The ACIT, 1(1), Bhopal V. M/s. Sanwaria Agro Oils Limited, Bhopal

ITA 706/IND/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2285 (ITAT-INDORE)
• Duration Of Justice: 3 year(s) 4 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 24-01-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 05-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: ANIL KHAA
• Keywords: Business income; Earning of tax free income; Question of law; Initiation of penalty proceedings; Revenue expenditure; Reassessment proceedings
• Section: 43B; 143(3); 14A; 147

Judgement Text

ACIT VS.M/S SANWARIA AGRO 1 , , IN THE INCOME TAX APPELLATE TRIB UNAL, INDORE BENCH, INDORE BEFORE SHRI C.M. GARG, JUDICIAL MEMBER AND SHRI O.P. MEENA, ACCOUNTANT MEMBER I.T.A. NO. 706/IND/2013 ASSESSMENT YEAR 2006-07 ASSTT. COMMISSIONER OF INCOME TAX 1(1), BHOPAL :: /APPELLANT VS M/S SANWARIA AGRO OILS LTD. BHOPAL PAN AACCS-1449N :: / RESPONDENT / REVENUE BY SHRI MOHD. JAVED - DR !' #$% / ASSESSEE BY SHRI ANIL KHABYA & '' %( DATE OF HEARING 27.3.2017 )*+,- %( DATE OF PRONOUNCEMENT 3 . 5 .2017 / O R D E R PER SHRI C.M. GARG, JM THIS APPEALS HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED CIT(A)-I, BHOPAL, DATED 17.9.2013 IN FI RST APPEAL NO. CIT(A)-I/BPL/IT-09/12-13 FOR THE ASSESSMENT YEAR 20 06-07 ON THE FOLLOWING GROUNDS :- ACIT VS.M/S SANWARIA AGRO 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(APPEAL) HAS ERRED IN 1. DELETING THE ADDITION OF RS.10,00,000/- MADE BY THE A.O. ON ACCOUNT OF WAREHOUSE PAYMENT. 2. DELETING THE ADDITION OFRS.91,27,782/- MADE BY THE A.O. ON ACCOUNT OF DEFERRED REVENUE EXPENSES FOR MANDIDE EP UNIT. 3. DELETING THE ADDITION OFRS.13,99,400/- AGAINST THE ADDITION OF RS.14,11,319/- MADE BY THE A.O. BY APPL YING PROVISIONS OF SEC.14A OF THE ACT. 4. DELETION THE DISALLOWANCE OF RS.2,22,182/- OUT OF DISALLOWANCE MADE BY THE A.O. AMOUNTING TO RS.2,97,395/- U/S 43B 2. GROUND NO. 1 APROPOS GROUND NO. 1 THE LEARNED DR SUPPORTING TH E ACTION OF THE ASSESSING OFFICER SUBMITTED THAT THE ASSESSING OFFICER WAS RIGHT IN MAKING DISALLOWANCE OF WAREHOUSE EXPENSES TREATI NG THE SAME AS DEFERRED REVENUE EXPENSES FOR MANDIDEEP UNIT. THE L EARNED DR FURTHER SUBMITTED THAT THE LEARNED CIT(A) GRANTED R ELIEF TO THE ACIT VS.M/S SANWARIA AGRO 3 ASSESSEE WITHOUT ANY BASIS. THEREFORE, THE SAME MAY BE SET ASIDE BY RESTORING THE ORDER OF THE ASSESSING OFFICER. 3. REPLYING TO THE ABOVE, THE ASSESSEES REPRESENTA TIVE (AR) DREW OUR ATTENTION TOWARDS PARA 4.4. OF THE IMPUGNED FIR ST APPELLATE ORDER AND SUBMITTED THAT THE LEARNED CIT(A) GRANTED RELIEF TO THE ASSESSEE BY FOLLOWING THE ORDER OF THE TRIBUNAL DAT ED 29.4.2011 PASSED IN THE ASSESSEES APPEAL ITA NO.80/IND/2010 AND CO NO.3/IND/2010 WHEREIN THE ISSUE WAS DISCUSSED AT LE NGTH AND THEREAFTER THE DELETION OF DISALLOWANCE OF RS. 10 L ACS WAS UPHELD, DISMISSING THE GROUND OF THE REVENUE. THE LEARNED A R FURTHER SUBMITTED THAT PREVALENT RATE AT THE RELEVANT TIME FOR WHEAT AND PADDY WAS RS. 3/- PER BAG PER MONTH AND IN CASE OF TUAR AND SOYABEAN IT WAS RS. 50/- PER BAG PER MONTH. THEREFO RE THE WAREHOUSING RATES, WHICH ARE DECIDED BY THE STATE G OVERNMENT, CANNOT BE HELD AS EXCESSIVE PAYMENT AND HENCE THE L EARNED CIT(A) WAS RIGHT IN DELETING THE ADDITION BY FOLLOWING THE ORDER OF THE TRIBUNAL (SUPRA). 