURT WHICH IS REPORTED IN 314 ITR 309 (SC). THE LD.AR RELIED UPON THE FOLLOWING DECISIONS : GE INDIA TECHNOLOGY CO. P. LTD. VS CIT 327 ITR 456 (SC). C.I.T. VS EON TECHNOLOGY P. LTD. 203 TAXMAN 266(DEL). D.C.I.T. V/S DIVI'S LABORATORIES -131 ITD 271 (HYD). 19. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUBMITS THAT THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE. THE ASSESSEE WAS LIABLE TO DEDUCT TAX ON THE SOURCE FOR THE INCOME ACCRUED OR EARNED IN INDIA. THE ASSESSEES INCOME IS TAXABLE INCOME, THUS, THE ASSESSEE WAS LIABLE TO DEDUCT THE TAX ON THE PAYMENT MADE OUTSIDE INDIA. THE LD DR FOR THE REVENUE STRONGLY RELIED ON THE ORDER OF LD. CIT(A). BROACH TEXTILE MILLS LTD VS. JCIT, ITA NO.607/AHD/2014 & 980/AHD/2017 FOR A.Y. 2005-06 15 20. WE HAVE CONSIDERED THE CONTENTION OF BOTH THE PARTIES AND PERUSED THE ORDER OF LOWER AUTHORITIES. THE ASSESSING OFFICER MADE DISALLOWANCE BY TAKING VIEW THAT THE ASSESSEE HAS NOT FURNISHED ANY SUPPORTING EVIDENCE TO ESTABLISH THAT PROVISIONS OF SECTION 195 IS NOT APPLICABLE IN THIS CASE. THE ASSESSING OFFICER ALSO RELIED ON THE DECISION OF VIJAY SHIP BREAKING CORPORATION (261 ITR 113 GUJ). THE LD. CIT(A) CONCURRED WITH THE FINDING OF ASSESSING OFFICER THAT THE RATION OF CASE LAW IN VIJAY SHIP BREAKING CORPORATION (SUPRA) IS APPLICABLE ON THIS CASE. BEFORE US THE LEARNED AR FOR THE ASSESSEE VEHEMENTLY ARGUED BEFORE US ASSESSEE PAID BROKERAGE AND COMMISSION AGGREGATING TO RS.8,28,565/- TO NON-RESIDENT AGENTS FOR SERVICES RENDERED OUTSIDE INDIA IN RESPECT OF THE EXPORTS BY THE APPELLANT TO EGYPT, RUSSIA, REPUBLIC OF YEMEN AND SYRIA. THE ASSESSING OFFICER DISALLOWED SAME UNDER SECTION 40(A)(I) ON THE GROUND THAT NO TAX WAS DEDUCTED UNDER SECTION 195 OF THE ACT. IT WAS ALSO SUBMITTED THAT THE SERVICES WERE RENDERED BY THE AGENTS OUTSIDE INDIA, THE COMMISSION PAID TO THEM WAS NOT CHARGEABLE TO TAX IN INDIA AND, THEREFORE, THE PROVISIONS OF SECTION 195 OF THE ACT WERE NOT AT ALL APPLICABLE. THERE IS NO DISPUTE THAT THE ASSESSEE PAID BROKERAGE AND COMMISSION TO THE AGENTS WHO RENDERED SERVICES OUTSIDE INDIA. FURTHER THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL ON RECORD THAT THE INCOME OF THE RECIPIENT IS TAXABLE IN INDIA. THE HON'BLE DELHI HIGH COURT IN CIT VS EON TECHNOLOGY (P) LTD HELD THAT WHEN A NON-RESIDENT AGENTS OPERATES OUTSIDES THE COUNTRY NO PART OF HIS BUSINESS ARISE IN INDIA, AND SINCE PAYMENT IS REMITTED DIRECTLY ABROAD, AND MERELY BECAUSE AN ENTRY IN THE BOOKS OF ACCOUNTS WAS MADE, IT DOES NOT MEAN THAT THE NON- BROACH TEXTILE MILLS LTD VS. JCIT, ITA NO.607/AHD/2014 & 980/AHD/2017 FOR A.Y. 2005-06 16 RESIDENT HAD RECEIVED ANY PAYMENT IN INDIA. THE