M/S. FREE INDIA ASSURANCE SERVICES LTD, MUMBAI v. THE DCIT CEN CIR-7, MUMBAI

ITA 3542/MUM/2007 | 2002-2003
Pronouncement Date: 30-03-2011 | Result: Partly Allowed

Appeal Details

RSA Number 354219914 RSA 2007
Assessee PAN AAACF3879K
Bench Mumbai
Appeal Number ITA 3542/MUM/2007
Duration Of Justice 3 year(s) 10 month(s) 22 day(s)
Appellant M/S. FREE INDIA ASSURANCE SERVICES LTD, MUMBAI
Respondent THE DCIT CEN CIR-7, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-03-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted F
Tribunal Order Date 30-03-2011
Date Of Final Hearing 09-03-2011
Next Hearing Date 09-03-2011
Assessment Year 2002-2003
Appeal Filed On 08-05-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F MUMBAI BEFORE SHRI D.K. AGARWAL (J.M.) AND SHRI J. SUDHAKA R REDDY (A.M.) ITA NO. 3541 TO 3144/MUM /2007 ASSESSMENT YEARS : 2001-02 TO 2004-05 M/S FREE INDIA ASSURANCE SERVICES LTD. 2 ND FLOOR PRIMA PLAZA J.V. PATEL COMPOUND B.M. ROAD ELPHINSTONE (W) MUMBAI 400 013. PAN : AAACF 3879 K VS. DY. COMMISSIONER OF INCOME - TAX CENTRAL CIRCLE -7 OLD CGO ANNEXE M.K. ROAD MUMBAI 400 020. (APPELLANT) (RESPONDENT) ITA NO. 3661 & 3662/MUM /2007 ASSESSMENT YEARS : 2002-03 & 2003-04 DY. COMMISSIONER OF INCOME - TAX CENTRAL CIRCLE -7 8 TH FLOOR OLD CGO ANNEXE M.K. ROAD MUMBAI 400 020. VS. M/S FREE INDIA ASSURANCE SERVICES LTD. 2 ND FLOOR PRIMA PLAZA J.V. PATEL COMPOUND B.M. ROAD ELPHINSTONE (W) MUMBAI 400 013. PAN : AAACF 3879 K (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VIJAY MEHTA REVENUE BY : SHRI A.P. SINGH O R D E R PER D.K. AGARWAL J.M. THESE APPEALS BY THE ASSESSEE AND REVENUE ARE DIREC TED AGAINST SEPARATE ORDERS ALL DATED 28.2.2007 PASSED BY THE L D. CIT(A) FOR A.YS. 2001-02 2002-03 2003-04 AND 2004-05. SINCE THE FA CTS ARE IDENTICAL AND THE ISSUES INVOLVED ARE COMMON ALL THESE APPEA LS WERE HEARD ITA NO.3541 TO 3244/M/07 & 2661 TO 3662/M/07 M/S FREE INDIA ASSURANCE SERVICES LTD. L 2 TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER F OR THE SAKE OF CONVENIENCE. ITA NO. 3541/MUM/2007 FOR A.Y. 2001-02(ASSESSEES APPEAL) 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MULTI LEVEL MARKETING UN DER THE NAME AND STYLE OF FREE INDIA CONCEPTS. A SEARCH AND SEIZURE ACTION U/S 132 OF THE INCOME TAX ACT 1961 (THE ACT) WAS CARRIED OUT ON 2 5.6.2003. IN RESPONSE TO NOTICE U/S 153A THE ASSESSEE FILED RET URN DECLARING TOTAL INCOME OF ` 9 55 310/- FOR THE A.Y. 2001-02. DURING THE COURS E OF ASSESSMENT PROCEEDING THE A.O. OBSERVED THAT IN TH E SEARCH BLANK/WRITTEN OR UNUSED VOUCHERS FOR DIWALI BONUS CONVEYANCE AND UNUSED BILLS OF VARIOUS RESTAURANTS WERE FOUND AND SEIZED. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE EXPENSES UNDER T HESE HEADS SHOULD NOT BE DISALLOWED ON ESTIMATE BASIS. IN REPLY IT WAS INTER ALIA STATED BY THE ASSESSEE THAT VOUCHERS FOUND WERE BLANK OR UNUS ED WHICH CLEARLY SHOWS THAT THESE VOUCHERS WERE NOT USED FOR BOOKING OF ANY EXPENSES IN THE BOOKS OF ACCOUNT. ALL THESE EXPENSES WERE DEBI TED IN THE BOOKS OF ACCOUNT AND CLAIMED IN THE P&L A/C ARE THE GENUINE BUSINESS EXPENSES HENCE NO DISALLOWANCE ON ESTIMATE BASIS CAN BE MAD E. HOWEVER THE A.O. WAS OF THE VIEW THAT THE ONUS OF PROVING THAT THESE VOUCHERS HAD NOT BEEN USED FOR CLAIMING BOGUS EXPENSES WAS ON TH E ASSESSEE WHICH THE ASSESSEE HAS CLEARLY FAILED THEREFORE HE DISA LLOWED 20% OF THE EXPENSES WHICH HAVE BEEN DEBITED UNDER THE HEAD CON VEYANCE AND STAFF WELFARE TO P&L ACCOUNT BY WAY OF INFLATION BY MAKIN G USE OF THE BLANK SIGNED BILLS KEPT IN THE PREMISES AS AND WHEN IT RE QUIRED. THUS HE HAS ESTIMATED THE DISALLOWANCE AT 20% OF THE EACH YEAR AS UNDER (PAGE 3 OF THE ASSESSMENT ORDER) :- ITA NO.3541 TO 3244/M/07 & 2661 TO 3662/M/07 M/S FREE INDIA ASSURANCE SERVICES LTD. L 3 DETAILS A.Y. 01-02 A.Y. 02-03 A.Y. 03-04 A.Y. 04-05 CONVEYANCE 7 21 955 12 25 457 14 48 312 11 25 033 STAFF WELFARE 3 31 084 6 29 415 5 76 599 6 67 805 TOTAL 10 53 039 18 54 872 20 24 911 17 92 838 FOR A.Y.2004-05 FROM APR TO JUN 2005 4 48 210 20% OF THE ABOVE 2 10 608 3 70 974 4 04 982 1 12 05 2 THUS FOR THIS A.Y. THE A.O. DISALLOWED ` 2 10 608/- BEING 20% OF ` 10 53 039/-. ON APPEAL THE LD. CIT(A) WHILE AGREE ING WITH THE VIEWS OF THE A.O. UPHELD THE DISALLOWANCE MADE BY THE A.O. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US CHALLENGING IN BOTH THE GROUNDS TH E SUSTENANCE OF DISALLOWANCE OF 20% OUT OF CONVEYANCE AND STAFF WEL FARE EXPENSES DISALLOWED ` 2 10 608/-. 4. AT THE TIME OF HEARING THE LEARNED COUNSEL OR T HE ASSESSEE WHILE REFERRING TO THE COMPARATIVE CHART OF STAFF WELFARE AND CONVEYANCE EXPENSES IN PROPORTION TO GROSS INCOME AND NET INCO ME FOR THE A.YS. 2001-02 2002-03 2003-04 AND 2004-05 APPEARING AT PAGE NO. 107 OF THE ASSESSEES PAPER BOOK SUBMITS THAT IN VIEW OF T HE PERCENTAGE OF THE EXPENSES TO THE GROSS INCOME THE DISALLOWANCE MADE BY THE A.O. AND SUSTAINED BY THE LD. CIT(A) IS HIGHLY EXCESSIVE AND THEREFORE DUE RELIEF MAY BE ALLOWED TO THE ASSESSEE. 5. ON THE OTHER HAND THE LD. D.R. SUPPORTS THE ORD ER OF THE A.O. AND LD. CIT(A). ITA NO.3541 TO 3244/M/07 & 2661 TO 3662/M/07 M/S FREE INDIA ASSURANCE SERVICES LTD. L 4 6. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECO RD. WE FIND THAT THERE IS NO DISPUTE THAT THE ASSESSEE HAS FILED MONTH-WIS E DETAILS OF STAFF WELFARE AND CONVEYANCE EXPENSES. IT IS ALSO NOT IN DISPUTE THAT THE SAID EXPENSES CLAIMED BY THE ASSESSEE ARE FOR BUSINESS P URPOSES. HOWEVER IN THE ABSENCE OF ANY MATERIAL TO SHOW THAT THE VOU CHERS WHICH WERE FOUND AT THE TIME OF SEARCH WERE NOT USED BY THE AS SESSEE FOR BOOKING OF EXPENSES UNDER THE HEAD CONVEYANCE AND STAFF WELFAR E WE ARE OF THE VIEW THAT SOME DISALLOWANCE IS CALLED FOR. CONSIDERING T HE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE PERCENTAGE OF EXPENSES WE ARE OF THE VIEW THAT IT WOULD BE REASONABLE TO SUSTAIN THE DISALLOWANCE AT 10% AS AGAINST 20% MADE BY THE A.O. AND CONFIRMED BY TH E LD. CIT(A). WE HOLD AND ORDER ACCORDINGLY. THE ASSESSEE GETS A RE LIEF OF ` 1 05 304/- OUT OF TOTAL ADDITION OF ` 2 10 608/-. THE GROUNDS TAKEN BY THE ASSESSEE ARE THEREFORE PARTLY ALLOWED. ITA NO. 3542/MUM/2007 FOR A.Y. 2002-03 (ASSESSEES APPEAL) 7. GROUND NO. 1 IS AGAINST THE SUSTENANCE OF DISALL OWANCE OF EXPENDITURE ` 174829/-. 8. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT HE DOES NOT WANT TO PRESS THE ABOVE GROUND WHI CH WAS NOT OBJECTED TO BY THE LD. D.R. 9. THAT BEING SO AND IN THE ABSENCE OF ANY SUPPORTI NG MATERIAL PLACED ON RECORD BY THE LD. COUNSEL FOR THE ASSESSEE THE GROUND TAKEN BY THE ASSESSEE IS THEREFORE REJECTED BEING NOT PRESSED. ITA NO.3541 TO 3244/M/07 & 2661 TO 3662/M/07 M/S FREE INDIA ASSURANCE SERVICES LTD. L 5 10. GROUND NOS. 2 & 3 ARE AGAINST SUSTENANCE OF DIS ALLOWANCE OF 20% EXPENSES OF ` 3 70 974/- OUT OF CONVEYANCE AND STAFF WELFARE EXP ENSES. 11. AT THE TIME OF HEARING BOTH THE PARTIES HAVE A GREED THAT THE FACTS OF THE ABOVE ISSUE ARE SIMILAR TO THE FACTS OF THE CASE FOR THE A.Y. 2001- 02 THEREFORE THE PLEA TAKEN BY THEM IN THE APPEAL FOR THE A.Y. 2001-02 MAY BE CONSIDERED WHILE DECIDING THE ABOVE GROUND O F APPEAL. 12. AFTER CAREFULLY HEARING THE RIVAL SUBMISSIONS A ND PERUSING THE MATERIAL AVAILABLE ON RECORD AND KEEPING IN VIEW OF OUR FINDINGS RECORDED IN ASSESSEES APPEAL FOR THE A.Y. 2001-02 IN PARAGR APH NO. 6 OF THIS ORDER WE DIRECT THE A.O. TO RESTRICT THE DISALLOWA NCE TO 10% AS AGAINST 20% MADE BY HIM. IN OTHER WORDS THE ASSESSEE GETS RELIEF OF ` 1 85 487/- OUT OF TOTAL DISALLOWANCE OF ` 3 70 974/-. THE GROUND TAKEN BY THE ASSESSEE IS THEREFORE PARTLY ALLOWED. 13. GROUND NO. 4 IS AGAINST THE SUSTENANCE OF DISAL LOWANCE OF 20% ` 6 16 346/- OUT OF CASH PURCHASES OF ` 30 80 730/- U/S 40A(3) AND GROUND NO. 1(II) IN REVENUES APPEAL IN ITA NO. 366 1/MUM/07 FOR A.Y. 2002-03 IS AGAINST THE RELIEF ALLOWED BY THE LD. CI T(A) OF ` 24 65 384/- OUT OF TOTAL DISALLOWANCE OF BOGUS PURCHASES ` 30 80 730/-. 14. THE FACTS OF THE ABOVE ISSUE ARE THAT THE A.O. FOUND FROM PAGE NO. 140 OF THE SEIZED DOCUMENTS OF ANNEXURE A-6 SEIZED FROM PRIME PLAZA THAT THE ASSESSEE HAD MADE PURCHASES AMOUNTING TO ` 30 80 730/- FROM SHRI DEEPAK FOR WHICH THE ASSESSEE HAD ISSUED A CHE QUE OF ` 30 80 730/- AND IN LIEU THEREOF HE RECEIVED CASH FR OM SHRI DEEPAK. THEREFORE THE A.O. ISSUED SHOW CAUSE NOTICE AS TO WHY THE PURCHASES OF ITA NO.3541 TO 3244/M/07 & 2661 TO 3662/M/07 M/S FREE INDIA ASSURANCE SERVICES LTD. L 6 ` 30 80 730/- SHOULD NOT BE DISALLOWED. THE ASSESSE E REPLIED VIDE LETTER DATED 8.3.2000 AS UNDER (PARA 8 AT PAGE 12 OF THE A SSESSMENT ORDER) :- IN PARA 10 REFERENCE IS MADE FOR PAGE NO. 140 OF A NNEXURE A-6 SEIZED FROM PRIME PLAZA. THE AMOUNT MENTIONED IS ` 30 80 730/-. IN THE SHOW CAUSE NOTICE YOUR HONOUR HAVE MENTIONED THAT THESE ENTRIES PERTAINS TO DEEPAK BUT THESE ENTRIES PERTAIN TO M/S HIRA CLOTH AGENCY AND M/S SHREERAM SALES & SYNTHETICS WHICH IS ALREADY EXPLAI NED IN THE EXPLANATION TO SEIZED MATERIALS. PURCHASE BILLS WE RE TAKEN FROM THESE PARTIES TO COVER UP THE PURCHASE ACTUALLY MADE IN T HE GREY MARKETS. THE CHEQUES WERE ISSUED TO THEM AGAINST WHICH CASH WAS RECEIVED AND THIS VERY CASH WAS IN TURN UTILISED FOR THE PAYMENT OF P URCHASES MADE OF FABRICS FROM GREY MARKET. THIS FABRIC WAS PURCHASE D IN THE YEAR 2001-02 (AY 2002-03) AND WAS LYING IN STOCK AS ON 31.3.2002 . THE CLOSING STOCK AS ON 31.3.2002 INCLUDES THIS FABRIC PURCHASED AND THE AMOUNT OF CLOSING STOCK WAS SHOWN IN THE TRADING ACCOUNT ON T HE CREDIT SIDE AND AGAINST WHICH THE EXPENSES UNDER THE HEAD PURCHASES WERE SHOWN ON THE DEBIT SIDE OF THE TRADING ACCOUNT. BY SHOWING THE CLOSING STOCK ON THE CREDIT SIDE AND THE EXPENSE I.E. PURCHASES ON T HE DEBIT SIDE OF THE TRADING THERE REMAINS NO EFFECT ON THE PROFIT OF TH E YEAR UNDER CONSIDERATION. IT GOES WITHOUT SAYING THAT THERE C ANNOT BE A CLOSING STOCK WITHOUT ITS CORRESPONDING PURCHASES. THE EFF ECT OF BOTH THESE ITEMS CONSIDERED COLLECTIVELY RESULTS INTO NO EFFEC T ON THE TAXABLE INCOME. AS SUCH NO DISALLOWANCE IS WARRANTED ON THIS COUNT. HOWEVER THE A.O. DID NOT ACCEPT THE ASSESSEES EXP LANATION. ACCORDING TO THE A.O. SHRI ASHISH MEHTA HIMSELF ACCEPTED IN T HE STATEMENT RECORDED U/S 132(4) ON 26.06.2003 THAT THE ASSESSEE MADE CERTAIN CHEQUE PAYMENTS AND RECEIVED THE CASH BACK AND SINC E ASSESSEE HAD CLARIFIED THAT THE PURCHASES WERE NOT MADE FROM DEE PAK ENTERPRISES BUT FROM THE GREY MARKET IT WAS ESTABLISHED THAT THE AS SESSEE DID NOT PURCHASE MATERIAL FROM M/S HIRA CLOTH AGENCIES AND M/S SHREERAM SALES & SYNTHETICS . HENCE THE A.O. CONCLUDED THAT ASSESSEE ADMITTED BOGUS PURCHASES AMOUNTING TO ` 30 80 730/- FROM M/S HIRA CLOTH AGENCIES AND M/S SHREERAM SALES & SYNTHETICS AND AC CORDINGLY ADDED THE SAME TO THE INCOME OF THE ASSESSEE. ITA NO.3541 TO 3244/M/07 & 2661 TO 3662/M/07 M/S FREE INDIA ASSURANCE SERVICES LTD. L 7 15. ON APPEAL THE LD. CIT(A) WHILE OBSERVING THAT AS LONG AS THE STOCK IS REFLECTED IN THE BOOKS OF ACCOUNT TO THAT EXTEN T OF FABRICS PURCHASED BY THIS FIRM CREDIT HAS TO BE GIVEN TO THE PURCHAS ES MADE BY THE ASSESSEE AND SINCE IT IS AN ADMITTED FACT THAT THE ASSESSEE HAD MADE THE PURCHASES BY WAY OF CASH FROM THE GREY MARKET HELD THAT THE PROVISIONS OF SECTION 40A(3) ARE ATTRACTED AND HENCE HE DISALL OWED ` 6 16 346/- BEING 20% OF PURCHASE OF ` 30 80 730/- AND THUS ALLOWED RELIEF OF ` 24 65 384/-. 16. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSESSEE WHILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFOR E THE A.O. AND LD. CIT(A) REFERS TO PAGE NO. 145 TO 152 OF THE ASSESSE ES PAPER BOOK TO SHOW THAT CHEQUES AMOUNTING TO ` 15 50 730/- AND ` 15 30 000/- AGGREGATING TO ` 30 80 730/- WERE ISSUED TO TWO PARTIES M/S HIRA CL OTH AGENCIES AND M/S SHREERAM SALES & SYNTHETICS RESPECTIVELY AGAINS T THE PURCHASES OF FABRICS. HE FURTHER SUBMITS THAT AGAINST THE SAID CHEQUES PAYMENTS THE ASSESSEE RECEIVED BACK THE AMOUNT IN CASH FROM THE SAID TWO PARTIES AND PURCHASED THE CLOTH OF THE SAME AMOUNT FROM GREY MA RKET. HE FURTHER SUBMITS THAT THE SAID CLOTH AMOUNTING TO ` 30 80 730/- IS LYING IN THE CLOSING STOCK AS ON 31.3.2002 ONWARDS WHICH MAY BE VERIFIED FROM THE DETAILS OF CLOSING STOCK AS ON 31.3.2003 APPEARING AT PAGE NO. 147 OF THE ASSESSEES PAPER BOOK. IN THE LIGHT OF THE ABOVE H E SUBMITS THAT THE A.O. WAS NOT JUSTIFIED IN TREATING THE ABOVE PURCHASES A S BOGUS PURCHASES WITHOUT VERIFYING THE FACT THAT THE ASSESSEE HAS SH OWN THE ABOVE PURCHASES IN THE REGULAR BOOKS OF ACCOUNT AND ALSO SHOWN THE SAME IN THE CLOSING STOCK IN THE REGULAR