4. ON CAREFUL CONSIDERATION OF THE ABOVE SUBMIS SIONS AND THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2006- 07 DATED 29.4.2011 (SUPRA), WE OBSERVE THAT THE TRIBUNAL DIS MISSED THE ACIT VS.M/S SANWARIA AGRO 4 APPEAL OF THE REVENUE ON THE ISSUE, UPHOLDING THE O F THE LEARNED CIT(A) WITH THE FOLLOWING OBSERVATIONS :- 8. NOW WE SHALL DEAL WITH ITA NO. 80/IND/2010 WHER E THE FIRST GROUND PERTAINS TO DELETING THE ADDITION OF R S. 10 LACS OUT OF THE TOTAL ADDITION OF RS. 15 LACS MADE ON AC COUNT OF WAREHOUSING CHARGES IN VIEW OF PROVISIONS OF SECTIO N 40A(2)(B) OF THE ACT. THE LD. CIT DR DEFENDED THE A SSESSMENT ORDER WHEREAS THE LD.COUNSEL FOR THE ASSESSEE SUPPO RTED THE IMPUGNED ORDER. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF LD.REPRESENTATIVES OF BOTH SIDES AND PERUSED THE MA TERIAL AVAILABLE ON RECORD. BRIEF FACTS ARE THAT THE ASSES SEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING IN COMMODITIES. THE ASSESSEE DECLARED INCOM E OF RS.2,00,91,510/- IN THE RETURN FILED ON 26.11.2006. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE CLAIMED P AYMENT OF RS.31,12,825/- TOWARDS WAREHOUSE TO AN ASSOCIATE CONCERN M/S SHREENATH WAREHOUSING CORPORATION WHICH IS A UNIT OF M/S NATTHURAM SHRINARAYAN AGRAWAL. THE STAN D OF THE REVENUE IS THAT THE CLAIM OF SUCH EXPENSES IS E XCESSIVE, THEREFORE, THE ASSESSING OFFICER DISALLOWED RS. 15 LACS U/S 40A(2) TREATING THE SAME AS EXCESSIVE AND UNREASONA BLE. ON APPEAL, CONSIDERING THE DIFFERENCE BETWEEN THE PREV AILING MARKET RATE AND THE CLAIM OF THE ASSESSEE, THE LEAR NED COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERED RS. 5 LACS AS EXCESSIVE AND THE DISALLOWANCE WAS MADE ACCORDIN GLY AND DELETED THE DISALLOWANCE OF RS.10 LACS WHICH IS UNDER CHALLENGE BEFORE US. THE PREVAILING RATE AT THE REL EVANT TIME FOR WHEAT AND PADDY WAS RS. 3/- PER BAG, PER MONTH AND IN THE CASE OF TUWAR AND SOYABEAN IT WAS RS. 50/- PER BAG PER MONTH, THEREFORE, SINCE THE WAREHOUSING RATES ARE F IXED AND DECIDED BY THE GOVERNMENT, THEREFORE, THE EXCESSIVE PAYMENT WAS EVEN DENIED BY THE LEARNED COMMISSIONER OF INCO ME TAX (APPEALS), THEREFORE, WE FIND NO INFIRMITY IN THE S AME, CONSEQUENTLY, THIS GROUND OF THE REVENUE IS DISMISS ED. ACIT VS.M/S SANWARIA AGRO 5 5. FIRST OF ALL, WE MAY POINT OUT THAT THE APPEAL I N HAND IS ALSO PERTAINING TO THE ASSESSMENT YEAR 2006-07 WHICH ARO SE FROM THE ASSESSMENT ORDER DATED 14.3.2012 PASSED U/S 147 REA D WITH SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHOR T THE ACT) AND ITA NO. 80/IND/2010 AND CO NO. 3/IND/2010 WERE ALSO PERTAINING TO THE ASSESSMENT YEAR 2006-07 WHICH AROSE FROM THE ASSESSMENT ORDER DATED 16.12.2008 PASSED UNDER SECTION 143(3) OF THE ACT AND THERE IS NO SUBSTANTIAL CHANGE IN THE FACTS AND CIR CUMSTNACES OF THE CASE. BEFORE US, THE LEARNED AR FAIRLY ACCEPTED THA T THE CROSS OBJECTION OF THE ASSESSEE BEARING NO. 51/IND/2015 A RISING OUT OF ITA NO. 706/IND/2013 WAS DISMISSED BY THE TRIBUNAL VIDE ORDER DATED 10.3.2016 AS THE SAME WAS NOT PRESSED BY THE ASSESSEE. 