HONBLE APEX COURT IN GE INDIA TECHNOLOGY (P) LTD VS CIT (SUPRA) HELD THAT IN CASE THE AMOUNT PAID BY THE APPELLANT TO THE FOREIGN SOFTWARE SUPPLIER WAS NOT ROYALTY AND THE SAME DID NOT GIVE RISE TO ANY INCOME TAXABLE IN INDIA AND THEREFORE, THE APPELLANT WAS NOT LIABLE TO DEDUCT TAX AT SOURCE, IT ARISE ONLY WHEN SUCH REMITTANCE IS CHARGEABLE UNDER THE ACT UNDER SECTION 4, 5 OR 9. THEREFORE APPLYING THE SAME RATIO ON THE FACTS OF THE CASE OF ASSESSEE, WHEN THE BROKERAGE AND COMMISSION TO THE AGENTS WHO RENDERED SERVICES OUTSIDE INDIA AND THE INCOME OF RECIPIENT IN NOT TAXABLE IN INDIA, HENCE, THE ASSESSEE WAS NOT UNDER OBLIGATION TO DEDUCT TAX AT SOURCE ON PAYMENT OF SUCH COMMISSION OF BROKERAGE. HENCE, WE ARE OF THE VIEW THAT AFTER THE DECISION OF HON'BLE APEX COURT IN GE INDIA TECHNOLOGY CENTRE (P) LTD (SUPRA) IS SQUARELY APPLICABLE ON THE FACTS OF THIS CASE. THE RATIO OF DECISION IN VIJAY SHIP BREAKING CORPORATION (SUPRA) IS NOT APPLICABLE ON THE FACTS OF THE PRESENT CASE. THE FACTS OF THE SAID CASE IS ENTIRELY DIFFERENT IN THE SAID CASE THE INTEREST WAS PAYABLE TO THE NON-RESIDENT BY THE RESIDENT ASSESSEE WAS PAID BY THE MODE OF RELEASING A LETTER OF CREDIT AND RECEIVED BY THE NON-RESIDENT OUTSIDE INDIA FROM THE NEGOTIATION/ INTERMEDIATORY BANK, SUCH SUM WOULD BE NONETHELESS INCOME DEEMED TO BE ACCRUING OR ARISING TO THE NON-RESIDENT IN INDIA . HENCE, THIS GROUND OF APPEAL IS ALLOWED. 21. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. BROACH TEXTILE MILLS LTD VS. JCIT, ITA NO.607/AHD/2014 & 980/AHD/2017 FOR A.Y. 2005-06 17 ITA NO.980/AHD/2017 [PENALTY LEVIED UNDER SECTION 271(1)(C) OF THE ACT] 22. FACTS LEADING THE ADJUDICATION OF THE APPEAL AS GATHERED FROM THE RECORD OF THE LOWER AUTHORITIES ARE THAT WHILE PASSING THE ASSESSMENT ORDER UNDER SECTION 143(3) DATED 24.12.2007, THE ASSESSING OFFICER MADE FOLLOWING ADDITIONS/ DISALLOWANCES; (I) INCOME UNDER SECTION 2(24)(X) OF RS.60, 372/-, (II) SOFTWARE CAPITAL EXPENSES OF RS.6,35,000/-, (III) EXCISE DUTY AND INTEREST OF RS 44,62,345/-, (IV) DISALLOWANCES OF SUNDRY WRITTEN BALANCE OFF RS. 18,03984/-, (V) INCOME OFFERED BY ASSESSEE DURING ASSESSMENT ON ACCOUNT OF RECEIPT OF RECEIPT FROM MUNICIPALITY RS.4,21,000/-, (VI) INTEREST INCOME OF RS. 68,682/-, (VII) DISALLOWANCE OF ELECTRICITY EXPENSES OF RS. 1,54,383/-, (VIII) DISALLOWANCE OF FORWARDING AND SELLING EXPENSES OF RS. 17,33,04/- AND (IX) COMMISSIONS EXPENSES OF RS. 828,565/- FOR NON DEDUCTION OF TDS. 23. THE ASSESSING OFFICER INITIATED THE PENALTY UNDER SECTION 271(1)(C), VIDE NOTICE DATED 30.12.2014. THE ASSESSING OFFICER RECORDED THAT NO REPLY WAS FILED BY ASSESSEE (PARA3.1OF ORDER). THE ASSESSING