ACIT, Parwanoo V. Hycron Electronics, Solan

ITA 715/CHANDI/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 5077 (ITAT-CHANDIGARH)
• Duration Of Justice: 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 06-02-2020
• Assessment Year: 2015-2016
• Appeal Filed On: 09-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Earning of tax free income; Tangible material; Rule 8D
• Section: 37; 14A; 205; 201; 22; 20

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BE NCH A, CHANDIGARH .., !' '# $, % &' BEFORE: SHRI. N.K.SAINI, VP & SHRI , SANJAY GARG, J M ITA NO. 715/CHD/2019 ASSESSMENT YEAR : 2015-16 THE ACIT CIRCLE, PARWANOO HIMACHAL PRADESH HYCRON ELECTRONICS PLOT NO. 35, EPIP-II, VILL: THANA SOLAN TAN NO: AADFH1249K APPELLANT RESPONDENT !' ASSESSEE BY : SHRI. AMIT KOTHARI, C.A #!' REVENUE BY : SMT. C. CHANDRAKANTA, (CIT DR) $ %! & DATE OF HEARING : 06/02/2020 '()*! & DATE OF PRONOUNCEMENT : 11/02/2020 &(/ ORDER PER N.K. SAINI, VICE PRESIDENT THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A), SHIMLA DT. 15/02/2019. 2. IN THE PRESENT APPEAL REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW IN DELETING THE ADDITION OF RS. 3,12,44,216/- UNDER SECTION 41(1) OF THE ACT MADE BY THE A.O. ON ACCOUNT OF CESSATION OF LIABILITY. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW IN DELETING THE ADDITION OF RS. 8,68,744/- MADE BY THE A.O. U/S 14A OF THE ACT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW IN DELETING THE ADDITION OF RS. 2,36,456/- MADE BY THE A.O. ON ACCOUNT OF EXPENSES CLAIMED WITHOUT EVIDENCES. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 6,71,504/- MADE BY THE A.O. TREATING THE LOSS AS INADMISSIBLE LOSS. 5. IT IS PRAYED THAT THE ORDER OF THE LD. CIT(A) BE SE T ASIDE AND THAT OF THE A.O. RESTORED. 2 6. THE APPELLANT CRAVES LEAVE TO ADD ANY OTHER GROUND OF APPEAL WHICH MAY ARISE AT THE TIME OF HEARING. 3. VIDE GROUND NO. 1 THE GRIEVANCE OF THE DEPARTMENT R ELATES TO THE DELETION OF ADDITION OF RS. 3,12,44,216/- MADE BY THE A.O. UNDER S ECTION 41(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS ACT) ON ACCOUNT OF CESSATION OF LIABILITY. 4. THE FACTS RELATING TO THIS ISSUE IN BRIEF ARE THAT THE ASSESSEE E-FILED ITS RETURN OF INCOME ON 30/09/2015 DECLARING AN INCOME OF RS. 25,98, 91,178/-. LATER ON THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE A.O. NOTICED THAT THE ASSESSEE HAD SHOWN LIABILITY OF RS. 3,12,44,216 /- ON ACCOUNT OF LOAN FROM EX PARTNERS IN THE SCHEDULE FORMING PART OF THE BALANCE SH EET. HE ASKED THE ASSESSEE TO STATE THE NATURE OF THE LIABILITY ALONGWITH THE CONFIRM ATION OF THE CREDITORS. IN RESPONSE THE ASSESSEE SUBMITTED THAT MS. SHIVANI SINGHAL WAS THE P ARTNER IN THE FIRM IN THE EARLIER YEARS AND ON HER RETIREMENT, SHE WAS NOT PAID THE DUE AM OUNT, WITH MUTUAL CONSENT AND THE IMPUGNED AMOUNT REPRESENTED THE AMOUNT DUE TO THE SAID EX PARTNER. THE A.O. HOWEVER WAS NOT SATISFIED FROM THE REPLY OF THE AS SESSEE AND MADE THE ADDITION OF RS. 3,12,44,216/- BY OBSERVING IN PARA 5.2 OF THE ASSE SSMENT ORDER DT. 30/10/2017 AS UNDER: 5.2 THE UNDERSIGNED HAS CONSIDERED THE SUBMISSION OF THE ASSESSEE. ONE THING IS CRYSTAL CLEAR THAT THE ASSESSEE IS NO LONGER REQUIRED TO RE PAY THE LIABILITY OF