RETURN FILED BY TH E ASSESSEE. WITH REGARD TO THE DISALLOWANCE MADE BY THE LD. CIT(A) U/S 40A( 3) THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT DURING THE COURSE OF SEAR CH NO SUCH MATERIAL WAS FOUND TO SHOW THAT THE ASSESSEE HAS MADE CASH P AYMENTS MORE THAN ` 20 000/- OR THE ASSESSEE HAS VIOLATED THE PROVISIO NS OF SECTION 40A(3) ITA NO.3541 TO 3244/M/07 & 2661 TO 3662/M/07 M/S FREE INDIA ASSURANCE SERVICES LTD. L 8 THEREFORE THE LD. CIT(A) WAS NOT JUSTIFIED IN INVO KING THE PROVISIONS OF SECTION 40A(3) AND IN MAKING THE DISALLOWANCE OF ` 6 16 346/- BEING 20% OF THE ABOVE PURCHASES OF ` 30 80 730/-. IN SUPPORT THE RELIANCE WAS ALSO PLACED ON THE FOLLOWING DECISIONS:- 1) RAJMAL LAKHICHAND V. ACIT [2001] 79 ITD 84 (PUN E) 2) WESTERN INDIA BAKERS (P) LTD. V. DCIT [2003] 87 ITD 607 (MUM) 3) SHARMA ASSOCIATES V. ACIT (1996) 217 ITR (AT) P AGE 1 HE THEREFORE SUBMITS THAT THE ADDITION MADE BY TH E A.O. AND SUSTAINED BY THE LD. CIT(A) BE DELETED. 17. ON THE OTHER HAND THE LD. D.R. WHILE RELYING O N THE ORDER OF THE A.O. SUBMITS THAT THE ASSESSEE HAS PLACED NO MATERI AL ON RECORD TO SHOW THAT THE ASSESSEE HAS NOT MADE BOGUS PURCHASES OF ` 30 80 730/- AND HAS MADE CASH PAYMENTS AGAINST THE SAID PURCHASES L ESS THAN ` 20 000/-. HE THEREFORE SUBMITS THAT THE A.O. WAS JUSTIFIED IN TREATING THE SAID PURCHASES OF ` 30 80 730/- AS BOGUS PURCHASES AND THE LD. CIT(A) WAS NOT JUSTIFIED IN APPLYING THE PROVISIONS OF SECTION 40A(3) IN SUSTAINING THE ADDITION OF ` 6 16 346/-. HE THEREFORE SUBMITS THAT THE ADDITION MADE BY THE A.O. BE RESTORED. 18. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD WE FIND THAT THERE IS NO DISPUTE THAT THE ASSESSEE HAS MADE PAYMENTS OF ` 30 80 730/- BY CHEQUES TO M/S HIRA CLOTH AGENCIES AND M/S SHREERAM SALES & SYNTHETICS. DURING THE COURSE OF SEARCH THE STATE MENT WAS ALSO RECORDED OF SHRI ASHISH MEHTA ON 20.6.2003 WHEREIN HE HAS STATED THAT AGAINST THE CHEQUE TRANSACTIONS CASH HAS BEEN RECE IVED WHICH IS FOUND RECORDED AT PAGE NO. 152 OF THE ASSESSEES PAPER BO OK. DURING THE COURSE OF ASSESSMENT PROCEEDING IT WAS STATED BY THE ASSE SSEE THAT THE SAID ITA NO.3541 TO 3244/M/07 & 2661 TO 3662/M/07 M/S FREE INDIA ASSURANCE SERVICES LTD. L 9 CASH AGAINST CHEQUE PAYMENTS WAS UTILISED TO PURCH ASE CLOTH FROM THE GREY MARKET AND IN SUPPORT THE ASSESSEE HAS ALSO F ILED DETAILS OF CLOSING STOCK AS ON 31.3.03 APPEARING AT PAGE 143 OF THE AS SESSEES PAPER BOOK WHEREIN FABRIC CLOTH TOTALLING TO ` 30 80 730/- IS APPEARING AS CLOSING STOCK. IN THE ABSENCE OF ANY MATERIAL TO SHOW THAT NO SUCH CHEQUE PAYMENTS WERE MADE BY THE ASSESSEE OR CASH AMOUNT R ECEIVED BY THE ASSESSEE AGAINST THE CHEQUE PAYMENTS WAS UTILISED B Y THE ASSESSEE OTHER THAN PURCHASES OR THE ENTRY RECORDED IN THE CLOSING STOCK AMOUNTING TO ` 30 80 730/- IS FOUND TO BE FICTITIOUS OR FALSE OR N O SUCH CLOSING STOCK WAS FOUND DURING THE COURSE OF SEARCH WE ARE OF THE VI EW THAT THE ASSESSEE HAS MADE CASH PURCHASES OF ` 30 80 730/- WHICH UNDISPUTEDLY FOUND RECORDED IN THE INVENTORY OF CLOSING STOCK THEREFO RE THE A.O. WAS NOT JUSTIFIED IN TREATING THE SAID PURCHASES OF ` 30 80 730/- AS BOGUS PURCHASES. 19. AS REGARDS THE APPLICATION OF PROVISIONS OF SEC TION 40A(3) OF THE ACT WE FIND THAT DURING THE COURSE OF SEARCH NO S UCH MATERIAL WAS FOUND TO SHOW THAT THE ASSESSEE HAS MADE CASH PAYME NTS IN VIOLATION OF PROVISIONS OF SECTION 40A(3) OF THE ACT. DISALLOWAN CE CANNOT BE MADE MERELY ON PRESUMPTION BASIS THAT THE ASSESSEE HAD M ADE THE PURCHASES BY WAY OF CASH FROM THE GREY MARKET IN VIOLATION OF THE PROVISIONS OF SECTION 40A(3) OF THE ACT. 20. IN THE CASE OF RAJMAL LAKHICHAND V. ACIT [2001] 79 ITD 84 (PUNE) IT HAS BEEN HELD ( HEAD NOTE PAGE 86) :- THE PROVISION OF SECTION 40A(3) IS TO BE INVOKED W HEN THE DEPARTMENT HAS EVIDENCE WITH ITSELF THAT THE ASSESSEE HAS MADE PAYMENTS IN CASH EXCEEDING THE PRESCRIBED LIMITS. DISALLOWANCE CANN OT BE MADE MERELY ON A PRESUMPTION THAT THE ASSESSEE MUST HAVE MADE PAYM ENTS IN CASH AND THAT TOO EXCEEDING THE PRESCRIBED LIMITS. HENCE T HE IMPUGNED ADDITION ITA NO.3541 TO 3244/M/07 & 2661 TO 3662/M/07 M/S FREE INDIA ASSURANCE SERVICES LTD. L 10 MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE COMMISSIONER (APPEALS) WAS TO BE DELETED. 21. IN THE CASE OF WESTERN INDIA BAKERS (P.) LTD. V . DCIT [2003] 87 ITD 607 (MUM) IT HAS BEEN HELD (HEAD NOTE PAGE NO. 609) :- WHEN A PROVISION OF LAW IS TO BE APPLIED IT IS T O BE SEEN THAT ALL THE CIRCUMSTANCES ALLIUNDE TO THE APPLICATION OF SUCH P ROVISION DID EXIST. IF IT IS NOT POSSIBLE TO FIND OUT HOW THE VIOLATION OF THE PROVISION WAS DONE ADDITION CANNOT BE MADE ON THE BASIS OF INFERENCE A ND SURMISES. IN THE INSTANT CASE IT WAS NOT KNOWN AT WHAT POINT OF TIM E AND HOW ASSESSEE VIOLATED THE PROVISIONS OF SECTION 40A(3). AS SUCH NO ADDITION ON THAT COUNT WAS WARRANTED. [PARA 29]. 22. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BR OUGHT ON RECORD BY THE REVENUE WE RESPECTFULLY FOLLOWING THE AFORESAI D DECISIONS AND FOR THE REASONS AS DISCUSSED ABOVE HOLD THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN SUSTAINING THE ADDITION OF ` 6 16 346/- BEING 20% OF TOTAL PURCHASE OF ` 30 80 730/- AND ACCORDINGLY WE DELETE THE ENTIRE AD DITION OF ` 30 80 730/-. THE GROUND TAKEN BY THE ASSESSEE IS TH EREFORE ALLOWED AND THE GROUND TAKEN BY THE REVENUE IS DISMISSED. 