OFFICER LEVIED THE PENALTY ON THE DISALLOWANCE OF EXCISE DUTY AND INTEREST PAID THEREON, ADDITION ON ACCOUNT OF INTEREST RECEIVED FROM MUNICIPAL CORPORATION OF RS. 421006/-, DEPRECIATION ON FURNITURE, DISALLOWANCE OF SUNDRY BALANCE WRITTEN OFF, ELECTRICITY EXPENSES AND DISALLOWANCE FOR NON- DEDUCTION OF TDS ON BROKERAGE AND COMMISSION. THE ASSESSING OFFICER LEVIED PENALTY OF RS. 28,06,760/-, BEING 100% OF TAX SOUGHT TO BE EVADED VIDE ORDER DATED 13.03.2015. THE LD CIT(A) UPHELD THE PENALTY EXCEPT ON THE DISALLOWANCE OF COMMISSIONS PAYMENT OF RS. BROACH TEXTILE MILLS LTD VS. JCIT, ITA NO.607/AHD/2014 & 980/AHD/2017 FOR A.Y. 2005-06 18 8,25,565/- FOR THE WANT OF TDS, VIDE ORDER DATED 01.02.2017. THUS, FURTHER AGGRIEVED, THE ASSESSEE HAS FILED PRESENT APPEAL BEFORE THIS TRIBUNAL. 24. WE HAVE HEARD THE SUBMISSIONS OF THE LD. AR FOR THE ASSESSEE AND THE LD. DR FOR THE REVENUE. THE LD. AR FOR THE ASSESSEE SUBMITS THAT THE ASSESSEE HAS NEITHER CONCEALED THE INCOME NOR FURNISHED INACCURATE PARTICULARS THEREOF. THE ADDITIONS/ DISALLOWANCES WERE MADE DUE TO DIFFERENCE OF OPINION OF ASSESSEE AND ASSESSING OFFICER, WHICH CANNOT BE BASIS OF THE LEVY OF PENALTY. AND THAT MERE DISALLOWANCE OF CLAIM DOES NOT EMPOWER THE ASSESSING OFFICER TO LEVY PENALTY. IN SUPPORT OF HIS SUBMISSIONS THE LD. AR FOR THE ASSESSEE RELIED ON THE DECISION OF HONBLE APEX COURT IN CIT VS RELIANCE PETRO PRODUCT (322 ITR 158 SC), CIT VS U.P. STATE BRIDGE CORPORATION (2018) 97 TAXMANN.COM 279 (SC), OMPRAKASH MEHTA VS ITO (316 CTR 280 BOM). 25. ON THE OTHER HAND, THE LD DR FOR THE REVENUE SUPPORTED THE ORDER OF LD CIT(A). 26. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE ORDER OF ASSESSING OFFICER IN LEVYING THE PENALTY UNDER SECTION 271(1)(C) AND THE ORDER OF LD. CIT(A), WHICH IS IMPUGNED BEFORE US. WE HAVE ALSO DELIBERATED ON VARIOUS CASE LAWS RELIED BY LD. AR FOR THE ASSESSEE. AS NOTED ABOVE, WHILE DECIDING QUANTUM APPEAL, WE HAVE DELETED THE DISALLOWANCE ON ACCOUNT OF EXPENDITURE ON EXCISE DUTY AND INTEREST, SUNDRY BALANCE WRITTEN OFF, DISALLOWANCE OF ELECTRICITY EXPENSES. HOWEVER, THE CLAIM OF DEPRECIATION IS AFFIRMED. THUS, NO PENALTY ON THE ADDITION/DISALLOWANCE ON ACCOUNT OF EXCISE DUTY, DISALLOWANCE ON SUNDRY BALANCE WRITTEN OFF AND ELECTRICITY EXPENSES BROACH TEXTILE MILLS LTD VS. JCIT, ITA NO.607/AHD/2014 & 980/AHD/2017 FOR A.Y. 2005-06 19 WOULD SURVIVE. SO FAR AS, CONFIRMATION OF DEPRECIATION ON FURNITURE OF RS.1,22,00/- IS CONCERNED. THE ASSESSEE CLAIMED IT REVENUE EXPENDITURE, THE A.O. TREATED THE SAME AS CAPITAL EXPENDITURE AND ALLOWED THE 15% DEPRECIATION. HOWEVER, ON APPEAL, THE LD. CIT(A) RESTRICTED THE DEPRECIATION TO 10%. IN OUR VIEW, THE DISALLOWANCE IS BASED ON DIFFERENCE OF OPINION BETWEEN THE ASSESSEE AND ASSESSING OFFICER. THUS, NO PENALTY ON DIFFERENCE OF OPINION AND ON MERE DISALLOWANCE IS LEVIEABLE. 