DCIT, New Delhi v. M/s Janta Travels Pvt. Ltd., New Delhi

ITA 4720/DEL/2010 | 2006-2007
Pronouncement Date: 31-03-2011 | Result: Dismissed

Appeal Details

RSA Number 472020114 RSA 2010
Bench Delhi
Appeal Number ITA 4720/DEL/2010
Duration Of Justice 5 month(s) 2 day(s)
Appellant DCIT, New Delhi
Respondent M/s Janta Travels Pvt. Ltd., New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 31-03-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 31-03-2011
Date Of Final Hearing 31-03-2011
Next Hearing Date 31-03-2011
Assessment Year 2006-2007
Appeal Filed On 28-10-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D NEW DELHI) BEFORE SHRI R.P. TOLANI JUDICIAL MEMBER AND SHRI A.K. GARODIA ACCOUNTANT MEMBER I.T.A. NO.5196 & 5197 /DEL/2010 ASSESSMENT YEAR : 2006-07 & 2007-08 JANTA TRAVELS (P) LTD. ACIT H-8 CONNAUGHT PLACE CIRCLE-4 (1) NEW DELHI. V. NEW DELHI. I.T.A. NO.4720 & 4721/DEL/2010 ASSESSMENT YEAR: 2006-07 & 2007-08 DCIT JANTA TRAVELS (P) LTD. CIRCLE-4 (1) H-8 CONNAUGHT PLACE NEW DELHI. V. NEW DELHI. AND C.O. NO.392 & 393/ DEL/ 2010 IN I.T.A.NO. 4720 & 4721/DEL/2010 ASSESSMENT YEAR: 2006-07 & 2007-08 JANTA TRAVELS (P) LTD. DCIT H-8 CONNAUGHT PLACE CIRCLE-4 (1) NEW DELHI. V. NEW DELHI. (APPELLANT) (RESPONDENT) PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO.AAACJ AAACJ AAACJ AAACJ- -- -0206 0206 0206 0206- -- -E EE E APPELLANT BY : SHRI ABHIJIT ROY C.A. RESPONDENT BY : SHRI A.K. MONGA SR. DR. ORDER PER A.K. GARODIA AM: PAGE 2 OF 19 ITA NO5196 5197 4720 4721 392&393/DEL/10 THERE ARE CROSS APPEALS OF THE ASSESSEE AND REVENUE FOR ASSESSMENT YEAR 2006-07 AND 2007-08 AND THE ASSESSEE HAS ALSO FILED TWO CROSS OBJECTION FOR THESE VERY YEARS. THESE ARE DIR ECTED AGAINST TWO SEPARATE ORDERS OF LD CIT(A)-VII NEW DELHI DATED 20.9.2010 FOR ASSESSMENT YEAR 2006-07 AND DATED 29.3.2010 FOR ASSESSMENT YEAR 2007-08. FOR THE SAKE OF CONVENIENCE ALL THESE APP EALS AND CROSS OBJECTIONS ARE BEING DISPOSED OFF BY THIS COMMON ORDER . 2. FIRST WE TAKE UP THE CROSS APPEALS AND CROSS OBJECTI ON FOR ASSESSMENT YEAR 2006-07. 3. GROUND NO.1 OF THE REVENUES APPEAL IS GENERAL. G ROUND NO.2 OF THIS APPEAL IS AS UNDER:- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD CIT(A) HAS ERRED IN DELETING THE ADDITION OF `.3 90 060/- MADE BY THE ASSESSING OFFICER DISALLOWING FOREIGN TRAVE LING EXPENSES. 2.1. THE LD CIT(A) IGNORED THE FACT THAT MS. SANGER WIFE OF THE DIRECTOR OF THE COMPANY DOES NOT HAVE ANY INTEREST IN THE BUSINESS OF THE COMPANY. 