RS.3,12,44,216/- WHICH IS DUE FROM THE YEAR 2008 TO MS. SHIVANI SINGHAL, AN E X-PARTNER. FURTHER, AS SUBMITTED BY THE ASSESSEE IN ITS REPLY DATED 24.10.2017, REPRODUCED UNDER PARA-5 ABOVE, MS. SHIVANI SINGHAL (THE CREDITOR) HAS CONSENTED THAT THIS AMOUNT OF RS .3,12,44,216/- IS NOT REQUIRED TO BE PAID TO HER. THEREFORE, THIS IS A CASE OF UNILATERAL WAI VER OF SUM DUE BY THE CREDITOR, AS A RESULT OF WHICH, THE ASSESSEE IS NOT REQUIRED TO PAY OR DISCH ARGE THIS LIABILITY. IN VIEW OF THIS BACKGROUND, THE LIABILITY OF RS.3,12,44,216/- APPEA RING IN THE BALANCE SHEET AS ON 31.03.2015 AS 'LOAN FROM EX PARTNERS' IS TREATED AS INCOME OF THE ASSESSEE U/S SECTION-41(L) OF THE INCOME-TAX ACT, 1961 AND ACCORDINGLY, AN ADD ITION OF RS.3,12,44,216/- IS MADE TO THE INCOME OF THE ASSESSEE FOR THE A.Y. 2015-16. PE NALTY U/S 271(L)(C) IS INITIATED FOR FURNISHING INACCURATE/ CONCEALMENT OF PARTICULARS I NCOME ON THIS ISSUE. 5. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED AS UNDER: 1. IT IS RESPECTFULLY SUBMITTED THAT THE APPELLANT VID E ITS LETTER DATED 24.10.2017 ( PLACED AT PAGE 1 TO 14 OF THE PAPER BOOK), MENTIONE D THAT ON RETIREMENT FROM THE FIRM, MS. SHIVANI SINGHAL, THE EX- PARTNER, WAS NOT PAID AND THE AMOUNT WAS WITH HELD WITH THE FIRM, WHICH WAS WITH THE MUTUAL CONSENT OF HER. THE ACCOUNT STATEMENT OF MS. SHIVANI SINGHAL WAS ALSO SUBMITTED FOR PERUSAL OF THE LD. A O, BUT HE DID NOT APPRECIATE THE WORDINGS USED IN THE SAID LETTER AND PRESUMED THAT MS. SHIVANI SINGHAL HAD CONSENTED FOR 3 WAIVER OF THE SAID AMOUNT AND PROCEEDED WITH ADDING THE SAID AMOUNT TO THE TOTAL INCOME U/S 41(1) OF THE IT ACT. 2. IT IS SUBMITTED THAT THE WORDINGS USED BY THE APPEL LANT IN ITS LETTER DATED 24.10.2017 WERE ' ON HER RETIREMENT FROM THE FIRM, SHE WAS NOT PAID THE DUE AMOUNT, WHICH WAS WITH THE MUTUAL CONSENT OF HER'. THIS LANGUAGE OR WORDIN G DOES NOT MEAN THAT MS. SHIVANI SINGHAL WAS NEVER BE PAID THE SAID AMOUNT DUE TO BE PAID TO HER. ON HER RETIREMENT FROM THE FIRM, THIS AMOUNT WAS RETAINED WITH THE FIRM, A S THERE WAS SOME LIQUIDITY CRUNCH AT THAT POINT OF TIME WITH THE FIRM AND AS SHE HAD NO OTHER AVENUE FOR INVESTMENT, SHE REQUESTED FOR RETENTION OF HER DUE AMOUNT WITH THE FIRM. AT N O POINT OF TIME, SHE CONSENTED TO WAIVE OFF THE SAID AMOUNT DUE TO HER. HAD IT BEEN SO, THE APPELLANT WOULD HAVE SQUARED UP HER ACCOUNT, WHICH WAS NOT DONE AND THE AMOUNT DUE TO H ER CONTINUED TO BE SHOWN IN HER ACCOUNT AND IN THE BALANCE SHEET AS ON 31.3.2015, A COPY OF WHICH IS PLACED AT PAGE 30 TO 40, WHICH IS A CONCLUSIVE EVIDENCE THAT THE AMOU NT IS STILL DUE TO HER. 3. IT IS A WELL SETTLED LAW THAT IF THE AMOUNT IS SHOW N AS DUE IN THE ACCOUNTS, THEN IT CONTINUES TO BE DUE UNLESS AND UNTIL THE SAME IS PA ID OR WRITTEN BACK IN THE BOOKS OF THE ACCOUNTS. 4. IN SUPPORT OF THE FACT THAT MS. SHIVANI SINGHAL HAD NOT CONSENTED TO WAIVE OFF THE SAID AMOUNT DUE FROM THE FIRM, A COPY OF HER STATEM ENT OF AFFAIRS PREPARED FOR THE FY 2014-15 FOR HER TAX PURPOSES IS ENCLOSED AT PAGE 41 , WHICH REFLECTS THAT AN AMOUNT OF RS. 3,12,44,216/- IS DUE TO BE RECEIVED FROM HYCRON ELE CTRONICS AS ON 31.3.2015. 