27. SO FAR AS PENALTY ON ADDITION ON ACCOUNT OF INTEREST RECEIVED FROM THE MUNICIPAL CORPORATION IS CONCERNED, WE HAVE NOTED THAT THE ASSESSEE OFFERED THE SAME DURING THE ASSESSMENT PROCEEDINGS. FURTHER, THE A.O. LEVIED THE PENALTY ON THE ADDITION ALONG WITH OTHER ADDITIONS. NO SPECIFIC FINDING WHILE LEVYING PENALTY ON THIS ADDITION IS RECORDED. THE LD. CIT(A) IN PARA 11 OF THE IMPUGNED ORDER DISCUSSED THE FACT IN DETAIL. AS PER THE ORDER OF LD. CIT(A), THIS AMOUNT WAS RECEIVABLE BY ASSESSEE WHICH WAS ADJUSTED BY MUNICIPALITY IN F.Y. 2004-05 AGAINST THE INTEREST OF RS.4,05,804/- AND COURT EXPENSES OF RS.15,202/-. THIS COMPENSATION WAS OFFERED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS. THE EXPLANATION OF ASSESSEE THAT IT WAS OFFERED VOLUNTARILY, WAS NOT ACCEPTED, THE LD. CIT(A) HELD THAT IT WAS OFFERED ONLY WHEN NOTICE UNDER SECTION 142(1) DATED 25.10.2007 WAS ISSUED TO FURNISH ALL THE RECEIPTS DURING THE YEAR WITH REGARD TO DISPUTE WITH THE MUNICIPALITY AND ONLY THEN THE ASSESSEE OFFERED. THE LD. CIT(A) CONCLUDED THAT ASSESSING OFFICER CORRECTLY LEVIED THE PENALTY UNDER SECTION 271(1)(C) OF THE ACT. WE HAVE AGAIN PERUSED THE ASSESSMENT ORDER, WHEREIN THE ASSESSING OFFICER IN PARA 12 NOTED THAT ASSESSEE BROACH TEXTILE MILLS LTD VS. JCIT, ITA NO.607/AHD/2014 & 980/AHD/2017 FOR A.Y. 2005-06 20 HAS FILED INACCURATE PARTICULARS OF INCOME IN RESPECT OF ALL ADDITIONS/DISALLOWANCE. HOWEVER, WHILE LEVYING THE PENALTY UNDER SECTION 271(1)(C) OF THE ACT, THE A.O. HELD THAT ALL ISSUES [ADDITIONS] FALL UNDER THE AMBIT EXPLANATION 1 TO SECTION 271(1)(C). EXPLANATION 1 TO 271(1)(C) RELATES TO DEEMED CONCEALMENT, THUS, IN OUR VIEW, THE A.O. WAS NOT QUITE SURE ABOUT THE INITIATION AND ON LEVYING THE PENALTY. IT IS SETTLED LAW THAT A.O. CANNOT LEVY THE PENALTY OTHER THAN THE CHARGES ON WHICH IT WAS INITIATED. THE LD. CIT(A) HAS ALSO NOT SPECIFIED THE SPECIFIC CHARGE AND ONLY HELD THAT A.O. CORRECTLY LEVIED THE PENALTY ON THIS ADDITION. THUS, THE PENALTY ORDER QUA THIS ADDITION IS ALSO NOT SUSTAINABLE. IN THE RESULT, THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE ALLOWED. 28. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 21 APRIL 2021 BY PLACING RESULT ON THE NOTICE BOARD. SD/- SD/- (DR. ARJUN LAL SAINI) (PAWAN SINGH) ( /ACCOUNTANT MEMBER) ( /JUDICIAL MEMBER) / SURAT, DATED : 21 APRIL 2021/ #SGR COPY OF ORDER SENT TO- ASSESSEE/AO/PR. CIT/ CIT (A)/ ITAT (DR)/GUARD FILE OF ITAT. BY ORDER / / TRUE COPY / / ASSISTANT REGISTRAR, SURAT