4. BRIEF FACTS OF THE CASE ARE THAT IT IS NOTED BY THE ASSESSING OFFICER ON PAGE NO.2 OF THE ASSESSMENT ORDER THAT ON EXAMINATIO N OF DETAILS OF TRAVELING EXPENSES IT IS FOUND THAT THIS INCLUDED `.7 80 119/- ON ACCOUNT OF DIRECTORS FOREIGN TRAVELING. IT WAS SUBMIT TED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER THAT THE ASSESSEE COMPANY INCU RRED FOREIGN TRAVELING EXPENSES FOR TRAVELING TO INDIA BY ITS NRI PROMOTER PAGE 3 OF 19 ITA NO5196 5197 4720 4721 392&393/DEL/10 DIRECTORS WHO ARE LOCATED AT LONDON. IT IS ALSO SUBMITT ED THAT THE DIRECTORS NEED TO TRAVEL TO INDIA TO ATTEND VARIOUS I MPORTANT MEETINGS WITH VARIOUS AIRLINES OFFICIALS OF AIR INDIA AND OTHER AIRLINES. IT IS ALSO SUBMITTED THAT APART FROM INCURRING TRAVELING EXPENSE S THERE IS NO REMUNERATION PAID TO THEM FOR ATTENDING TO COMPANY BUSINESS. IT WAS ALSO HELD BY THE ASSESSING OFFICER THAT ON CONSIDERATION OF THIS SUBMISSION/EXPLANATION OF THE ASSESSEE IT IS FOUND THAT NO EVIDENCE OF THEIR PRESENCE DELIBERATIONS INVOLVEMENT OR BOARD R ESOLUTIONS ETC. HAVE NOT BEEN PRODUCED AND BROUGHT ON RECORD. THE A SSESSING OFFICER HELD THAT 50% OF SUCH EXPENSES HAVE BEEN INCURRED NOT FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE COMPANY AND ON THIS BASI S HE MADE DISALLOWANCE OF `.3 90 060/-. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE LD CIT (A). BEF ORE LD CIT(A) IT WAS SUBMITTED BY THE ASSESSEE THAT THE AMOUNT PERTAINING TO NRI DIRECTORS TRAVELING IS NOT ` 7 80 119/- BUT ONLY ` 6 85 581/- BEING BOOKED IN THE DELHI HEAD OFFICE ACCOUNT AND `.81 152/- (JALLANDHA R) AND `.13 406/- (CHANDIGARH) WERE PERTAINING TO LOCAL DIRECTORS TRAV ELING BOOKED AT THE RESPECTIVE BRANCHES. IT IS ALSO SUBMITTED THAT OUT OF T HIS AMOUNT OF `.6 85 581/- `.5 09 589/- WAS INCURRED ON ACCOUNT OF AIR TICKETS OF SHRI J. SANGER MANAGING DIRECTOR AND `.1 07 002/- WAS IN CURRED ON ACCOUNT OF ACCOMMODATION FOR SHRI J. SANGER MD. IT IS ALSO SUBMITTED THAT AN AMOUNT OF `.2 68 066/- WAS INCURRED ON ACCOUNT OF TR AVELING OF MRS. S SANGER W/O MR. J. SANGER MD AND THE BALANCE AMOUN T OF `.8136/- WAS INCURRED ON ACCOUNT OF MR. SANJAY GUPTA DIRECTOR. IT IS ALSO NOTED BY THE CIT(A) IN PARA NO.4.1 OF HIS ORDER THAT ON SIMILA R ISSUE THERE IS TRIBUNAL DECISION IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2 005-06 IN I.T.A. NO.1668/DEL/2009 DATED 31.3.2010. AS PER THIS TRIBUNAL ORDER IT WAS HELD BY THE TRIBUNAL THAT THE EXPENSES INCURRED ON MR. J. SANGER MD HAS TO BE ALLOWED IN FULL WHEREAS THE EXPENSES INCUR RED FOR HIS WIFE MRS. S. SANGER IS TO BE ALLOWED FOR THOSE VISITS WHEN SH E ACCOMPANIED PAGE 4 OF 19 ITA NO5196 5197 4720 4721 392&393/DEL/10 MR. J. SANGER MD BUT FOR THE VISITS4 UNDERTAKEN BY H