5. YOUR HONOUR MAY ALSO LIKE TO OBSERVE THAT HYCRON EL ECTRONICS IS A PARTNERSHIP FIRM, WHERE ALL FAMILY MEMBERS ARE ITS PARTNERS AND IN CA SE ANY RETIRING PARTNER DOES NOT HAVE ANY NEED FOR FUNDS, HE/SHE CAN VERY WELL PARK IT WI TH THE FIRM ITSELF, AS THERE IS NO RISK OF NON- PAYMENT BEING A FAMILY RUN FIRM. 6. YOUR HONOUR MAY PLEASE LIKE TO PERUSE THE PROVISION S OF SECTION 41 WHICH DEALS WITH A SITUATION WHERE ANY SUM IS DEEMED TO BE BUSINESS INCOME OF THE APPELLANT-ASSESSEE VIZ; (A) A LOSS, EXPENDITURE OR TRADING LIABILITY HAS BE EN INCURRED IN THE COURSE OF BUSINESS OR PROFESSION; (B) ALLOWANCE OR DEDUCTION HAS BEEN MADE IN RESPECT OF SUCH LOSS, EXPENDITURE OR TRADING LIABILITY IN THE COURSE OF ASSESSMENT IN EARLIER YE ARS; AND (C) A BENEFIT IS SUBSEQUENTLY OBTAINED BY THE ASSESSEE IN RESPECT OF SUCH LOSS, EXPENDITURE OR TRADING LIABILITY BY WAY OF REMISSION OR CESSATI ON THEREOF. 7. IN SHORT, SECTION 41(1) SAYS THAT THE BENEFIT WHICH ACCRUES IN RESPECT OF LOSS OR EXPENDITURE OR WHICH ACCRUES BY WAY OF REMISSION OR CESSATION OF TRADING LIABILITY WILL BE TAXABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINE SS OR PROFESSION' ONLY WHEN AN ALLOWANCE OR DEDUCTION HAS BEEN MADE WITH RESPECT T O SUCH LOSS OR TRADING LIABILITY. 8. IT IS STATED THAT SECTION 41(1) ENABLES THE REVENUE TO TAKE BACK WHAT IT HAS ALREADY ALLOWED IF THE LIABILITY CEASES TO EXIST AND THE AP PELLANT-ASSESSEE RECOUPED SOMETHING FOR WHICH A DEDUCTION OR ALLOWANCE HAD ALREADY BEEN MAD E FROM HIS BUSINESS INCOME. IT IS SUBMITTED THAT IN ORDER AN AMOUNT MAY BE DEEMED TO BE INCOME U/S 41(1) THERE MUST BE A REMISSION OR CESSATION OF THE LIABILITY IN RESPEC T OF THAT AMOUNT. 9. IT IS RESPECTFULLY SUBMITTED THAT THE UNDISPUTED FA CT IS THAT THE APPELLANT-ASSESSEE HAD CONTINUED TO SHOW THE ADMITTED AMOUNT AS LIABIL ITY IN THEIR RESPECTIVE BALANCE SHEET. SUCH A LIABILITY SHOWN IN THE BALANCE SHEET, INDICA TE THE ACKNOWLEDGEMENT OF THE DEBTS PAYABLE BY THE ASSESSEE. MERELY BECAUSE, SUCH LIABI LITY WAS OUTSTANDING FOR THE LAST MANY YEARS AND WITHHELD WITH THE CONSENT OF THE EX-PARTN ER, IT CANNOT BE PRESUMED THAT THE 4 SAID LIABILITY HAS CEASED TO EXIST. IN THIS REGARD, STRONG RELIANCE IS PLACED ON THE PRONOUNCEMENT A OF THE HON'BLE PUNJAB AND HARYANA H IGH COURT IN THE CASE OF SMT. SITA DEVI JUNEJA 187 TAXMAN 96. 10. FURTHER MORE, THE AMOUNT DUE TO MS SHIVANI SINGHAL REPRESENT HER CAPITAL BALANCE OUTSTANDING IN HER ACCOUNT WHEN SHE CEASED TO BE A PARTNER AND TO THAT EXTENT THE ENTIRE AMOUNT REPRESENT EITHER THE CAPITAL CONTRIBUTED BY HER OR THE SHARE OF PROFIT RECEIVED BY HER AS A PARTNER, WHICH IS AFTER PAYMENT OF TAXES B Y THE FIRM AND TO THAT EXTENT THE PROVISIONS OF SECTION 41(1) OF THE IT ACT ARE NOT A TTRACTED. 11. IT IS ALSO HUMBLY SUBMITTED THAT THE CESSATION OF S UCH LIABILITY ARISES ONLY WHEN IT CEASES TO EXIST IN THE EYE OF LAW FOR ALL INTENTS A ND PURPOSES. WHEN A DEBT BECOMES BARRED BY TIME THE CREDITOR WOULD NOT BE ABLE TO RECOVER T HE AMOUNT BY ENFORCING HIS RIGHT IN A COURT. BUT THE RIGHT WILL NOT COME TO AN END NOR DO ES THE LIABILITY CEASE. A MERE ENTRY OF CREDIT IN THE ACCOUNTS IN RESPECT OF THE AMOUNT WOU LD ALSO NOT BRING ABOUT A REMISSION OR CESSATION OF THE LIABILITY. IN THIS REGARD, RELIANC E IS PLACED ON CIT VS. SADUL TEXTILES LTD. (1987) 167 ITR 634, J. K. CHEMICALS LTD. VS. CIT (1966) 62 ITR 34(BOM) AND (1978)114 ITR 853 (KARN). 