23. GROUND NO. 5 IS AGAINST THE SUSTENANCE OF ADDIT ION OF ` 19 29 711/- INCURRED ON RENOVATION OF OFFICE PREMIS ES. 24. BRIEFLY STATED FACTS OF THE ABOVE ISSUE ARE THA T THE A.O. FOUND THAT THE ASSESSEE HAD DEBITED ` 19 29 711/- UNDER THE HEAD OFFICE RENOVATION EXPENSES WHICH ACCORDING TO THE A.O. TO BE CAPITAL IN NATURE AND HENCE HE ISSUED A SHOW CAUSE TO THE ASSESSEE AS TO WHY T HE SAME SHOULD NOT BE DISALLOWED AS CAPITAL EXPENDITURE. THE ASSESSEE VIDE ITS REPLY DATED 8.3.2006 SUBMITTED THAT THE ASSESSEES OFFICE AT PR IMA PLAZA IS A RENTED ONE. IT WAS TAKEN ON LEAVE AND LICENSE IN THE FINA NCIAL YEAR 2001-02 AND AFTER TAKING THE POSSESSION THE COMPANY INCURRED E XPENSES ON ITA NO.3541 TO 3244/M/07 & 2661 TO 3662/M/07 M/S FREE INDIA ASSURANCE SERVICES LTD. L 11 FURNISHING THE SAID RENTED OFFICE. EXPENSES FOR WO ODEN PARTITIONS CABINS CUBICLES & DESKS FOR STAFF PERSONS WERE MAD E AND DEBITED UNDER THE HEAD OFFICE RENOVATION. NO ADDITIONS/ALTERATION S TO THE BASIC STRUCTURE OF THE UNIT WERE MADE NOR ANY NEW CAPITAL ASSETS WAS CREATED AND DEBITED UNDER THIS HEAD. THE ASSESSEE ALSO FILE D DETAILS OF THE SAID EXPENSES. IT WAS FURTHER SUBMITTED THAT THE EXPENSE S RESULTED IN CREATION OF NO FIXED ASSETS AND THE PARTITIONS ETC. HAVE NO REALIZABLE VALUE AND ALSO ARE NOT IN THE NATURE OF SHIFTING TO OTHER PLA CES THEREFORE THE EXPENSES INCURRED CANNOT BE SAID TO BE IN THE CAPIT AL NATURE AND NEEDS TO BE ALLOWED AS REVENUE EXPENDITURE. HOWEVER THE A.O. DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE FOR THE FOLLOWING RE ASONS:- (1) THE EXPENDITURE HAD BEEN INCURRED BEFORE THE A SSESSEE STARTED BUSINESS IN ITS OFFICE AND THESE EXPENSES WERE NOT OF ROUTINE NATURE BUT OF ONE TIME EXPENDITURE. (2) THE WOODEN PARTITIONS CABINS CUBICLES DESKS ARE IN THE NATURE OF PERMANENT FURNITURE AND FIXTURES FOR STARTING THE B USINESS. THE SAID PREMISES WAS OWNED BY THE DIRECTORS OF COMPANY SHRI GNAN CHAND MEHTA AND SHRI ASHISH MEHTA AND SHRADDHA MEHTA WHO HAD MORE THAN 50% OF THE SHARES OF THE COMPANY. THEREFORE THIS PREMISES WAS GOING TO BE WITH THE ASSESSEE PERMANENTLY FOR ALL PRACTICAL PURPOSES THUS IT HAS RESULTED IN ENDURING BENEFIT OF THE COMPANY. HENCE IT IS CAPITAL IN NATURE. (3) ONCE THEY ARE CAPITAL IN NATURE ONLY DEPRECIA TION IS ALLOWABLE AS PER PROVISIONS OF EXPLANATION TO SEC. 32(1). HENCE HE DISALLOWED THE RENOVATION EXPENDITURE OF ` 19 29 711/- AS CAPITAL EXPENDITURE BUT ALLOWED DEPRECIATION OF ` 96 485/- ON THE SAID DISA LLOWED AMOUNT. 25. ON APPEAL THE LD. CIT(A) WHILE APPLYING EXPLAN ATION 1 TO SECTION 32 OF THE ACT HELD THAT THE VALUE ADDITION OF ` 19 29 711/- TO THE VALUE OF THE BUILDING TAKEN ON LEASE FROM THE DIRECTORS OF T HE COMPANY BY WAY OF MAKING WOODEN PARTITIONS CREATION OF OFFICE CABINS ETC. ARE IN THE NATURE OF DOING OF ANY WORK AS IMPROVEMENT TO THE BUILDI NG AS STATED IN THE SAID EXPLANATION AND ACCORDINGLY HE CONFIRMED THE D ISALLOWANCE MADE BY THE A.O. ITA NO.3541 TO 3244/M/07 & 2661 TO 3662/M/07 M/S FREE INDIA ASSURANCE SERVICES LTD. L 12 26. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSESSEE WHILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFOR E THE A.O. AND LD. CIT(A) FURTHER SUBMITS THAT THE ASSESSEE HAD TAKEN OFFICE PREMISES ON LEAVE AND LICENSE AGREEMENT BASIS. THE DESCRIPTION OF OFFICE PREMISES TAKEN ON LEASE IS AS UNDER:- SR NO. DESCRIPTION OF PREMISES MONTHLY RENT AREA OF GALA 1 GALA NO. 105 PRIMA PLAZA IST FLOOR J.V. PATEL COMPOUND BALASETH MADURKAR ROAD ELPHINSTONE ROAD (WEST) MUMBAI- 400013. 40 000 700 SQ.FT. 2 GALA NO. 106 PRIMA PLAZA IST FLOOR J.V. PATEL COMPOUND BALASETH MADURKAR ROAD ELPHINSTONE ROAD (WEST) MUMBAI- 400013. 40 000 700 SQ.FT. 3 GALA NO. 107 PRIMA PLAZA IST FLOOR J.V. PATEL COMPOUND BALASETH MADURKAR ROAD ELPHINSTONE ROAD (WEST) MUMBAI- 400013. 15 000 570 SQ.FT. 4 GALA NO. 108 PRIMA PLAZA IST FLOOR J.V. PATEL COMPOUND BALASETH MADURKAR ROAD ELPHINSTONE ROAD (WEST) MUMBAI- 400013. 25 000 560 SQ.FT. HE FURTHER SUBMITS THAT THE ASSESSEE HAS ALSO FILED DETAILS OF THE EXPENSES INCURRED ON OFFICE RENOVATION APPEARING AT PAGE NO. 164 TO 166 OF THE ASSESSES PAPER BOOK. THE NATURE OF EXPENSES INCURRED BY THE ASSESSEE IN THIS REGARD WAS WOODEN PARTITIONS CABI NS CUBICLES DESKS ETC. AND NO ADDITIONS/ALTERATIONS TO THE BASIC STR UCTURE OF THE UNIT WAS ITA NO.3541 TO 3244/M/07 & 2661 TO 3662/M/07 M/S FREE INDIA ASSURANCE SERVICES LTD. L 13 MADE. HE THEREFORE SUBMITS THAT ALL THE EXPENSES INCURRED BY THE ASSESSEE ON RENOVATION ON LEASED PREMISES CANNOT BE TREATED AS CAPITAL EXPENDITURE. RELIANCE WAS ALSO PLACED ON THE DECISI ON IN THE CASE OF DCIT VS. SMT. GEETA V. MEHTA (2008) 26 SOT 455 (MUM). HE THEREFORE SUBMITS THAT THE ADDITION MADE BY THE A.O. AND SUST AINED BY THE LD. CIT(A) BE DELETED. 27. ON THE OTHER HAND THE LD. D.R. WHILE RELYING O N THE ORDER OF A.O. AND LD. CIT(A) DISTINGUISHED THE DECISION RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE AND FURTHER SUBMITS THAT THE EXPENSES INCURRED BY THE ASSESSEE ARE CAPITAL IN NATURE AND THEREFORE THE A. O. WAS FULLY JUSTIFIED IN TREATING THE SAME AS CAPITAL EXPENDITURE. 28. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND THAT THERE IS NO DISPUTE THAT THE ASSESSEE HAS TAKEN THE PREMISES ON LEASE OWNED BY THE DIRECTORS OF THE COMPANY SHRI GNAN CHAND MEHTA AND SHRI ASHISH MEHTA AND SHRADDHA MEHTA WHO HELD MORE THAN 50% SHA RES OF THE COMPANY. WE FURTHER FIND THAT THE PERIOD OF LEASE WAS COMMENCED FROM 16.10.2001 IN RESPECT OF THREE PROPERTIES AND IN RE SPECT OF FOURTH PROPERTY THE LEASE PERIOD WAS COMMENCED FROM 1.4.20 02 RELEVANT TO THE A.Y. 2003-04. WE FURTHER FIND THAT THE PREMISES WER E TAKEN ON LEASE FOR THREE YEARS SUBJECT TO THE CONDITION THAT THE RENT SHALL BE INCREASED BY 15% OF THE RENT AT THE END OF 11 MONTHS. WE FURTHER FIND THE ASSESSEE HAS INCURRED RENOVATION EXPENSES OF ` 19 29 711/- ON THE RENOVATION OF OFFICE BY PROVIDING WOODEN PARTITIONS CABINS CUBI CLES DESKS ETC. WE FURTHER FIND THAT THE ASSESSEE HAS STARTED THE ABOV E EXPENDITURE ON REPAIRS FROM 1.4.2001 I.E. PRIOR TO THE PROPERTY TA KEN ON LEASE. WE FURTHER FIND THAT THERE IS NO MATERIAL ON RECORD TO SHOW TH AT THE SAID EXPENSES HAD BEEN INCURRED BY THE ASSESSEE ON THE REPAIRS OF ALREADY EXISTING ITA NO.3541 TO 3244/M/07 & 2661 TO 3662/M/07 M/S FREE INDIA ASSURANCE SERVICES LTD. L 14 WOODEN PARTITIONS CABINS CUBICLES DESKS ETC. WE FURTHER FIND THAT THE A.O. HAS INVOKED EXPLANATION 1 TO SECTION 32 OF THE ACT WHICH WAS INSERTED BY THE TAXATION LAWS (AMENDMENT AND MISCEL LANEOUS PROVISIONS) ACT 1986 W.E.F. 1-4-1988 WHICH READS A S UNDER:- EXPLANATION1. WHERE THE BUSINESS OR PROFESSION OF T HE ASSESSEE IS CARRIED ON IN A BUILDING NOT OWNED BY HIM BUT IN RE SPECT OF WHICH THE ASSESSEE HOLDS A LEASE OR OTHER RIGHT OF OCCUPANCY AND ANY CAPITAL EXPENDITURE IS INCURRED BY THE ASSESSEE FOR THE PUR POSES OF THE BUSINESS OR PROFESSION ON THE CONSTRUCTION OF ANY STRUCTURE OR DOING OF ANY WORK IN OR IN RELATION TO AND BY WAY OF RENOVATION OR E XTENSION OF OR IMPROVEMENT TO THE BUILDING THEN THE PROVISIONS OF THIS CLAUSE SHALL APPLY AS IF THE SAID STRUCTURE OR WORK IS A BUILDIN G OWNED BY THE