ER INDEPENDENTLY THE EXPENSES INCURRED CANNOT BE ALLOWED. THE MATTER W AS RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER FOR A DECISION ON THIS BASIS AFTER VERIFYING THE FACTS. LD CIT(A) IN THE PRESENT YEAR ALSO DIRECTED THE ASSESSING OFFICER TO VERIFY THE FACTS IN THE PRESENT YEAR AND MAKE DISALLOWANCES AS PER TRIBUNAL DIRECTION IN ASSESSMENT YEA R 2005-06. NOW THE REVENUE IS IN APPEAL BEFORE US AGAINST THIS D IRECTION OF LD CIT(A). 5. LD DR OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER W HEREAS LD AR OF THE ASSESSEE SUPPORTED THE ORDER OF LD CIT(A). HE ALSO SUBMITTED A COPY OF THE TRIBUNAL DECISION IN ASSESSEES O WN CASE FOR ASSESSMENT YEAR 2005-06 IN I.T.A. NO.1668/DEL/2009 DATE D 31.3.2010 AND DRAWN OUR ATTENTION TO PARA NO.7 OF THIS TRIBUNA L DECISION. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GONE TH ROUGH THE MATERIAL AVAILABLE ON RECORD AND THE TRIBUNAL DECISI ON IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06. PARA NO.7 OF THIS TRIBUNAL DECISION IS REPRODUCED BELOW:- 7. IF WE EXAMINE THE FASTS OF THE PRESENT CASE AND TH E STAND OF ASSESSEE THEN IT WOULD REVEAL THAT EXPENSES INCURRED ON M RS. S. SANGER ARE TO BE ALLOWED TO THE EXTENT SHE HAD ACCOM PANIED HER HUSBAND MORE PARTICULARLY LD CIT(A) HAS FOUND AS A MA TTER OF FACT THAT SHRI J. SANGER HAS NOT DRAWN ANY SALARY FRO M THE COMPANY EXCEPT CLAIM OF THIS EXPENDITURE . MOST OF TH E TICKERS ARE ALSO UNDER AD-75 SCHEME (75% DISCOUNTED TICKETS) ISSUED BY THE AIR INDIA AND OTHER AIR LINES. AT THE TIME OF HEARING LD COUNSEL FOR THE ASSESSEE POINTED OUT THAT MRS. SANGER HAS ACCOMPANIED 5 & 6 OCCASIONS TO MRS. S. SANGER AND THE PAGE 5 OF 19 ITA NO5196 5197 4720 4721 392&393/DEL/10 EXPENSES FOR THOSE JOURNEYS ARE TO BE ALLOWED. WE DIREC T THE ASSESSING OFFICER TO VERIFY THESE FACTS AND ALLOW THE EXP ENSES ON THE VISIT OF MRS. SANGER WHICH WERE UNDERTAKEN BY HER ALONG WITH MR. J. SANGER. THE VISITS SHE HAS UNDERTAKEN INDEPENDEN TLY WERE NOT MEANT FOR BUSINESS PURPOSE AND THE EXPENSES RELATABL E TO THOSE VISITS ARE TO BE DISALLOWED. 7. IT WAS SUBMITTED BY THE LD AR OF THE ASSESSEE THAT TH E FACTS IN THE PRESENT YEAR ARE SIMILAR AND THIS SUBMISSION OF LD AR OF THE ASSESSEE COULD NOT BE CONTROVERTED BY THE LD DR OF THE REVENUE. HENCE WE ARE SATISFIED THAT THE PRESENT ISSUE IS SQUARELY COVERED BY THE TRIBUNAL DECISION IN ASSESSEES OWN CASE FOR ASSESSMENT Y EAR 2005-06. HENCE WE RESTORE THIS MATTER BACK TO THE F ILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO VERIFY THESE FAC TS IN THE PRESENT YEAR AS HAS BEEN DIRECTED BY THE TRIBUNAL IN ASSESSMENT