6. FROM THE RELEVANT OPERATIVE PART PARA 4.4 OF THE FIRST APPELLATE ORDER IT IS CLEAR THAT THE COMMISSIONER OF INCOME T AX (APPEALS) FOLLOWED THE ORDER OF THE ITAT DATED 29.4.2011 (SUP RA) AND THE LEARNED DR ON SPECIFIC QUERY BY THE BENCH COULD NOT CONTROVERT THE FACT THAT THERE IS NO CHANGE IN THE FACTS AND LEGAL POSITION FROM THE DATE OF TRIBUNAL ORDER (SUPRA) TILL DATE THUS WE AR E INCLINED TO NOTE THAT THE COMMISSIONER OF INCOME TAX (APPEALS) IS QU ITE CORRECT AND ACIT VS.M/S SANWARIA AGRO 6 JUSTIFIED IN FOLLOWING THE ORDER OF THE TRIBUNAL AN D IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT O F WAREHOUSE PAYMENTS. 7. APROPOS GROUND NO. 2 THE LEARNED DR SUBMITTED TH AT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN D ELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT O F DEFERRED REVENUE EXPENDITURE FOR MANDIDEEP UNIT. ON THE OTHE R HAND, THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDE R OF THE COMMISSIONER OF INCOME TAX (APPEALS) WITH THE SUBMI SSION THAT THE THE ASSESSING OFFICER IN THE REASSESSMENT PROCEEDIN GS AGAIN DISALLOWED THE DEFERRED REVENUE EXPENSES WHICH WERE DISALLOWED IN THE ORIGINAL ASSESSMENT ORDER. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT SINCE THE COMMISSIONER OF INCOME TAX (APPEALS) HAS DELETED THE SAID ADDITION IN THE FIRST APPEAL, THE ASSESSING OFFICER HAS NO JURISDICTION TO MAKE THE ADDITION AGAIN IN T HE REASSESSMENT PROCEEDINGS. IN THIS WAY, THE LEARNED COUNSEL FOR T HE ASSESSEE PRAYED TO MAINTAIN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). 8. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF TH E PARTIES IN THE WAKE OF THE FACTS BROUGHT TO OUR NOTICE. WE FIN D THAT THE ACIT VS.M/S SANWARIA AGRO 7 COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE IN ITA NOS. 129/IND/2007, 156 & 157/INBD/2010, ETC. VIDE I TS ORDER DATED 29 TH APRIL, 2011 IN THE ASSESSEES OWN CASE HAS DELETED THE SIMILAR ADDITION BY OBSERVING AS UNDER :- 10. THE NEXT GROUND PERTAINS TO DELETING THE AD DITION OF RS.91,27,782/- MADE ON ACCOUNT OF DEFERRED REVENUE EXPENSES FOR MANDIDEEP UNIT. THE STAND OF THE LEARN ED CIT DR IS THAT THE TRIAL RUN EXPENSES WERE WRONGLY CLAI MED AS THERE WAS NO ELECTRICITY CONNECTION WHEREAS THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THE TRIAL AND RUN W AS MADE ON THE BASIS OF DIESEL/GENERATOR AND NECESSARY EVID ENCE WAS CLAIMED TO HAVE BEEN FILED BEFORE THE DEPARTMEN T. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF LD. REPRESENTATIVES OF BOTH SIDES AND PERUSED THE MATER IAL AVAILABLE ON RECORD. BRIEF FACTS ARE THAT THE ASSES SEE COMPANY ACQUIRED AN OLD SICK UNIT M/S UNITED SOYA P RODUCT, MANDIDEEP, PURCHASED VIDE A TRIPARTITE AGREEMENT WI TH THE SELLER AND FINANCIAL INSTITUTION. AS PER THE ASSESS EE, THE ACQUIRED UNIT WAS MADE OPERATIONAL AND THE TRIAL RU N PRODUCTION STARTED IN THE MONTH OF APRIL, 2005. IT WAS FURTHER CLAIMED THAT DURING INITIAL PERIOD LOSS WAS SUFFERE D DUE TO VARIOUS REASONS ESPECIALLY WHEN THE PLANT AND MACHI NERY WAS NOT STABILIZED. THE ASSESSEE CLAIMED LOSS OF RS.1,18,02,476/- BY CLAIMING THE SAME AS DEFERRED R EVENUE EXPENDITURE IN ITS BOOKS AND CLAIMED IT AS A BUSINE SS LOSS WHEREAS THE STAND OF THE REVENUE IS THAT THE