ASSESSEE. ON GOING THROUGH THE ABOVE EXPLANATION IT BECAME E XPLICITLY CLEAR THAT WHERE THE ASSESSEE CARRIES OUT REPAIRS ON CERTAIN P REMISES TAKEN ON LEASE OR OTHER RIGHT OF OCCUPANCY AND ANY CAPITAL EXPENDI TURE IS INCURRED BY WAY OF RENOVATION OR EXTENSION AND IMPROVEMENT TO T HE BUILDING THEN SECTION 32 SHALL APPLY AS IF THE SAID STRUCTURE OR THE BUILDING IS OWNED BY THE ASSESSEE. THE EFFECT OF THIS INSERTION IS THAT ANY CAPITAL EXPENDITURE INCURRED BY THE ASSESSEE ON ANY PREMISES ACQUIRED O THERWISE THAN ON OWNERSHIP BASIS HAS TO BE TREATED AS A BUILDING OW NED BY SUCH PERSON AND DEPRECIATION IS ALLOWABLE ON IT UNDER SECTION 3 2 AS IF IT IS BUILDING OWNED BY HIM. 29. IN BALLIMAL NAVAL KISHORE VS. CIT [1997] 224 IT R 414 (SC) THE HONBLE SUPREME COURT APPROVED THE TEST IN THE CASE OF NEW SHORROCK SPINNING AND MANUFACTURING CO. LTD. V. CIT [1956] 3 0 ITR 338 (BOM) AS TO WHEN THE EXPENDITURE CAN BE SAID TO HAVE BEEN IN CURRED ON CURRENT REPAIRS. IN THAT CASE IT WAS OBSERVED AS FOLLOWS ( PAGE 417) : THE SIMPLE TEST THAT MUST BE CONSTANTLY BORNE IN MI ND IS THAT AS A RESULT OF THE EXPENDITURE WHICH IS CLAIMED AS AN EX PENDITURE FOR REPAIRS WHAT IS REALLY BEING DONE IS TO PRESERVE AND MAINTA IN AN ALREADY EXISTING ITA NO.3541 TO 3244/M/07 & 2661 TO 3662/M/07 M/S FREE INDIA ASSURANCE SERVICES LTD. L 15 ASSET. THE OBJECT OF THE EXPENDITURE IS NOT TO BRI NG A NEW ASSET INTO EXISTENCE NOR IS ITS OBJECT THE OBTAINING OF A NEW OR FRESH ADVANTAGE. THIS CAN BE THE ONLY DEFINITION OF REPAIRS BECAUS E IT IS ONLY BY REASON OF THIS DEFINITION OF REPAIRS THAT THE EXPENDITURE IS A REVENUE EXPENDITURE. IF THE AMOUNT SPENT WAS FOR THE PURPOSE OF BRINGIN G INTO EXISTENCE A NEW ASSET OR OBTAINING A NEW ADVANTAGE THEN OBVI OUSLY SUCH AN EXPENDITURE WOULD NOT BE AN EXPENDITURE OF A REVENU E NATURE BUT IT WOULD BE A CAPITAL EXPENDITURE AND IT IS CLEAR THA T THE DEDUCTION WHICH THE LEGISLATURE HAS PERMITTED UNDER SECTION 10(2)(V ) IS A DEDUCTION WHERE THE EXPENDITURE IS A REVENUE EXPENDITURE AND NOT A CAPITAL EXPENDITURE. 30. APPLYING TO THE EXPLANATION 1 TO SECTION 32 OF THE ACT IN THE LIGHT OF THE TEST LAID DOWN TO THE FACTS OF THE PRESENT C ASE WE ARE OF THE VIEW THAT SINCE THE ASSESSEE HAS INCURRED HUGE EXPENDITU RE ON PURCHASE OF PLYWOOD/FURNITURE ETC. FOR MAKING WOODEN PARTITIONS CABINS CUBICLES DESKS ETC. THE ASSESSEE HAS BUILT AN ALTOGETHER NE W OFFICE PREMISES THEREFORE THERE IS NO DOUBT THAT THESE EXPENDITURE INCURRED BY THE ASSESSEE ARE FOR FIXED CAPITAL ASSET AND THEREFORE CAPITAL IN NATURE NOT ALLOWABLE AS REVENUE EXPENDITURE. THIS VIEW ALSO FI NDS SUPPORT FROM THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF BIGJOS INDIA LTD. VS. CIT [2007] 293 ITR 170 (DELHI) WHEREIN EXPENDITURE INCURRED FOR ACQUIRING NEW ASSETS SUCH AS LIFT SHAFT AND WOODEN COUNTERS ETC. ON THE LICENSED PREMISES WAS HELD TO BE CAPITAL IN NATURE NOT DEDUCTIBLE AS REVENUE EXPENSES. 31. IN DCIT VS. SMT. GEETA V. MEHTA [2008] 26 SOT 4 55 (MUM) RELIED ON BY THE LEARNED COUNSEL FOR THE ASSESSEE THE FAC TS OF THAT CASE ARE THAT AS PER THE ASSESSEE THE PROPERTY TO WHICH THE REPA IRS WERE INCURRED WAS HELD BY THE ASSESSEE THROUGH A FRANCHISE AGREEMENT DATED 1.1.2002. THE ASSESSEE USED THE SAID PROPERTY FOR RUNNING MEH TA INSTITUTE OF TECHNOLOGY AND SHE WAS A FRANSHISEE OF MEHTA CLASSE S AND MEHTA COLLEGE. THE ASSESSEE WAS UNDER OBLIGATION TO INCU R EXPENDITURE ON REPAIRS OF THE PREMISES AS PER THE SAID FRANCHISE A GREEMENT WHICH WAS ITA NO.3541 TO 3244/M/07 & 2661 TO 3662/M/07 M/S FREE INDIA ASSURANCE SERVICES LTD. L 16 VALID FOR ONE YEAR AT ONE TIME AND IT WAS NOT A CAS E OF A PERPETUAL LEASE. THE ASSESSEE UNDERTOOK RENOVATION OF THE LEASED LIC ENSED PREMISES AND DURING THE YEAR RELEVANT TO A.Y. 2003-04 THE ASSESS EE INCURRED AN EXPENDITURE OF ` 8 27 276/-. THE A.O. INVOKED THE EXPLANATION 1 TO SECTION 32(1) OF THE ACT AND HELD THAT ASSESSEE HOL DS THE RIGHT OF OCCUPANCY IN THE PROPERTY WITHIN THE MEANING OF EX PLANATION 1 TO SECTION 32(1) AND ACCORDINGLY DISALLOWED THE REPAIR EXPENSES. ON APPEAL THE LD. CIT(A) DELETED THE ADDITION MADE BY THE A.O . ON THE GROUND THAT THE EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE F OR THE PURPOSE OF BUSINESS ALLOWABLE U/S 37(1) OF THE ACT. ON FURTHER APPEAL BEFORE THE TRIBUNAL THE TRIBUNAL WHILE OBSERVING THAT IT IS A SETTLED LAW THAT EVERY CASE HAS TO BE SEEN INDEPENDENTLY WHETHER A PARTICU LAR EXPENDITURE IS REVENUE OR CAPITAL DEPENDING ON THE FACTS OF EACH C ASE HELD THAT EXPENDITURE INCURRED BY THE ASSESSEE BY WAY OF PURC HASE OF TILES GRILLS ELECTRICAL FITTINGS PLY PLYWOOD GRANITE AND RELA TED LABOUR CHARGES INCURRED IN THIS CONNECTION WITH KEEPING THE CLASSR OOMS FIT FOR USE IS REVENUE IN NATURE ALLOWABLE U/S 37 OF THE ACT. 32. WHEREAS IN THE CASE BEFORE US THE PROPERTY WA S TAKEN ON LEASE FOR THREE YEARS COMMENCING FROM 16.10.2001 IN RESPECT O F THREE PROPERTIES AND THE FOURTH PROPERTY WAS TAKEN ON LEASE FROM 1.4 .2002 NOT RELEVANT FOR THE YEAR UNDER CONSIDERATION. THE ASSESSEE HAS STARTS REPAIRS EXPENSES FROM 1.4.2001 I.E. PRIOR TO THE PROPERTY T AKEN ON LEASE. THE ASSESSEE HAS PLACED NO MATERIAL ON RECORD TO SHOW T HAT THERE WAS ANY OBLIGATION TO THE ASSESSEE TO INCUR EXPENDITURE ON REPAIRS OF THE PREMISES TAKEN ON LEASE. THEREFORE THE DECISION RELIED ON B Y THE LD. COUNSEL FOR THE ASSESSEE IS DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. ITA NO.3541 TO 3244/M/07 & 2661 TO 3662/M/07 M/S FREE INDIA ASSURANCE SERVICES LTD. L 17 33. IN THIS VIEW OF THE MATTER WE ARE OF THE VIEW THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ARE CAPITAL IN NATURE NOT ALLOWABLE AS REVENUE EXPENDITURE AS CLAIMED BY THE ASSESSEE. ACCORDINGL Y WE ARE INCLINED TO UPHOLD THE FINDING OF THE LD. CIT(A) IN CONFIRMING THE DISALLOWANCE OF EXPENDITURE OF ` 19 29 711/- SUBJECT TO ALLOWANCE OF DEPRECIATION. THE GROUND TAKEN BY THE ASSESSEE IS THEREFORE REJECTE D. ITA NO. 3661/MUM/2007 A.Y.2002-03 (REVENUES APPEAL ) 34. GROUND NO. 1(I) IS AGAINST THE DELETION OF ADDI TION OF COMMISSION PAYMENT OF ` 38 70 055/- TO SHRI VINOD JAISWAL. 35. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT DURING THE COURSE OF SEARCH SEVERAL DOCUMENTS WERE SEIZED FROM WHICH IT WAS FOU ND BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD MADE PAYMENTS TO SHRI VINOD JAISWAL AND THIS EXPENDITURE WAS NOT ACCOUNTED FOR IN THE REGUL AR BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE. THIS EXPENDITURE WAS CL AIMED BY THE ASSESSEE ONLY IN THE RETURN FILED IN RESPONSE TO NO TICE U/S.153A. SINCE THIS EXPENDITURE WERE NOT ACCOUNTED IN THE REGULAR BOOKS OF ACCOUNTS THE A.O. REQUIRED THE ASSESSEE TO SHOW CAUSE WHY IT SHO ULD NOT BE DISALLOWED AND ADDED TO RETURNED INCOME. THE ASSESSEE FILED TH E WRITTEN REPLY VIDE ITS LETTER DATED 08.03.2006 IN WHICH IT WAS SUBMITT ED THAT THE NOTINGS OF THESE PAGES DENOTE WORKING OF AMOUNT OF INCENTIVE P AID TO MR. VINOD JAISWAL AND THIS INCOME WAS INCLUDED IN THE INCOME OF SHRI VINOD JAISWAL IN THE RETURN FILED BY HIM U/S. 153A FOR TH E A.Y. 2002-03 AND 2003-04 AND THE ASSESSEE FILED DETAILED EXPLANATION FOR THIS OBJECTION IN THE SAID ASSESSMENT PROCEEDINGS WHICH WAS FINALIZED BY THE SAME ASSESSING OFFICER. THE ASSESSEE CONTENTED THAT THES E PAYMENTS WERE MADE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSI NESS AND SINCE ITA NO.3541 TO 3244/M/07 & 2661 TO 3662/M/07 M/S FREE INDIA ASSURANCE SERVICES LTD. L 18 NEITHER IT WAS IN THE NATURE OF CAPITAL EXPENDITURE NOR PERSONAL EXPENDITURE AND SINCE IT WAS WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS IT SHOULD BE ALLOWED. THE ASSE SSING OFFICER DID NOT ACCEPT THIS CONTENTIONS OF THE ASSESSEE. HE HAS STA TED THAT (PAGES 17 TO 19 OF THE ORDER OF THE LD. CIT(A) :- 1. MOST OF THE PAYMENTS HAVE BEEN MADE NOT BY THE ASS ESSEE COMPANY BUT BY THE OTHER PARTIES. THE ASSESSEE HAS CLAIMED EXPENDITURE ON THE PAYMENTS WHICH WAS NOT MADE BY IT. 2. FOR EXAMPLE: THE PAYMENT WERE MADE BY ASHA PURA INT ERNATIONAL BENCH MARK INTERNATIONAL JINNESWAR TRADING HIMALA YA IMPEX ETC. THESE WERE THE PARTIES TO WHOM THE ASSESSEE HAD BOO KED BOGUS PRINTING AND STATIONERY AND LABOUR CHARGES. THE BOG US EXPENSES OF THESE PARTIES HAVE ALREADY BEEN ADMITTED BY THE AND THEREFORE SAME MODUS-OPERANDI IS EMPLOYED BY THE ASSSESSEE FOR MAK ING UNACCOUNTED PAYMENTS TO BOGUS PARTIES. ASSESSING OF FICER OBSERVED THAT WHEN THESE PARTIES HAD BEEN UTILIZED BY THE AS SESSEE FOR CLAIMING EXPENSES UNDER THE HEAD PRINTING & STATIONERY HOW THE SAME PARTIES WHICH DID NOT EXIST WOULD MAKE PAYMENTS TO SHRI VIN OD JAISWAL. THE ASSESSING OFFICER ALSO CITED OTHER EXAMPLES IN THE BOOKS IN THE ASSESSMENT ORDER. 3. ONE SUCH EXAMPLE WAS THE ENTRY OF SGHRI SANTOSH JAI SWAL AMOUNTING TO ` 2 50 000/- WHICH WAS CLAIMED TO HAVE PAID TO SHRI VINOD JAISWAL. SINCE THE AMOUNT WAS PAID TO SHRI SANTOSH JAISWAL IT CANNOT BE CLAIMED TO HAVE BEEN PAID TO SHRI VINOD J AISWAL. IN RESPECT OF ANOTHER EXPENDITURE OF A CHEQUE NO.629581 THE A SSESSING OFFICER HAD NOTED THE ENTRIES WHICH ARE AS UNDER :- ` 23 67 700-00 VINOD JAISWAL CHEQUE NO.629581 ` 5 00 000-00 ` 28 67 700-00 (-) CASH TO BE RECEIVED M.D. ` 5 00 000-00 ` 23 67 700-00 FROM THE ABOVE ENTRY ASSESSING OFFICER CONCLUDED T HAT THE ASSESSEE HAD PAID ` 5 00 000.00 BY WAY OF CHEQUE AND THE SAME AMOUNT WAS RECEIVED BACK BY CASH FROM THE MD WHO IS NONE OTHER THAN SHRI VINOD JAISWAL AND THERE ARE ALSO OTHER ENTRIES NOTE D BY THE ASSESSING OFFICER WHICH WERE RELATED TO EITHER FOR MOBILE OR FOR TV EACH HAD NO ITA NO.3541 TO 3244/M/07 & 2661 TO 3662/M/07 M/S FREE INDIA ASSURANCE SERVICES LTD. L 19 LINK THAT THE SERVICES RENDERED BY THE SAID SHRI VI NOD JAISWAL TO THE COMPANY. ASSESSING OFFICER HAS ALSO CONCLUDED THAT THE SERVICES ALSO WERE NOT ESTABLISHED TO HAVE BEEN RENDERED BY SHRI VINDO JAISWAL FOR THE FOLLOWING REASONS:_ A) THERE SHOULD BE A WRITTEN AGREEMENT FOR ANY INCENTI VE TO BE PAID OR ANY PAYMENT TO BE MADE WHICH IS BASED ON SERVICES RENDERED BY THE PERSONS. IN THIS CASE THE ASSESSEE HAS FAILED TO P RODUCE ANY AGREEMENT OR DOCUMENTARY EVIDENCE ON THE BASIS OF W HICH PAYMENT HAS BEEN MADE TO SHRI VINDO JAISWAL ON ACCOUNT OF S O CALLED SERVICE RENDERED TO THE COMPANY. B) IF THE SERVICES ARE RENDERED BY SHRI VINOD JAISWAL TO THE COMPANY THEN IT IS THE DUTY OF THE COMPANY TO MAKE THE PAYM ENT TO HIM. HOWEVER THE FACTS ARE CONTRARY TO THIS AS THE PAYM ENTS HAVE BEEN MADE BY OTHER PARTIES AND NOT BY THE ASSESSEE COMPA NY. C) IF THE PAYMENTS WERE MADE FOR SERVICES RENDERED BY HIM THEN THE AMOUNT RECEIVED IN CHEQUE SHOULD BE RETAINED BY HIM . HOWEVER THE DEPARTMENT HAS SEIZED THE DOCUMENTARY EVIDENCE WHI CH PROVES THAT CASH HAS BEEN RECEIVED BACK FROM HIM AGAINST THE CH EQUE ISSUED AS DISCUSSED ABOVE. D) HAD THE EXPENSES BEEN GENUINE THAN THE ASSESSEE W OULD HAVE MADE THESE PAYMENTS AND BOOKED THE EXPENSES IN ITS REGUL AR BOOKS OF ACCOUNTS. THEREFORE THE ASSESSING OFFICER CONCLUDED THAT THE ASSESSEE HAD CLAIMED THESE EXPENDITURE BY SHIFTING BOGUS EXPENSES FROM H EAD OF PRINTING & STATIONERY TO ANOTHER HEAD OF INCENTIVE PAID TO SHR I VINOD JAISWAL AND SINCE THIS EXPENDITURE WAS ALSO NOT DEBITED IN THE REGULAR BOOKS OF ACCOUNTS THIS COULD NOT BE ALLOWED AS EXPENDITURE AT ALL. THE ASSESSEES THEORY OF COMMISSION BY WAY OF INCENTIVE PAYABLE TO MANAGING DIRECTOR SHRI VINOD JAISWAL WAS ALSO NOT ACCEPTED BY ASSESSI NG OFFICER WHO HELD THAT ASSESSEE HAD NOT PROVED THE RENDERING OF SERVI CE BY SHRI VINOD JAISWAL TO THE COMPANY BUT THE ASSESSEE HAD TRIED T O SHIFT THIS EXPENDITURE OF PRINTING & STATIONERY TO INCENTIVE. THUS IN VIEW OF THE ABOVE THE ASSESSING OFFICER HAS DISALLOWED THE ENT IRE EXPENDITURE OF :- - ` 38 70 055/- FOR A.Y. 2002-03 - ` 70 74 272/- FOR A.Y. 2003-04 HENCE HE DISALLOWED THIS ` 38 70 055/- AND ADDED BACK THE SAME TO THE INCOME RETURNED. ITA NO.3541 TO 3244/M/07 & 2661 TO 3662/M/07 M/S FREE INDIA ASSURANCE SERVICES LTD. L 20 36. DURING THE COURSE OF APPELLATE PROCEEDINGS ASS ESSEES REPRESENTATIVE SUBMITTED WRITTEN SUBMISSIONS AS FOL LOWS (PARA 3.2 AT PAGE 19 OF THE ORDER OF THE LD. CIT(A) :- IT IS SUBMITTED THAT DURING THE COURSE OF SEARCH T HE AUTHORIZED OFFICER SEIZED DIARY MAINTAINED BY SHRI ASHISH G. MEHTA AS PER ANNEXURE A-6. ON PAGE NO.122-124 OF THIS SEIZED DIARY THERE WERE ENTRIES OF INCENTIVE AT THE RATE OF ` 12.50 PER MEMBER PAYABLE TO SHRI VINOD JAISWAL TH E DIRECTOR OF THE COMPANY WHICH ARE AS UNDER :- PERIOD NO. OF MEMBERS SEIZED PAGE NO. OF ANNEXURE A- 6 PAGE NO. OF PAPER BOOK AMOUNT PAYABLE TO VINOD JAISWAL APRIL TO 