Y EAR 2005-06 AND THEN ALLOW THE EXPENSES ON THE VISITS OF MR. SANGER WHICH WERE UNDERTAKEN BY HER ALONG WITH MR. SANGER. IT IS ALSO H ELD THAT THE VISITS UNDERTAKEN BY MRS. SANGER INDEPENDENTLY WERE NOT MEA NT FOR BUSINESS PURPOSE AND THE EXPENSES RELATABLE TO THOSE VISITS ARE T O BE DISALLOWED. BUT BEFORE DOING SO THE ASSESSING OFFICER SHOULD VERIFY THE FACTUAL ASPECT OF THE PRESENT YEAR THAT MR. SANGER HA S NOT DRAWN ANY SALARY FROM THE COMPANY EXCEPT THE CLAIM OF THESE EXP ENSES AND ALSO THIS ASPECT THAT MOST OF HIS TICKETS ARE UNDER AD-7 SCH EME (75% DISCOUNTED TICKETS) ISSUED BY THE AIR INDIA AND OTHER AIR LINES. SINCE THE MATTER WAS RESTORED BACK BY THE LD CIT(A) TO THE FILE OF THE ASSESSING OFFICER FOR A DECISION AFTER VERIFYING FACTUAL ASPECT AS PER THE TRIBUNAL DIRECTION IN ASSESSMENT YEAR 2005-06 THIS GROU ND OF THE REVENUE IS LIABLE TO BE REJECTED. WE ORDER ACCORDING LY. 8. GROUND NO.3 OF THE REVENUE APPEAL IS AS UNDER:- PAGE 6 OF 19 ITA NO5196 5197 4720 4721 392&393/DEL/10 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD CIT(A) HAS BEEN IN DELETING THE ADDITION OF `. 2 94 000/- MADE BY THE ASSESSING OFFICER DISALLOWING THE COMMISSION AND SERVICE CHARGES. 3.1. THE LD CIT(A) IGNORED THE FACT THAT THE ASSESSEE D ID NOT THE MANDATORY TAX AT SOURCE ON THESE PAYMENTS. 9. BRIEF FACTS OF THE CASE ARE THAT IT IS NOTED BY THE ASSESSING OFFICER ON PAGE NO.3 OF THE ASSESSMENT ORDER THAT IT IS FOUND TH AT THE ASSESSEE HAD CLAIMED AGENCY COMMISSION OF `.1.80 LAKHS PAID TO M/S HTS TOURS & TRAVELS PVT. LTD. AND SERVICE CHARGES OF `.1.14 LAKH S PAID TO M/S EASTWAYS TRAVELS (PVT) LTD. THE ASSESSING OFFICER ASKED THE ASSESSEE TO JUSTIFY THESE EXPENSES WITHOUT DEDUCTION OF TDS. IN REPLY IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER THAT THESE PAYMENTS WERE MADE BY WAY OF RENT FOR THE COMPANYS REGISTERED OFFICE AND MAIN BUSINESS OFFICE BEING MAINTAINED AT H- 8 & 9 CONNAUGHT CIRCUS NEW DELHI. IT WAS ALSO SUBMITTED THAT THE PREMISES WERE ORIGINALLY LEASED OUT TO THESE PARTIES BY LIC OF INDIA WITH PRIMARY CONDITION THAT THE SAID PREMISES CANNOT BE FURTHER LEA SED OUT OR SUB LET TO ANY OTHER PARTY. IT WAS SUBMITTED THAT BECAUSE OF T HIS CONDITION OF LIC THESE PAYMENTS WERE NOT TREATED AS RENT PAYMENT I N FINANCIAL ACCOUNTS AND A DIFFERENT NOMEN CLATURE WAS GIVEN. THE ASSESSING OFFICER WAS NOT SATISFIED. HE HELD THAT SINCE THESE PAYM ENTS ARE IN THE NATURE OF COMMISSION AND SERVICE AND THEREFORE SUBJECT TO TDS AND SINCE NO TDS WAS DEDUCTED BY THE ASSESSEE ON THESE PAYMENT S AGGREGATE AMOUNT OF `.2.94 000/- IS BEING DISALLOWED . BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE LD CIT (A). LD CIT(A) HAS DELETED THIS ADDITION ON THE BASIS OF THE TRIBUNAL DECISION IN PAGE 7 OF 19 ITA NO5196 5197 4720 4721 392&393/DEL/10 ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06 AND NOW THE REVENUE IS IN APPEAL BEFORE US. 10. LD DR OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS LD AR OF THE ASSESSEE SUPPORTED THE ORDER OF LD CIT(A). OUR ATTENTION WAS ALSO DRAWN TO PARA NO.8 OF THE TRIBUNAL DECISION I N ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06 COPY OF WHICH WAS SUBMIT TED BY HIM BEFORE US. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GONE T HROUGH THE MATERIAL AVAILABLE ON RECORD AND THE TRIBUNAL DECISI ON IN ASSESSEE OWN CASE FOR ASSESSMENT YEAR 2005-06. AS PER PARA NO.8 OF THE TRIBUNAL DECISION WE FIND THAT IN THAT YEAR ALSO DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER OF THE SAME AMOUNT OF `.2.94 000/- FO R SIMILAR PAYMENTS OF `.1.80 LAKHS AND `.1.14 LAKHS TO THESE TWO VERY COMPANIES AND IN THAT YEAR ALSO THE PAYMENT WAS SHOWN AS AGENC Y FEES PAID AND IT WAS THE SUBMISSION BEFORE THE TRIBUNAL THAT IN FACT THE PAYMENT WAS ON ACCOUNT OF RENT. IN THAT YEAR THE TRIBUNAL HAS D ELETED THE DISALLOWANCE BY HOLDING THAT IF THERE IS ANY INFRING EMENT THEN IT IS BY ORIGINAL LESSEE AND NOT BY THE ASSESSEE AND MORE SO IT IS QUA THE RIGHTS OF LIC AND HENCE IT IS FOR THE LIC TO SEEK REM EDIAL ACTION AGAINST THE ORIGINAL LESSEE AND THEREFORE THE EXPENSES CANNOT BE DISALLOWED IN THE PRESENT CASE. HENCE IN THE PRESENT YEAR ALSO IT H AS TO BE HELD THAT THESE TWO PAYMENTS ARE ON ACCOUNT OF RENT PAYMENT AND THEREFORE HAS TO BE ALLOWED AS SUCH ALTHOUGH THERE IS INFRINGEME NT OF THE CONDITION PUT BY LIC ON THE ORIGINAL LESSEE. BUT ONE MORE ASPECT IS RELEVANT IN THE PRESENT YEAR I.E. THE FAILURE OF TH E ASSESSEE TO DEDUCT TDS. IT IS HELD BY THE ASSESSING OFFICER IN THE PRESENT Y EAR THAT HE IS MAKING DISALLOWANCE FOR THIS REASON THAT NO TDS WAS DED UCTED BY THE ASSESSEE WHEREAS THESE PAYMENTS WERE LIABLE FOR TDS DEDUCT ION AS PAGE 8 OF 19 ITA NO5196 5197 4720 4721 392&393/DEL/10 PAYMENT OF COMMISSION/SERVICE CHARGES. WE HAVE HELD TH AT AS PER THE TRIBUNAL DECISION IN ASSESSMENT YEAR 2005-06 THESE TWO PAYMENTS ARE RENT PAYMENT BUT THEN AGAINST RENT PAYMENT ALSO I N EXCESS OF `.1.20 LAKHS TDS WAS REQUIRED TO BE DEDUCTED BY THE ASSESSEE U/S 194I OF THE ACT. THE ASSESSING OFFICER HAS GIVEN FINDING IN THE ASSESSMENT ORDER THAT NO TDS WAS DEDUCTED BY THE ASSESSEE F ROM THESE TWO PAYMENTS BUT IN THE COURSE OF ARGUMENT BEFOR E US IT WAS SUBMITTED BY THE