12. THE JUDGEMENTAL DECISION FINAL REST WITH THE APPELL ANT ABOUT THE LIABILITY AND UNLESS AND UNTIL IT IS WRITTEN BACK IN THE BOOKS, IT SHALL CONTINUE TO BE A LIABILITY FOR THE APPELLANT. THE RELIANCE WAS ALSO PLACED ON THE FOLLOWING CASE LAWS : CIT VS. HOTLINE ELECTRONICS LTD. IN ITA NO. 1073/20 11 DT. 23/12/2011 (DEL) CIT VS. SUGAULI SUGAR WORKS (P) LTD. (1999) 236 ITR 518 (SC) CIT VS. BENNETT COLEMAN & CO. LTD. (1993) 201 ITR 1 021 6. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE IMPUGNED ADDITION BY OBSERVING IN PARA 5.2.1 OF THE IMPU GNED ORDER AS UNDER: I HAVE PERUSED THE FACTS OF THE CASE, THE ACTION O F THE A.O. AND THE SUBMISSION OF THE APPELLANT. THE APPELLANT WAS REQUIRED BY THE A.O. T O EXPLAIN THE CREDIT BALANCE OF MS. SHIVANI SINGHAL. THE APPELLANT VIDE ITS LETTER DATE D 24.10.2017 REPRODUCED IN THE ASSESSMENT ORDER SUBMITTED ON THIS ISSUE AS UNDER:- 'THE EX-PARTNER BALANCE OF RS.322.47 LACS REPRESENT THE AMOUNT DUE TO SHIVANI SINGHAL, WHO WAS PARTNER IN THE EARLIER YEARS. ON HER RETIRE MENT FROM THE FIRM, SHE WAS NOT PAID THE DUE AMOUNT WHICH WAS WITH MUTUAL CONSENT OF HER. YO UR GOODSELF MAY PLEASE LIKE TO NOTE THAT NO INTEREST IS BEING PAID ON THE BALANCE DUE T O EX-PARTNERS. THE ACCOUNT STATEMENT FOR THE YEAR UNDER REFERENCE IS ENCLOSED AT ANNEXUR E-1. THE A.O. HAS HOWEVER INFERRED FROM THIS RESPONSE TH AT SHE HAS CONSENTED THAT THIS AMOUNT IS NOT REQUIRED TO BE PAID TO HER. A PERUSAL OF THE RESPONSE REPRODUCED ABOVE CLEARLY SHOWS THAT THE INFERENCE DRAWN BY THE A.O. IS MISPL ACED. EVEN OTHERWISE, THE CREDITOR A SHOWING THIS AMOUNT AS RECEIVABLE FROM THE APPELLAN T IN HER BALANCE SHEET. MOREOVER, THIS CREDIT BALANCE IS NOT A TRADE CREDIT AND HENCE INVO CATION OF SECTION 41(1) BY THE A.O. IS EVEN OTHERWISE MISPLACED. ACCORDINGLY, THIS GROUND OF APPEAL IS ALLOWED. 7. NOW THE DEPARTMENT IS IN APPEAL. 5 8. LD. DR STRONGLY SUPPORTED THE ORDER OF THE A.O. AND FURTHER SUBMITTED THAT SINCE THE AMOUNT WAS OUTSTANDING FOR A LONG PERIOD, SO IT WAS NOT REQUIRED TO BE PAID TO THE EX PARTNER. THEREFORE, THE A.O. RIGHTLY TREATED THE SAI D AMOUNT AS AN INCOME OF THE ASSESSEE ON ACCOUNT OF CESSATION OF LIABILITY UNDER SEC TION 41(1) OF THE ACT. 9. IN HIS RIVAL SUBMISSIONS THE LD. COUNSEL FOR THE A SSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE LIABILITY TOWARDS EX PARTNER WAS NEVER WAIVED AND WAS SHOWN AS THE LIABILI TY IN THE BALANCE SHEET, REFERENCE WAS MADE TO PAGE NO. 53 OF THE ASSESSEES P APER BOOK. IT WAS SUBMITTED THAT THE AMOUNT PAYABLE TO THE EX PARTNER WAS NOT A TRADI NG LIABILITY RATHER IT REPRESENTED THE CAPITAL CONTRIBUTED BY THE EX PARTNER WHI CH WAS TO BE PAID TO HER. THEREFORE THE LD. CIT(A) WAS FULLY JUSTIFIED IN DELETI NG THE ARBITRARY ADDITION MADE BY THE A.O. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: A. CIT V. HOTLINE ELECTRONICS 205 TAXMAN 245 (DELHI ) B. CIT V. SMT. SITA DEVI JUNEJA 325 ITR 593(P&H) C. PR. CIT V. PUKHRAJ JAIN IT APPEAL NO. 1288 OF 20 16 DATED 4.1.2019 D. PR. CIT V. MAHALAXMI INFRA PROJECTS LTD. IT AP PEAL NO. 1769 DT. 30.1.2019 E. UOI V. J.K.SYNTHETICS LTD. 199 ITR 14 (SC) F. CIT V. SAGAULI SUGAR WORKS P. LTD. 236 ITR 518 ( SC) G. BRAHMA STEYR TRACTORS LTD. V. ITO 33 NYPTTJ 711 (CHD) 10. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTI ES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE I T IS NOT IN DISPUTE THAT THE IMPUGNED AMOUNT WAS THE CREDIT BALANCE IN THE NAME OF THE EX PARTNER MS. SHIVANI SINGAL WHO DID NOT WITHDRAW THE SAME AT THE TIME OF HER R ETIREMENT. THIS AMOUNT WAS SHOWN IN THE BALANCE SHEET OF THE ASSESSEE AS PAYABLE TO MS. SHIVANI WHICH IS EVIDENT FROM PAGE NO. 53 OF THE ASSESSEES PAPER BOOK WHICH IS THE COPY SCHEDULE VII FORMING PART OF THE BALANCE SHEET AS AT 31/03/2015 WHEREIN THI S AMOUNT I.E. RS. 3,12,44,216/- HAS BEEN SHOWN UNDER CURRENT LIABILITY AS LOAN FROM EX PARTNE R, UNDER THE SAME HEAD AMOUNT SHOWN AS ON 31/03/2014 WAS AT RS. 3,22,58,862/- WHICH SHOWS THAT THERE WAS DECREASE IN THE AMOUNT DURING THE YEAR UNDER CONSIDERAT ION. SO IT CANNOT BE SAID THAT THERE WAS A CESSATION OF LIABILITY UNDER SECTION 41(1) OF THE ACT. WE THEREFORE BY CONSIDERING THE TOTALITY OF THE FACT ARE OF THE VIEW TH AT THE LD. CIT(A) WAS FULLY JUSTIFIED IN 6 DELETING THE ADDITION MADE BY THE A.O. BY OBSERVING THAT THE LIABILITY UNDER CONSIDERATION WAS NOT A TRADING LIABILITY RATHER IT WAS THE BALANCE OF THE CAPITAL CONTRIBUTED BY THE EX PARTNER. 11. THE NEXT ISSUE VIDE GROUND NO. 2 RELATES TO THE DEL ETION OF ADDITION OF RS. 8,68,744/- MADE BY THE A.O. UNDER SECTION 14A OF THE AC T. 12. AS REGARDS TO THIS ISSUE THE LD. COUNSEL FOR THE AS SESSEE SUBMITTED THAT IT IS SQUARELY COVERED VIDE ORDER DT. 10/08/2016 IN ITA NO . 277/CHD/2016 IN ASSESSEES OWN CASE WHICH HAS BEEN DECIDED BY THE ITAT CHANDIGARH BENCH, CH ANDIGARH, COPY OF THE SAID ORDER WAS FURNISHED WHICH IS PLACED ON THE RECORD. 13. IN HER RIVAL SUBMISSIONS THE LD. CIT DR SUPPORTED T HE ORDER OF THE A.O. 14. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTI ES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IT IS NOTICED THAT AN IDENTICAL ISSUE HAVING SIMILAR FACTS HAS BEEN DECIDED VIDE AFORESAID REFERRED TO ORDER DT. 10/08/2016 AND THE RELEVANT FINDINGS HAS BEEN GIVEN IN PARA 9 & 10 OF THE SAID ORDER W HICH READ AS UNDER: 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIO NS. IN THE PRESENT CASE THE ASSESSEE APPLIED PROVISIONS OF RULE 8D AND HAS NOT CONSIDERE D ANY INTEREST DISALLOWANCE HOLDING THAT NO INTEREST EXPENDITURE IS RELATED TO EXEMPT I NCOME EARNED BY THE ASSESSEE. HON PUNJAB AND HARYANA HIGH COURT IN CIT V ABHISEK INDU STRIES LIMITED 380 ITR 652 HAS HELD AS UNDER :- 10. SECTION 14A OF THE ACT REQUIRES THE ASSESSING OFFIC ER TO RECORD SATISFACTION THAT INTEREST BEARING FUNDS HAVE BEEN USED TO EARN TAX FREE INCOM E. THE SATISFACTION TO BE RECORDED MUST BE BASED UPON CREDIBLE AND RELEVANT EVIDENCE. THE ONUS, THEREFORE, TO PROVE THAT INTEREST BEARING FUNDS WERE USED, LIES SQUARELY ON THE SHOULDERS OF THE REVENUE. THUS, IF THE ASSESSING OFFICER IS ABLE TO REFER TO RELEVANT MATE RIAL WHILE RECORDING SATISFACTION THAT BORROWED FUNDS WERE USED TO EARN INTEREST FREE INCO ME AS OPPOSED TO THE ASSESSEE'S OWN FUNDS, THE ASSESSING OFFICER MAY LEGITIMATELY DISAL LOW SUCH A CLAIM. THE ASSESSING OFFICER, HOWEVER, CANNOT, BY RECORDING GENERAL OBSERVATIONS, PARTICULARLY WHERE THE ASSESSEE HAS DENIED USING INTEREST BEARING