29.07.01 58739 122 126 7 34 238 30.07.01 TO 02.09.01 22872 122 126 2 85 900 03.09.01 TO 30.09.01 33370 122 126 4 17 130 01.10.01 TO 29.10.01 42528 122 126 5 31 600 29.10.01 TO 31.12.01 53635 123 127 6 70 438 01.01.02 TO 03.03.02 52208 123 127 6 52 600 04.03.02 TO 31.03.02 46252 124 128 5 78 150 TOTAL 38 70 055 ON PAGE NO.122 OF SEIZED MATERIAL THERE IS EVIDENC E OF PAYMENT OF ` 13 60 000/- MADE TO VINDO JAISWAL UPTO 27.09.01. ON PAGE NO.122 & 123 THERE ARE EVIDENCES OF FURTHER PAYMENT MADE TO VINOD JAISWAL ON ACCOUNT OF INCENTIVES. IT IS SUBMITTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE APPELLANT HAD FILED BEFO RE A.O. THE DETAILS OF INCENTIVE DUE TO VINOD JAISWAL ON THE BASIS OF SEIZ ED MATERIAL WHICH IS PLACED PAGE NO. 135 OF THE PAPER BOOK. IT WAS CONTE NDED BEFORE THE A.O. THAT OUT OF INCENTIVE AMOUNTING TO ` 38 70 055/- PAYABLE TO VINOD JAISWAL AN AGGREGATE AMOUNT OF ` 12 00 000/ WERE PAID BY CHEQUE TO ITA NO.3541 TO 3244/M/07 & 2661 TO 3662/M/07 M/S FREE INDIA ASSURANCE SERVICES LTD. L 21 VINOD JAISWAL AND HIS WIFE AND WAS CLAIMED AS EXPEN DITURE IN THE PROFIT & LOSS ACCOUNT. OUT OF THE BALANCE AMOUNT AN AGGREG ATE AMOUNT OF ` 19 90 600/- WAS PAID TO VINOD JAISWAL BY TAKING BOG US BILLS FOR PRINTING & STATIONERY MAINLY THROUGH ASHAPURA INTERNATIONAL. THE DETAILS OF THE PAYMENTS MADE TO VINOD JAISWAL ARE ALSO PLACED AT P AGE NO. 131 OF THE PAPER BOOK. THE APPELLANT IN ITS REVISED COMPUTATIO N OF TOTAL INCOME FOR A.Y. 2002-03 HAS OFFERED THE ENTIRE PURCHASES MADE FROM ASHAPURA INTERNATIONAL INCLUDING G.P. AT 4.22% AMOUNTING TO ` 30 86 275/- AS THE UNDISCLOSED INCOME WHICH HAS BEEN ACCEPTED BY THE A.O. IN THE IMPUGNED ORDER. THE APPELLANT ALSO CLAIMED THE BALA NCE INCENTIVE PAID/PAYABLE TO VINOD JAISWAL WHICH EITHER ACCOUNT ED BY WAY OF BOGUS PRINTING & STATIONERY BILLS OF ASHAPURA INTERNATION AL OR PAID IN CASH / REMAINED OUTSTANDING IN ITS RETURN OF INCOME FILED U/S. 153A. THE COPY OF RETURN OF INCOME FILED U/S. 153A COMPUTATION THERE OF AND THE REVISED COMPUTATION ARE PLACED AT PAGE NO. 6-11 OF THE PAPE R BOOK. THE A.O. HAVING ACCEPTED THE ADDITIONAL INCOME OF ` 30 88 275/- IN RESPECT OF PURCHASES MADE FROM ASHAPURA INTERNATIONAL WAS NOT JUSTIFIED IN DISALLOWING THE APPELLANTS CLAIM OF DEDUCTION AMOU NTING TO ` 26 70 055/- BEING INCENTIVE PAID / PAYABLE TO VINOD JAISWAL WHICH ARE DULY RECORDED IN THE SEIZED MATERIAL DISCUSSED ABOV E........... IT WAS FURTHER SUBMITTED THAT THE A.O. WHILE COMPUT ING THE TOTAL INCOME IN THE IMPUGNED ORDER HAS TAKEN THE STARTING POINT AS THE TOTAL INCOME AS PER RETURN FILED ON 31.10.2002 U/S. 139(1) AMOUNTIN G TO ` 56 30 790/-. THEREFORE IT WAS SUBMITTED THAT THE AOS ADDITION O F ` 38 70 055/- IN RESPECT OF PAYMENTS TO VINOD JAISWAL IS TOTALLY UNW ARRANTED AND INCORRECT AND THE SAME BE DELETED. 37. THE LEARNED CIT(A) AFTER EXAMINING THE MATTER F OUND THAT THE ASSESSEES OBJECTION IS CORRECT DELETED THE ADDITI ON MADE BY THE LEARNED AO. 38. AT THE TIME OF HEARING THE LD. D.R. WHILE RELY ING ON THE ORDER OF THE A.O. SUBMITS THAT IN VIEW OF THE ENTRIES RECORDED I N THE SEIZED MATERIAL APPEARING AT PAGE NO. 245 TO 250 OF THE ASSESEES P APER BOOK IT IS CLEAR THAT THE ASSESSEE HAS CLAIMED BOGUS EXPENSES OF ` 38 70 055/- IN THE NAME OF SHRI VINOD JAISWAL. HE FURTHER SUBMITS THA T SINCE THE ASSESSEE ITA NO.3541 TO 3244/M/07 & 2661 TO 3662/M/07 M/S FREE INDIA ASSURANCE SERVICES LTD. L 22 HAS FAILED TO PROVE THAT THE SAID PAYMENT WAS MADE FOR BUSINESS PURCHASES THE LD. CIT(A) WAS NOT JUSTIFIED IN DELE TING THE ADDITION MADE BY THE A.O. HE FURTHER SUBMITS THAT EVEN OTHERWISE THE SAID EXPENDITURE IS NOT ALLOWABLE U/S 69 OF THE ACT. RELIANCE WAS AL SO PLACED ON THE DECISION OF CIT VS. J.K. PANTHAKI & CO. [2009] 316 ITR 452 (KAR). HE THEREFORE SUBMITS THAT THE ADDITION MADE BY THE A. O. BE RESTORED. 39. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSE SSEE WHILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFOR E THE A.O. AND LD. CIT(A) FURTHER SUBMITS THAT IT IS NOT A CASE OF THE A.O. THAT THE EXPENDITURE IS NOT ALLOWABLE U/S 69 OF THE ACT THE REFORE THE NEW PLEA TAKEN BY THE LD. D.R. IS DEVOID OF ANY MERIT. HE THEREFORE SUBMITS THAT THE ASSESSEE HAS EXPLAINED THROUGH A CHART APPEARIN G AT PAGE NO. 20 OF THE ORDER OF THE LD. CIT(A) THAT THE ABOVE PAYMENT OF ` 38 70 055/- WAS MADE BY THE ASSESSEE TO SHRI VINOD JAISWAL ON THE B ASIS OF ENTRIES OF INCENTIVE @ ` 12.50 PER MEMBER PAYABLE TO SHRI VINOD JAISWAL TH E DIRECTOR OF THE COMPANY. HE FURTHER SUBMITS THAT S INCE THE A.O. HAS HIMSELF ALLOWED THE PAYMENT BY CHEQUES THEREFORE THE DISALLOWANCE OF CASH PAYMENT FOR THE SAME PURPOSE IS NOT JUSTIFIED. HE FURTHER SUBMITS THAT IN THE INCOME TAX RETURN FILED BY SHRI VINOD J AISWAL HE HAS DISCLOSED THE SAME AMOUNT AS HIS INCOME AND THE A.O . AFTER CONSIDERING IN DETAIL HAS ALSO TAXED THE SAME. HE THEREFORE SUBMITS THAT THE ORDER PASSED BY THE LD. CIT(A) IN DELETING THE DISALLOWAN CE BE UPHELD. 40. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND THAT BEFORE THE LD. CIT(A) THE ASSESSEE HAS FILED A COMPLETE CHART APP EARING AT PAGE NO. 20 OF THE ORDER OF THE LD. CIT(A) SHOWING THE PERIOD NO. OF MEMBERS MADE/INTRODUCED BY SHRI VINOD JAISWAL PAGE NO. OF SEIZED DOCUMENTS PAGE NO. OF ASSESSEES PAPER BOOK AND AMOUNT PAID T O SHRI VINOD JAISWAL ITA NO.3541 TO 3244/M/07 & 2661 TO 3662/M/07 M/S FREE INDIA ASSURANCE SERVICES LTD. L 23 ETC. WE FURTHER FIND THAT THE LD. CIT(A) AFTER CON SIDERING THE ASSESSEES SUBMISSION HAS DELETED THE ADDITION VIDE PARAS 3.3. 0 AND 3.3.01 OF HIS ORDER WHICH ARE REPRODUCED AS UNDER:- 3.3.0: I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT. DURING THE COURSE OF APPELLATE PROCEEDINGS THE ASSESSEES REPR ESENTATIVE SUBMITTED THAT THE ASSESSING OFFICER HAD PROCEEDED AHEAD WITH THE COMPUTATION BASED UPON THE INCOME RETURNED IN THE ORIGINAL RETU RN FILED U/S.139 AT ` 56 30 790/- INSTEAD OF THE INCOME RETURNED BY THE A SSESSEE AS PER THE RETURN FILED U/S.153A WHICH WAS SUBSEQUENTLY REVIS ED AT ` 94 30 793/-. [IN THE ORIGINAL RETURN FILED U/S.153A ON 23.02.200 4 AT ` 83 54 659/- (PAGE 6 TO 10 OF PAPER BOOK) WHICH WAS SUBSEQUENTLY REVISED TO ` 94 30 793/-(PAGE 7 OF THE PAPER BOOK]. IT IS ONLY I N THE RETURN RILED U/S.153A ON 23.02.2004 THE ASSESSEE HAD MADE THIS C LAIM FOR THE DEDUCTION OF THIS EXPENDITURE AT ` 26 70 055/-. THEREFORE IT WAS SUBMITTED THAT SINCE THE ASSESSING OFFICER HAS STAR TED THE COMPUTATION WITH THE TOTAL INCOME DECLARED BY THE ASSESSEE AS P ER THE RETURN FILED U/S.139 ON 31.10.2002 AT ` 56 30 790/- IN WHICH THE ASSESSEE HAS NOT MADE ANY CLAIM OF ` 26 70 055/- THERE WAS NO NEED FOR DISALLOWING THE SAID EXPENDITURE. TO PUT IT IN OTHER WORDS THE ASS ESSING OFFICER HAS DISALLOWED THE ENTIRE EXPENDITURE OF :_ - ` 38 70 055/ FOR A.Y. 2002-03 - ` 70 74 272/- FOR A.Y. 2003-04 HENCE HE DISALLOWED THIS ` 38 70 055 AND ADDED BACK THE SAME TO THE INCOME RETURNED. 