EXPEND ITURE WAS INCURRED FOR TRIAL RUN, THEREFORE, THE SAME IS NOT ALLOWABLE. HOWEVER, WE ARE OF THE VIEW THAT SINCE I T WAS NOT DISPUTED THAT THE TRIAL RUN PRODUCTION STARTED FROM 1.4.2005 TO 30.11.2005, IT HAS TO BE ALLOWED. THE MANDIDEEP UNIT WAS CLAIMED TO BE FULLY FUNCTIONAL FROM 1.4.2005, CONSE QUENTLY, THE EXPENSES ARE REVENUE EXPENDITURE. THE COMMENCEM ENT OF BUSINESS IS NOT THE PRE-CONDITION AND IT IS ENOU GH IF THE ACIT VS.M/S SANWARIA AGRO 8 ASSESSEE ESTABLISHES THAT THE UNIT WAS SET UP AND T HE TRIAL RUN PRODUCTION IS STARTED FROM A PARTICULAR DATE. T HE COMMERCIAL PRODUCTION AT FULL SWING IS NORMALLY AT A LATER DATE. SIMPLY BECAUSE THE ASSESSEE INCURRED HUGE LOS SES AT THE INITIAL STAGE, IT CANNOT BE SAID THAT THE ASSES SEE HAS NOT SET UP ITS BUSINESS. THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS) HAS ALREADY CONSIDERED THE DETAILS OF EXPENSES LIKE PURCHASE OF RAW MATERIAL, MANUFACTURI NG EXPENSES, FUEL EXPENSES/OTHER EXPENSES. IT IS ALSO NOTED THAT THE GENERAL MANAGER FROM GOVT. INDUSTRIES CENT RE ISSUED PRODUCTION CERTIFICATE DATED 27.5.2005 WITH SPECIFI C MENTIONING THAT THE PRODUCTION STARTED FROM 21.4.20 05 EVEN MENTIONING THE ANNUAL CAPACITY AND NATURE OF PRODUC T. NO CONTRARY EVIDENCE WAS FURNISHED BY THE DEPARTMENT, THEREFORE, IN VIEW OF THE DECISIONS RELIED UPON IN THE IMPUGNED ORDER, WE FIND NO INFIRMITY IN THE IMPUGNE D ORDER, THEREFORE, THE SAME IS CONFIRMED. ACCORDINGLY, THIS GROUND OF THE REVENUE IS DISMISSED. FOLLOWING THE ABOVE ORDER OF THE COORDINATE BENCH O F THE TRIBUNAL, WE CONFIRM THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). ACCORDINGLY, GROUND NO. 2 OF THE REVENUE IS DISMISS ED. 9. GROUND NO. 3 OF THE REVENUES APPEAL RELATES TO DELETION OF ADDITION BY THE COMMISSIONER OF INCOME TAX (APPEALS ) OF RS.13,99,400/- AGAINST THE ADDITION OF RS.14,11,319 /- MADE BY THE ASSESSING OFFICER BY APPLYING THE PROVISIONS OF SEC TION 14A OF THE ACT. 10. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER NOTED FROM THE ACCOUNTS AND THE AUDIT REPOR T THAT DURING ACIT VS.M/S SANWARIA AGRO 9 THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE ASSESS MENT YEAR 2006-07 THE ASSESSEE HAD INVESTED IN SHARES WORTH R S.4.38 CRORES AS AGAINST RS. 3.77 CRORES IN THE PRECEDING YEAR. H ENCE, THERE IS INCREASE IN INVESTMENTS BY RS. 61 LACS. HE FURTHER NOTED THATG THE ASSESSEE DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 2006-07 HAD SHOWN SECURED LOAN OF RS. 47.24 CRORES AND UNSECURED LOAN OF RS. 8.65 CRORES AS AGAINST RS.25. 44 CRORES OF SECURED LOAN AND RS. 3.38 CRORES OF UNSECURED LOANS LAST YEAR. THUS, FRESH BORROWINGS HAD INCREASED BY RS. 27.07 C RORES. THE ASSESSEE HAD DEBITED INTEREST EXPENDITURE OFRS. 1,6 4,21,621/-. THE ASSESSING OFFICER ALSO NOTED THAT THE ASSESSEE HAD CLAIMED EXEMPT INCOME OF RS. 1,20,67,843/-. BESIDES THIS EXEMPT IN COME, THE ASSESSEE HAS ALSO SHOWN BUSINESS INCOME FROM OTHER SOURCES. THE ASSESSING OFFICER WAS OF THE VIEW THAT AS PER THE P ROVISIONS OF SECTION 14A OF THE ACT, NO DEDUCTION SHALL BE MADE IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE AC T. THE ASSESSING OFFICER ALSO NOTED THAT THE ASSESSEE HAD NOT DEDUCT ED ANY EXPENSES