FUNDS, PROCEED TO INF ER THAT INTEREST BEARING INCOME MUST HAS BEEN USED TO EARN EXEMPTED INCOME. SECTION 14A OF T HE ACT, BEING IN THE NATURE OF AN EXCEPTION, HAS TO BE CONSTRUED STRICTLY AND ONLY WH ERE THE ASSESSING OFFICER RECORDS SATISFACTION, ON THE BASIS OF CLEAR AND COGENT MATE RIAL, SHALL AN ORDER BE PASSED UNDER SECTION 14A OF THE ACT, DISALLOWING SUCH A CLAIM. AS THERE IS NO TANGIBLE MATERIAL ON RECORD THAT COULD HAVE ENABLED THE ASSESSING OFFICER TO RE CORD SATISFACTION IN TERMS OF SECTION 14A OF THE ACT, FINDINGS RECORDED BY THE CIT(A) AND THE ITAT THAT THE ASSESSING OFFICER HAS FAILED TO DISCHARGE THIS ONUS ARE NEITHER PERVERSE NOR ARBITRARY AND, THEREFORE, DO NOT CALL FOR INTERFERENCE. [UNDERLINE SUPPLIED BY US] 10. THEREFORE, IT IS THE DUTY OF THE REVENUE TO EST ABLISH NEXUS OF THE FUNDS THAT ASSESSEE HAS USED THE INTEREST BEARING FUNDS FOR THE PURPOSES OF EARNING EXEMPT INCOME TO MAKE ANY 7 DISALLOWANCE U/S 14A WITH RESPECT TO INTEREST EXPEN DITURE. AS THE LD AO HAS NOT ESTABLISHED THE NEXUS ABOUT INVESTMENT OF INTEREST BEARING FUND S IN EXEMPT INCOME GENERATING APPARATUS, NO DISALLOWANCE U/S 14A RWR 8D CAN BE MA DE ON ACCOUNT OF INTEREST EXPENSES. IN VIEW OF THIS, WE REVERSE THE FINDING OF THE LD C IT (A) IN CONFIRMING THE DISALLOWANCE OF RS 936449/- ON ACCOUNT OF INTEREST EXPENSES U/S 14 RWR 8D OF THE INCOME TAX RULES. REGARDING THE ISSUE OF OTHER EXPENSES WE CONFIRM THE FINDING OF THE LD CIT (A) IN CONFIRMING DISALLOWANCE OF RS 511023/-. IN THE RESULT OUT OF T OTAL DISALLOWANCE OF RS 1447472/- A SUM OF RS 936449/- ON ACCOUNT OF INTEREST EXPENSES STANDS DELETED AND RS. 5,11,023/- ON ACCOUNT OF OTHER EXPENDITURE IS CONFIRMED. IN THE RESULT GR OUND, NO. 4 OF THE APPEAL IS PARTLY ALLOWED. SO RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER DT. 10/08/2016 IN ITA NO. 277/CHD/2016 FOR THE A.Y. 2012-13 THIS ISSUE IS DECID ED AGAINST THE DEPARTMENT AND IN FAVOUR OF THE ASSESSEE. 15. VIDE GROUND NO. 3 THE GRIEVANCE OF THE DEPARTMENT RELATES TO THE DELETION OF ADDITION OF RS 2,36,456/- MADE BY THE A.O. ON ACCOUNT O F VARIOUS EXPENSES. 16. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT T HE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HAD CL AIMED EXPENDITURE OF RS. 2,36,456/- ON ACCOUNT OF REPAIR OF BUILDING. ACCORDING TO THE A.O. THE ASSESSEE WAS REQUIRED TO STATE THE NATURE OF EXPENDITURE ALONGWITH THE JUSTIFICATION FOR GENUINENESS OF ITS CLAIM. HOWEVER, NO REPLY HAD BEEN FILED BY THE ASS ESSEE IN RESPONSE THERETO. HE THEREFORE DISALLOWED THE EXPENDITURE OF RS. 2,36,456/ - AND MADE THE ADDITION IN THE HANDS OF THE ASSESSEE. 17. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED AS UNDER: 1. THE LD. AO HAS ERRED IN LAW AS WELL AS ON FACTS IN DISALLOWING RS. 2,36,456/- BEING THE AMOUNT INCURRED FOR REPAIR OF THE BUILDING. THE LD. AO HAS OBSERVED IN PARA 6 OF THE ORDER THAT NO REPLY HAS BEEN FILED BY THE ASSESSE IN RESP ONSE THERETO ABOUT THE NATURE OF THE LIABILITY PURSUANT TO THE NOTE SHEET ENTRY DATED 24 .10.2017. 