3.3.1 : ON VERIFICATION OF THE RETURN OF INCOME ON THE ST ATEMENT OF TOTAL INCOME FILED ALONG WITH THE SAID RETURN I FIND THA T THE ASSESSEES OBJECTION IS CORRECT AND THEREFORE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER TO THE EXTENT OF ` 38 70 055/- IS DELETED. 41. IN THE CASE OF CIT VS. J.K. PANTHAKI AND CO. [2 009] 316 ITR 452 (KAR) THEIR LORDSHIPS HAVE REMANDED THE MATTER FOR RECONSIDERATION BY THE TRIBUNAL ON THE GROUND THAT THE TRIBUNAL HAS FA ILED TO CONSIDER THE CASE IN THE LIGHT OF THE EXPLANATION TO SUB-SECTION (1) OF SECTION 37 OF THE ACT. WHEREAS IN THE PRESENT CASE BEFORE US IT IS NOT THE CASE OF THE REVENUE THAT THE PAYMENT MADE BY THE ASSESSEE ARE N OT ALLOWABLE IN VIEW OF THE EXPLANATION TO SECTION 37(1) OF THE ACT THEREFORE THE DECISION ITA NO.3541 TO 3244/M/07 & 2661 TO 3662/M/07 M/S FREE INDIA ASSURANCE SERVICES LTD. L 24 RELIED ON BY THE LD. D.R. IS DISTINGUISHABLE AND NO T APPLICABLE TO THE PRESENT CASE. 42. IN THE ABSENCE OF ANY CONTRARY MATERIAL PLACED ON RECORD BY THE REVENUE TO SHOW THAT THE CHART PREPARED BY THE ASSE SSEE APPEARING AT PAGE NO. 20 OF THE ORDER OF THE LD. CIT(A) IS NOT C ORRECT OR THE ENTRIES RECORDED THEREIN ARE NOT MATCHING WITH THE RELEVANT SEIZED MATERIAL OR THE PART OF THE AMOUNT WAS NOT PAID BY CHEQUE OR TH E SAME WAS NOT ALLOWED AS DEDUCTION OR THE PAYMENT HAS NOT BEEN MA DE TO SHRI VINOD JAISWAL TO INTRODUCE THE NEW MEMBERS TO CARRY ON TH E BUSINESS. THIS BEING SO AND IN THE ABSENCE OF ANY FINDING RECORDED IN RESPECT OF THE APPLICATION OF THE PROVISIONS OF SECTION 69 OF THE ACT AND TDS WE ARE OF THE VIEW THAT THE PAYMENT MADE BY THE ASSESSEE ARE ALLOWABLE UNDER ACT AS BUSINESS EXPENDITURE AND ACCORDINGLY WE DECLINE TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) ON THIS ACCOUNT. THE GROUND TAKEN BY THE REVENUE IS THEREFORE REJECTED. 43. GROUND NO. 1(II) IS AGAINST THE DELETION OF ADD ITION OF ` 24 65 384/- OUT OF PURCHASES OF ` 30 80 730/-. 44. IN VIEW OF OUR FINDING RECORDED IN PARAS NO 18 TO 22 OF THIS ORDER THE GROUND TAKEN BY THE REVENUE IS THEREFORE REJECT ED. ITA NO. 3543/MUM/2007 FOR A.Y. 2003-04 (ASSESSEES APPEAL). 45. GROUND NOS. 1 & 2 ARE AGAINST SUSTENANCE OF AD DITION OF ` 4 04 982/- BEING 20% DISALLOWANCE OUT OF CONVEYANCE AND STAFF WELFARE EXPENSES. ITA NO.3541 TO 3244/M/07 & 2661 TO 3662/M/07 M/S FREE INDIA ASSURANCE SERVICES LTD. L 25 46. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BR OUGHT ON RECORD BY THE PARTIES AND KEEPING IN VIEW OF OUR FINDING RECO RDED IN PARA NO. 6 OF THIS ORDER THE DISALLOWANCE OF ` 404982/- IS REDUCED TO ` 202491/-. THE GROUND TAKEN BY THE ASSESSEE IS THEREFORE PARTLY AL LOWED. 47. GROUND NO. 3 IS AGAINST THE SUSTENANCE OF DISAL LOWANCE U/S 40A(3) ` 2 88 000/- BEING 20% OF EXPENDITURE OUT OF CASH PU RCHASES OF ` 14 40 000/-. 48. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BR OUGHT ON RECORD BY THE LD. D.R. AND KEEPING IN VIEW OF OUR FINDING REC ORDED IN PARAS NO. 18 TO 22 OF THIS ORDER THE ADDITION MADE BY THE A.O. AND SUSTAINED BY THE LD. CIT(A) IS DELETED. THE GROUND TAKEN BY THE ASSE SSEE IS THEREFORE ALLOWED. ITA NO. 3662/MUM/2007 FOR A.Y. 2003-04(REVENUES A PPEAL). 49. GROUND NO. 1(I) IS AGAINST THE DELETION OF ADDITION OF ` 70 74 272/- BEING PAYMENTS TO SHRI VINOD JAISWAL. 50. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BR OUGHT ON RECORD BY THE LD. D.R. AND KEEPING IN VIEW OF OUR FINDING REC ORDED IN PARAS NO. 40 TO 42 OF THIS ORDER WE DECLINE TO INTERFERE WITH T HE ORDER PASSED BY THE LD. CIT(A) ON THIS ACCOUNT. THE GROUND TAKEN BY THE REV ENUE IS THEREFORE REJECTED. 51. GROUND NO. 1(II) IS AGAINST THE DELETION OF ADD ITION OF ` 11 52 000/- OUT OF PURCHASES OF ` 14 40 000/-. ITA NO.3541 TO 3244/M/07 & 2661 TO 3662/M/07 M/S FREE INDIA ASSURANCE SERVICES LTD. L 26 52. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BR OUGHT ON RECORD BY THE LD. D.R. AND KEEPING IN VIEW OF OUR FINDING REC ORDED IN PARA NO. 18 TO 22 OF THIS ORDER THE GROUND TAKEN BY THE REVENUE I S THEREFORE REJECTED. ITA NO. 3544/MUM/2007 FOR A.Y. 2004-05 (ASSESSEES APPEAL). 53. GROUND NOS. 1 & 2 ARE AGAINST SUSTENANCE OF ADD ITION OF ` 4 48 210/- BEING 20% DISALLOWANCE OUT OF CONVEYANCE AND STAFF WELFARE EXPENSES. 54. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BR OUGHT ON RECORD BY THE LD. D.R. AND KEEPING IN VIEW OF OUR FINDING REC ORDED IN PARA NO. 6 OF THIS ORDER THE DISALLOWANCE OF ` 4 48 210/- IS REDUCED TO ` 2 24 105/-. THE GROUND TAKEN BY THE ASSESSEE IS THEREFORE PARTL Y ALLOWED. 55. IN THE RESULT ASSESSEES APPEALS STAND PARTLY ALLOWED AND THE REVENUES APPEALS ARE DISMISSED. ORDER PRONOUNCED ON THIS 30 TH DAY OF MARCH 2011. SD/- (J. SUDHAKAR REDDY) ACCOUNTANT MEMBER SD/- (D.K. AGARWAL) JUDICIAL MEMBER MUMBAI DATED 30 TH MARCH 2011. RK ITA NO.3541 TO 3244/M/07 & 2661 TO 3662/M/07 M/S FREE INDIA ASSURANCE SERVICES LTD. L 27 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- CONCERNED MUMBAI 4. DIT (INTERNATIONAL TAXATION) CONCERNED MUMBAI 5. DEPARTMENTAL REPRESENTATIVE BENCH F MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR ITAT MUMBAI ITA NO.3541 TO 3244/M/07 & 2661 TO 3662/M/07 M/S FREE INDIA ASSURANCE SERVICES LTD. L 28 1 DRAFT DICTATED ON 2 .3.11 SR PS 2 DRAFT PLACED BEFORE AUTHOR ON 3 .3.11 SR PS 3 DRAFT PROPOSED & PLACE BEFORE THE 2 ND MEMBER JM /AM 4 DRAFT DISCUSSED/APPROVED BY 2 ND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR PS SR.PS 6 KEPT FOR PRONOUNCEMENT ON SR PS 7 FILE SENT TO THE BENCH CLERK SR PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE ON WHICH FILE GOES TO THE AR 10 DATE OF DESPATCH SR PS