RELATING TO EXEMPT INCOME AND CLAIMED THE GROSS DIV IDEND INCOME AS EXEMPT. TO SUPPORT ITS STAND, THE ASSESSEE SUBMI TTED BEFORE THE ACIT VS.M/S SANWARIA AGRO 10 ASSESSING OFFICER THAT NO EXPENDITURE WAS INCURRED RELATING TO EXEMPT INCOME. HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT THE SAME. THE ASSESSING OFFICER OBSERVED THAT THE FOLLO WING EXPENDITURE OF RS.7,36,738/- WAS DIRECTLY RELATED TO DIVIDEND I NCOME WHICH DID NOT FORM PART OF TOTAL INCOME :- LISTING FEES RS.66,190/ - MEMBERSHIP FEES RS.50,300/ - EXCHANGE FLUCTUATION RS.5,23,422/ - SHARE ACCOUNTING CHARGES RS.53,87/ - LOSS ON MF INVESTMENTS RS.42,954/ - TOTAL RS.7,36,738/ - HE, THEREFORE, ALLOWED EXPENSES OF RS.7,36,738/- BE ING EXPENDITURE INCURRED DIRECTLY IN RELATION TO DIVIDEND INCOME. SO FAR AS INTEREST EXPENDITURE OF RS.1,64,21,621/- IS CONCERNED, BEFOR E THE ASSESSING OFFICER, THE ASSESSEE HAD GIVEN THE DETAILS AS UNDE R :- A. INTEREST TO BANKS - RS.1,50,74,551/- B. INTEREST TO OTHERS - RS. 13,47,070/- TOTAL INTEREST PAID - RS.1,64,21,621/- THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSE SSEE HAS INCURRED THE INTEREST EXPENDITURE OF RS.1,64,21,621 .- TO EARN ACIT VS.M/S SANWARIA AGRO 11 TAXABLE AS WELL AS EXEMPTED INCOME. HE, THEREFORE, WORKED OUT THE QUANTUM OF EXPENDITURE IN VIEW OF THE METHOD PRESCR IBED UNDER RULE 8D OF INCOME TAX RULES, 1962 :- RS.1,64,21,621 X RS.2,38,38,903 RS.59,07,58,421 = RS.662,662/- THE ASSESSING OFFICER ALSO ESTIMATED THE OTHER ADMI NISTRATIVE EXPENSES AT AN AMOUNT EQUAL TO ONE-HALF PER CENT OF THE AVERAGE OF THE VALUE OF INVESTMENT AT RS.11,919/- FOR EARNING EXEMPTED INCOME. 11. ON THE BASIS OF THE ABOVE, THE ASSESSING OFFICE R MADE DISALLOWANCE AGGREGATING TO RS.14,11,319/- (RS.7,36 ,738 + RS.6,62,662 + RS.11,919/-) AND ADDED THE SAME TO TH E TOTAL INCOME OF THE ASSESSEE. 12. BEING AGGRIEVED WITH THE ABOVE ADDITION MADE BY THE ASSESSING OFFICER, THE ASSESSEE PREFERRED FIRST APP ELLATE BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). THE COMMISSIO NER OF INCOME TAX (APPEALS), AFTER CONSIDERING THE ISSUE A T LENGTH, SO FAR AS DIRECT EXPENSES OF RS. 7,36,738/- ARE CONCERNED, THE COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT SINCE THE SAID ACIT VS.M/S SANWARIA AGRO 12 EXPENSES WERE NOT INCURRED IN RELATION TO DIVIDEND INCOME, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING THE D ISALLOWANCE THEREOF. THE COMMISSIONER OF INCOME TAX (APPEALS), THEREFORE, DELETED THE SAME. AS REGARDS THE DISALLOWANCE OF PR OPORTIONATE INTEREST OF RS. 6,62,662/- RELATING TO EXEMPTED INC OME, THE COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT SINCE NO EXPENDITURE ON INTEREST WAS INCURRED RELATING TO MU TUAL FUNDS FROM WHICH THE ASSESSEE HAD EARNED DIVIDEND INCOME, NO D ISALLOWANCE EVEN ON PROPORTIONATE BASIS CAN BE MADE OUT OF INTE REST EXPENSES INCURRED FOR THE PURPOSES OF BUSINESS. HE, THEREFOR E, DELETED THE SAME. THE COMMISSIONER OF INCOME TAX (APPEALS), THE REFORE, GRANTED RELIEF OF RS.13,99,400/- (RS.7,36,738/-+RS. 6,62,662/-) IN TOTAL. 