2. IN REGARD TO THE OBSERVATION OF THE LD. AO REGARDIN G THE DISALLOWANCE OF RS. 2,36,456/- ON ACCOUNT OF REPAIRS TO BUILDING, IT IS SUBMITTED THAT THE APPELLANT VIDE ITS LETTER DATED 24.10.2017 HAD SUBMITTED THE MAJOR BILLS OF R EPAIRS WITH THE STATEMENT OF ACCOUNTS OF THE REPAIRS CARRIED OUT ON THE BUILDING, WHICH ARE PLACED ON PAGE NO. 1 AND 15 TO 29 OF THE PAPER BOOK FOR YOUR KIND PERUSAL AND THEREFORE, THE OBSERVATION OF THE LD. AO THAT NO REPLY WAS SUBMITTED BY THE APPELLANT IS FACTUALLY I NCORRECT. 3. IN THE NORMAL COURSE OF BUSINESS EVERY BUILDING WIL L REQUIRE CERTAIN REPAIRS AND MAINTENANCE EVERY YEAR AND THE AMOUNT SO INCURRED B Y THE APPELLANT, WHICH IS DULY SUPPORTED WITH THE BILLS SUBMITTED TO THE LD. AO DU RING THE COURSE OF ASSESSMENT 8 PROCEEDINGS, ARE CONCLUSIVE EVIDENCE THAT EXPENSES HAVE IN FACT BEEN INCURRED ON THE REPAIRS OF THE BUILDING, WHICH IS AN ALLOWABLE BUSI NESS EXPENSES U/S 37 OF THE IT ACT. 4. IN VIEW OF ABOVE, THE ACTION OF THE LD AO IS ARBITR ARY, UNJUSTIFIED AND NOT IN ACCORDANCE TO THE LAW AND THEREFORE THE APPEAL OF T HE ASSESSE DESERVES TO BE ALLOWED. 18. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE IMPUGNED ADDITION BY OBSERVING IN PARA 5.3.1 OF THE IMPU GNED ORDER AS UNDER: 5.3.1 THE APPELLANT'S SUBMISSIONS HAVE ALREADY BEEN REPRODUCED SUPRA. I HAVE PERUSED THE FACTS OF THE CASE, THE ACTION OF THE A.O. AND T HE SUBMISSION OF THE APPELLANT. THE CONTENTION OF THE A.O. THAT NO RESPONSE WAS FILED B Y THE APPELLANT IS NEGATED BY THE RESPONSE OF THE APPELLANT DATED 24.10.2017 REPRODUC ED BY THE A.O. IN THE ASSESSMENT ORDER ITSELF WHEREIN THE APPELLANT HAS PLACED COPY OF ACCOUNT OF BUILDING REPAIRS ALONGWITH COPY OF MAJOR BILLS. CONSIDERING THE QUAN TUM OF REPAIRS, EVEN MATERIALLY THE AMOUNT IS SMALL. EVEN OTHERWISE, THE ASSESSING OFFI CER HAS FAILED TO BASE HIS INFERENCE BY COMPARING SUCH EXPENDITURE MADE IN THE PRECEDING YE ARS. ACCORDINGLY, I FIND NO REASON FOR THE A.O. TO DOUBT THE GENUINENESS OR DISALLOW T HE EXPENDITURE OF RS.236456/- INCURRED ON REPAIRS. 19. NOW THE DEPARTMENT IS IN APPEAL. 20. THE LD. CIT DR SUPPORTED THE ORDER OF THE A.O. WHI LE THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE A UTHORITIES BELOW AND STRONGLY SUPPORTED THE IMPUGNED ORDER PASSED BY THE LD. CIT(A) . 21. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTI ES AND GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE IT IS NOTICED THAT THE ASSESSEE FURNISHED THE DETAILS OF THE EXPENSES ASKED BY THE A.O . VIDE LETTER DT. 24/10/2017, COPY OF WHICH IS PLACED AT PAGE NO. 22 OF THE ASSESSEES PA PER BOOK AND THE DETAILS OF THE VARIOUS EXPENSES RELATING TO BUILDING MATERIAL ARE PLA CED AT PAGE NO. 38 TO 48. THEREFORE THE A.O. WAS NOT JUSTIFIED IN STATING THAT THE ASSESSEE HAD NOT FURNISHED ANY REPLY. ON THE OTHER HAND THE LD. CIT(A) AFTER EXAMINING T HE DETAILS/MATERIAL ON RECORD, CAME TO THE CONCLUSION THAT THE ASSESSEE HAD PLACED CO PY OF ACCOUNT OF BUILDING REPAIR ALONGWITH COPY OF MAJOR BILLS BEFORE THE A.O. V IDE LETTER DT. 24/10/2017 AND CONSIDERING THE QUANTUM OF REPAIR THIS AMOUNT WAS VERY SMALL. WE THEREFORE CONSIDERING THE TOTALITY OF THE FACTS DO NOT SEE ANY VALI D GROUND TO INTERFERE WITH THE FINDINGS GIVEN BY THE LD. CIT(A). IN THAT VIEW OF THE MATT ER WE DO NOT SEE ANY MERIT IN THIS GROUND OF THE DEPARTMENTAL APPEAL. 