13. BEING AGGRIEVED WITH THE ORDER OF THE COMMISSIO NER OF INCOME TAX (APPEALS) GRANTING RELIEF OF RS. 13,99,400/-, T HE REVENUE IS IN APPEAL BEFORE US. 14. WE HAVE HEARD ARGUMENTS OF BOTH THE SIDES AND C AREFULLY PERUSED THE RELEVANT MATERIAL PLACED ON RECORD OF T HE TRIBUNAL. WE FIND THAT THE COORDINATE BENCH OF THE TRIBUNAL HAD AN OCCASION TO CONSIDER THE IDENTICAL ISSUE IN THE CASE OF KAMAL K UMAR JAGDISH ACIT VS.M/S SANWARIA AGRO 13 PRASAD LATH VS. JCIT; ITA NO. 264/IND/2016 AND VIDE ORDER DATED 21.6.2016, THE TRIBUNAL HAS DECIDED THE ISSUE AS UN DER :- 2. THE SUM AND SUBSTANCE OF THE GROUNDS OF APPEAL IS THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN UPHOLD ING THE ADDITION OF RS.9,75,979/- U/S 14A OF THE ACT. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE HIMSELF MADE A DISALLOWANCE OF RS. 28,339/ - AND THE DIVIDEND RECEIVED WAS RS.3,30,419/-. HOWEVE R, THE TOTAL INVESTMENTS WERE OF RS.3,66,77,904/-. DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE REVI SED ITS DISALLOWANCE FROM RS. 28,339/- TO RS. 55,839/- BEING % OF THE INVESTMENT MADE DURING THE YEAR. HOWEVER, RULE 8D PROVIDES FOR A DISALLOWANCE AT % OF THE AV ERAGE INVESTMENT DURING THE YEAR BESIDES A DISALLOWANCE O F INTEREST COMPUTED IN THE MANNER PROVIDED IN RULE 8D . THE ASSESSING OFFICER MADE THE DISALLOWANCE ACCORDINGLY . 4. BEING AGGRIEVED WITH THE DISALLOWANCE MADE BY TH E ASSESSING OFFICER, THE ASSESSEE APPROACHED THE LEAR NED ACIT VS.M/S SANWARIA AGRO 14 CIT(A) BUT IN VAIN. NOW THE ASSESSEE IS BEFORE THE TRIBUNAL. 5. I HAVE HEARD BOTH THE SIDES. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LEARNED CIT(A) HAS GROSSLY ERRED IN CONFIRMING THE ILLEGAL ACTION OF THE ASSES SING OFFICER WITHOUT SHOWING ANY REASONS THEREFOR. THE L EARNED COUNSEL FOR THE ASSESSEE RELIED UPON THE JUDGMENT O F THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. HDFC BANK; IN ITA NO. 330/2012 WHEREIN IT HAS BEEN HELD THAT IF T HE ASSESSEES OWN FUND AND OTHER INTEREST BEARING FUND S WERE MORE THAN THE INVESTMENT IN THE TAX FREE SECUR ITIES, IT WOULD BE PRESUMED THAT THE INVESTMENT MADE WOULD BE OUT OF INTEREST FREE FUNDS. FURTHER RELIANCE WAS MA DE TO THE JUDGMENT OF VARIOUS TRIBUNALS IN THE CASE OF RAINY INVESTMENT PVT. LTD. VS. ACIT; ITA NO. 5491/MUM/201 1 AND THE CIT VS. TRADE APARTMENT IN ITA NO. 1277/KOL/2011, MORGAN STANLEY INDIA SECURITIES VS. ACIT; ITA NO. 5072/MUM/2015 AS ALSO THE DECISION IN THE C ASE OF ITO VS. KARNAWATI PETROCHEMICALS PVT. LTD.; ITA NO. ACIT VS.M/S SANWARIA AGRO 15 2228/AHD/2012 WHEREIN IT HAS BEEN HELD THAT NETTING OF INTEREST RECEIPTS AND PAYMENTS HAVE TO BE CONSIDERE D. MOREOVER, THE LEARNED COUNSEL FOR THE ASSESSEE SUBM ITTED THAT ON THE SAME ISSUE, THE HON'BLE DELHI HIGH COUR T IN THE CASE OF JOINT INVESTMENTS PVT. LTD. VS. CIT; 372 IT R 694 (DELHI) HELD THAT THUS, SECTION 14A(2) OF THE ACT AND RULE 8D(1) IN UNISON AND AFFIRMATIVELY RECORD THAT THE COMPUTATION OR DISALLOWANCE MADE BY THE ASSESSEE OR CLAIM THAT NO EXPENDITURE WAS INCURRED TO EARN EXEM PT INCOME MUST BE EXAMINED WITH REFERENCE TO THE ACCOU NTS, AND ONLY AND WHEN THE EXPLANATION/CLAIM OF THE ASSE SSEE IS NOT SATISFACTORY, COMPUTATION UNDER SUB RULE (2) TO RULE 8D OF THE RULES IS TO BE MADE. THEREFORE, GO ON TO SUB RULE (2) TO RULE 8D OF THE RULES UNTIL AND UNLESS T HE ASSESSING OFFICER HAS FIRST RECORDED THE SATISFACTI ON, WHICH IS MANDATED BY SUB SECTION (2) TO SECTION 14A OF TH E ACT AND SUB RULE (1) TO RULE 8D OF THE RULES. ACIT VS.M/S SANWARIA AGRO 16 6. ON THE OTHER HAND, THE LEARNED DR RELIED UPON TH E ORDERS OF THE AUTHORITIES BELOW AS ALSO CBDT CIRCUL AR NO. 5/2014 DATED 11.2.2014. 7. I HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE SI DES. HON'BLE HIGH COURT OF DELHI IN THE CASE OF JOINT IN VESTMENT PVT. LTD. (SUPRA) HAS HELD AS UNDER :- 9. IN THE PRESENT CASE, THE AO HAS NOT FIRSTLY DISCLOSED WHY THE APPELLANT/ASSESSEES CLAIM FOR ATTRIBUTING RS.2 ,97,440/-AS A DISALLOWANCE UNDER SECTION 14A HAD TO BE REJECTED. TAIKISHA SAYS THAT THE JURISDICTION TO PROCEED FURTHER AND DE TERMINE AMOUNTS IS DERIVED AFTER EXAMINATION OF THE ACCOUNT S AND REJECTION IF ANY OF THE ASSESSEES CLAIM OR EXPLANAT ION. THE SECOND ASPECT IS THERE APPEARS TO HAVE BEEN NO SCRU TINY OF THE ACCOUNTS BY THE AO -AN ASPECT WHICH IS COMPLETE LY UNNOTICED BY THE CIT (A) AND THE ITAT. THE THIRD, A ND IN THE OPINION OF THIS COURT, IMPORTANT ANOMALY WHICH WE C ANNOT BE UNMINDFUL IS THAT WHEREAS THE ENTIRE TAX EXEMPT INC OME IS RS.48,90,000/-, THE DISALLOWANCE ULTIMATELY DIRECTE D WORKS OUT TO NEARLY 110% OF THAT SUM, I.E., RS.52,56,197/ -. BY NO STRETCH OF IMAGINATION CAN SECTION 14A OR RULE 8D B E INTERPRETED SO AS TO MEAN THAT THE ENTIRE TAX EXEMP T INCOME IS TO BE DISALLOWED. THE WINDOW FOR DISALLOWANCE IS INDICATED IN SECTION 14A, AND IS ONLY TO THE EXTENT OF DISALL OWING EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION T O THE TAX EXEMPT INCOME. THIS PROPORTION OR PORTION OF THE T AX EXEMPT INCOME SURELY CANNOT SWALLOW THE ENTIRE AMOUNT AS H AS HAPPENED IN THIS CASE. 10. FOR THE ABOVE REASONS, THE IMPUGNED ORDER OF TH E ITAT IS SET ASIDE. THE QUESTION OF LAW IS ANSWERED IN FAVOU R OF THE ASSESSEE. CONSEQUENTLY, ORDER OF THE AO IS SET ASID E. THE ACIT VS.M/S SANWARIA AGRO 17 INITIATION OF PENALTY PROCEEDINGS ALSO IS SET ASIDE . THE MATTER IS REMITTED TO THE AO FOR FRESH CONSIDERATION IN AC CORDANCE WITH THE ABOVE DIRECTIONS. THE APPEAL IS PARTLY ALL OWED. I, THEREFORE, SET ASIDE THE ORDERS OF THE AUTHORITI ES BELOW WITH THE DIRECTION TO THE ASSESSING OFFICER TO CONS IDER THE ABOVE HIGH COURT JUDGMENTS CITED ABOVE AND DECIDE T HE ISSUE IN VIEW THEREOF. I ORDER ACCORDINGLY. 11. FOLLOWING THE ABOVE ORDER OF THE TRIBUNAL, WE S ET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND RESTORE THIS IS SUE TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO DECIDE THE ISSUE IN THE LIGHT OF THE DIRECTIONS GIVEN IN THE ABOVE ORDER OF THE TRIBUNAL (SUPRA). 12. GROUND NO. 4 RELATES TO DELETION BY THE COMMISS IONER OF INCOME TAX (APPEALS) OF THE DISALLOWANCE OF RS. 2,2 2,182/- OUT OF DISALLOWANCE MADE BY THE ASSESSING OFFICER AMOUNTIN G TO RS.2,97,395/- U/S 43B OF THE ACT. 13. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT T HE ASSESSING OFFICER NOTED FROM THE AUDIT REPORT THAT THE BONUS OF RS. 2,97,395/- WAS CLAIMED BY THE ASSESSEE IN THE YEAR, UNDER CONS IDERATION, WHICH WAS NOT PAID ON OR BEFORE THE DUE DATE. THE A SSESSING OFFICER ACIT VS.M/S SANWARIA AGRO 18 OBSERVED THAT THIS AMOUNT IS GOVERNED BY THE PROVIS IONS OF SECTION 43B OF THE ACT AND THE SAME COULD BE ALLOWED AS A D EDUCTION ONLY IF THE PAYMENT IS MADE ON OR BEFORE THE DUE DATE OF FU RNISHING OF THE RETURN OF INCOME. SINCE THE ASSESSEE DID NOT PAY TH E SAME WITHIN THE STIPULATED PERIOD, THE ASSESSING OFFICER DISALL OWED THE SAME AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 14. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPE ALS) REQUIRED THE ASSESSEE TO PRODUCE EVIDENCE REGARDING PAYMENT OF BONUS SHOWN AS PAYABLE AS ON 31.3.2006 IN THE TAX AUDIT R EPORT AMOUNTING TO RS.2,97,395/-. IN RESPONSE, THE ASSESS EE FURNISHED COPY OF LEDGER ACCOUNT OF THE SUBSEQUENT FINANCIAL YEAR FROM WHICH THE COMMISSIONER OF INCOME TAX (APPEALS) NOTICED TH AT THE ASSESSEE MADE THE PAYMENT OF RS. 2,22,182/- ONLY IN THE SUBS EQUENT ASSESSMENT YEAR BEFORE THE DUE DATE OF FILING OF TH E RETURN I.E. 30.11.2006 FOR THE ASSESSMENT YEAR 2006-07. IN THIS WAY, THE ASSESSEE DID NOT PAY THE BALANCE AMOUNT OF RS.75,21 3/- (RS.2,97,395 RS.2,22,182/-) OF BONUS PAYABLE ON O R BEFORE THE DUE DATE OF FILING OF THE RETURN U/S 139(1) OF THE ASSE SSMENT YEAR 2006- 07. HE, THEREFORE, DISALLOWED THE AMOUNT OF RS. 75 ,213/- U/S 43B ACIT VS.M/S SANWARIA AGRO 19 OF THE ACT AND THE DISALLOWANCE TO THE EXTENT OF RS .2,22,182/- WAS DELETED. 15. AGAINST DELETION OF ADDITION OF RS. 2,22,182/- BY THE COMMISSIONER OF INCOME TAX (APPEALS), THE REVENUE I S IN APPEAL BEFORE THE TRIBUNAL. 16. BEFORE US, THE LEARNED DR RELIED UPON THE ORDER OF THE ASSESSING OFFICER WHEREAS THE LEARNED COUNSEL FOR T HE ASSESSEE RELIED UPON THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). 17. AFTER CAREFULLY CONSIDERING THE ISSUE IN THE LI GHT OF THE SUBMISSIONS OF THE PARTIES AND THE MATERIAL AVAILAB LE ON RECORD OF THE TRIBUNAL, WE ARE OF THE VIEW THAT FROM THE COPY OF THE LEDGER ACCOUNT OF THE SUBSEQUENT FINANCIAL YEAR UNDISPUTED LY THE ASSESSEE HAS MADE PAYMENT OF BONUS OF RS.2,22,182/- ONLY IN THE SUBSEQUENT ASSESSMENT YEAR BEFORE THE DUE DATE OF F ILING OF THE RETURN I.E. 30.11.2006 FOR THE ASSESSMENT YEAR 2006 -07. ON BEING ASKED BY THE BENCH, THE LEARNED COUNSEL FOR THE ASS ESSEE FAIRLY ACCEPTED THAT THE ASSESSEE HAS NOT PAID THE BALANCE AMOUNT OF RS. 75,213/- ON BONUS PAYABLE ON OR BEFORE THE DUE DATE OF FILING OF THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2006-07 AN D, HENCE, THE ACIT VS.M/S SANWARIA AGRO 20 COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE DISALLOWANCE TO THIS EXTENT. IN VIEW OF THE ABOVE FACTS, WE ARE UNABLE TO SEE ANY AMBIGUITY, PERVERSITY OR ANY OTHER VALID REASON TO INTERFERE WITH THE CONCLUSION OF THE COMMISSIONER OF INCOME TAX (APPEA LS) AS THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG AND THE AMOUNT OF BONUS WHICH HAS BEEN PAID PRIOR TO FILING OF ITS RETURN DURING THE NEXT FINANCIAL YEAR PRIOR TO FILING OF R ETURN THEN THE AMOUNT SO PAID HAS TO BE ALLOWED. ACCORDINGLY, GROU ND NO. 4 OF THE REVENUE IS DISMISSED. 18. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES THE ORDER HAS BEEN PRONOUNCED IN OPEN COURT ON 3.5. 2017. SD/- SD/- ( ! (O.P.MEENA) (C.M. GARG) ACCOUNTANT MEMBER J UDICIAL MEMBER 3.5. 2017. DN/ ACIT VS.M/S SANWARIA AGRO 21