9 22. VIDE GROUND NO. 4 THE GRIEVANCE OF THE DEPARTMENT RELATES TO THE DELETION OF ADDITION OF RS. 6,71,504/- MADE BY THE A.O. TREATING THE LOSS AS INADMISSIBLE LOSS. 23. THE FACTS RELATING TO THIS ISSUE IN BRIEF ARE THAT T HE A.O. MADE THIS DISALLOWANCE BY OBSERVING THAT THE ASSESSEE HAD CLAIMED IN ITS PROFIT & LOSS ACCOUNT A LOSS OF RS. 6,71,504/- ON ACCOUNT OF LOSS ON RETIRING ASSETS WHI CH COULD NOT BE CLAIMED AS AN ADMISSIBLE BUSINESS LOSS / EXPENDITURE AND THAT THE MAIN BUSINESS OF THE ASSESSEE WAS THE MANUFACTURING OF CURRENT VOLTAGE TRANSFORMER, TERMIN AL LID ASSEMBLIES & OTHER ELECTRONICS ASSEMBLIES AND IN THE ABSENCE OF ANY PLAUSIB LE EXPLANATION FROM THE ASSESSEE, THE CLAIM THAT THE LOSS ARISING FROM THE RET IRING ASSET WAS ITS BUSINESS LOSS WAS NOT TENABLE. ACCORDINGLY THE ADDITION OF RS. 6,71,504/- WAS MADE. 24. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED AS UNDER: 1. THE LD. AO HAS ERRED IN LAW AS WELL AS ON FACT S IN DISALLOWING RS. 6,71,504/- RELATING TO THE LOSS ON RETIRING ASSETS BY TREATING THE SAME AS SHORT TERM LOSS. THE LD. AO HAS OBSERVED IN PARA 7 OF THE ORDE R THAT NO REPLY HAS BEEN FILED BY THE ASSESSE IN RESPONSE THERETO ABOUT THE NATURE OF THE AMOUNT PURSUANT TO THE NOTE SHEET ENTRY DATED 24.10.2017. 2. IN REGARD TO THE ABOVE, IT IS RESPECTFULLY SUBMI TTED THAT RS. 6,71,504/- BEING LOSS ON RETIRING ASSETS HAD BEEN ADDED BACK B Y THE APPELLANT IN THE COMPUTATION OF INCOME FOR DERIVING THE INCOME FROM BUSINESS AND PROFESSION. THE ASSETS WHICH HAD OUTLIVED ITS USEFUL LIFE WERE TO BE RETIRED FROM THE BLOCK OF ASSETS AND ADDED BACK TO THE INCOME AS EVIDENT FROM THE COMPUTATION OF INCOME PLACED AT PAGE 42 TO 45 OF PAPER BOOK. 3. SINCE THE APPELLANT HAD ALREADY ADDED THE EQUAL AMOUNT BACK WHILE ARRIVING AT THE INCOME FROM BUSINESS/PROFESSION AND THEREFORE ADDING THE SAME AGAIN TO THE INCOME FROM BUSINESS AND PROFESSION WI LL TANTAMOUNT TO ADDITION OF THE AMOUNT TWICE. IN VIEW OF ABOVE, THE ACTION OF THE LD AO IS UNWARR ANTED, UNJUSTIFIED AND NOT AS PER THE PROVISIONS OF LAW AND THEREFORE THE APPEAL DESERVES TO BE ALLOWED. 25. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE DELETED THE ADDITION BY OBSERVING THAT THE ASSESSEE HAD SUOMOTU MAD E DISALLOWANCE IN ITS COMPUTATION THEREFORE THE DISALLOWANCE WAS DELETED SUB JECT TO VERIFICATION BY THE A.O. 10 26. NOW THE DEPARTMENT IS IN APPEAL. 27. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTI ES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE IT IS NOTICED THAT THE LD. CIT(A) DELETED THE ADDITION SUBSEQUENT TO VERIFICATION OF THE A.O. FOR THE REASON THAT THE ASSESSEE SUOMOTU HAD MADE THE DISALLOWANCE IN ITS COMPU TATION OF INCOME. WE THEREFORE DO NOT SEE ANY MERIT IN THIS GROUND OF THE DEPA RTMENTAL APPEAL PARTICULARLY WHEN THE ASSESSEE ITSELF ADDED THE LOSS ON RETIRING ASSE T AMOUNTING TO RS. 6,71,504/- TO ITS INCOME IN THE COMPUTATION OF TOTAL INCOME, COPY OF WHIC H IS PLACED AT PAGE NO. 124 OF THE ASSESSEES PAPER BOOK. 28. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISMISSE D. (ORDER PRONOUNCED IN THE OPEN COURT ON 11/02/2020 ) SD/- SD/- '# $ .., (SANJAY GARG ) ( N.K. SAI NI) % &'/ JUDICIAL MEMBER / VICE PRESIDENT AG DATE: 11/02/2020 (+! ,-.- COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. $ / CIT 4. $ / 01 THE CIT(A) 5. -2 45&456789 DR, ITAT, CHANDIGARH 6. 8:% GUARD FILE