LD AR OF THE ASSESSEE BEFORE US THAT TDS WAS DEDUCTED FROM THE PAYMENT OF `.1.80 LAKHS BEING IN E XCESS OF `.1.20 LAKHS AND FOR THE OTHER PAYMENT OF `.1.14 LAKHS NO TDS WAS REQUIRED TO BE DEDUCTED AS PER THE PROVISIONS OF SECTION 194I O F THE ACT SINCE IT IS BELOW `.1.20 LAKHS. WE THEREFORE FEEL THAT FOR T HIS FACTUAL VERIFICATION THE MATTER SHOULD GO BACK TO THE FILE OF THE ASSESSING OFFICER. IF THE ASSESSEE CAN SHOW THAT TDS WAS DEDUCTED AND PAID U/S 194-I FROM THE PAYMENT OF RENT OF `.1.80 LAKHS NO D ISALLOWANCE SHOULD BE MADE BUT THE DISALLOWANCE IS JUSTIFIED IF NO TDS WA S DEDUCTED U/S 194I. HOWEVER FOR THE SECOND PAYMENT OF `.1.14 LAKH S WE CONFIRM THE ORDER OF LD CIT(A) BECAUSE THERE IS NO REQUIREMENT OF TDS FROM THIS PAYMENT U/S 194I OF THE ACT. THE ASSESSING OFFICER IS DI RECTED TO DECIDE THIS ISSUE REGARDING ALLOWABILITY OF `.1.80 LAKHS AFTER VERIFYING THE TDS ASPECT AS PER ABOVE DISCUSSION AND AFTER ALLOWING AN AD EQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THIS GROUND OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 12. GROUND NO.4 OF THE REVENUE APPEAL IS AS UNDER:- 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD CIT(A) HAS BEEN IN RESTRICTING THE ADDITION T HE ADDITION ON ACCOUNT OF DISALLOWANCE OF INTEREST OF `.1 70 625/- A S AGAINST `.5 42 468/- MADE BY THE ASSESSING OFFICER. PAGE 9 OF 19 ITA NO5196 5197 4720 4721 392&393/DEL/10 4.1. THE LD CIT(A) HAS IGNORED THE ASSESSEE PAID INTERE ST ON BORROWED FUNDS FROM BANKS AND HAS NOT CHARGED INTEREST ON ADVANCES MADE. 13. GROUND NO.1 OF THE ASSESSEES APPEAL IS INTER-CONNECT ED WHICH IS AS UNDER:- 1. THE LD CIT(A) ERRED ON FACTS AND IN LAW IN RESTRI CTING THE ADDITION ON ACCOUNT OF DISALLOWANCE OF INTEREST ON BA NK OVERDRAFT TO `.1 70 625/-. 1.1. THE LD CIT(A) IGNORED THE FACT THAT THE ASSESSEE E ARNED INTEREST ON FIXED DEPOSITS TO THE EXTENT OF `.4 98 137 /-AND IF THE SAID FACT WOULD HAVE BEEN TAKEN INTO ACCOUNT THE NE T INTEREST ON BANK OVERDRAFT WOULD THEREFORE WORK OUT TO (`.1 70 926/-) I.E.NET INTEREST EARNED. 14. THE FACTS REGARDING THIS ISSUE ARE NOTED BY THE ASSESSI NG OFFICER IN PARA NO.1 OF THE ASSESSMENT ORDER. IT IS NOTED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS PAID INTEREST TO THE TUNE OF `.5 55 038/- ON THE LOAN TAKEN FROM BANK WHEREAS HE HAS GIVEN LOAN S TO THE TUNE OF `.47.57 LAKHS ON WHICH INTEREST WAS RECEIVED OF A SMALL AMOUNT OF `.12 570/- AS HAS BEEN SHOWN BY THE ASSESSEE. THE ASSESSING OF FICER ASKED THE ASSESSEE TO SHOW BECAUSE AS TO WHY THE DIFFERENCE AMOUNT OF `.5 42 468/- ON ACCOUNT OF INTEREST PAYMENT EXPEN DITURE SHOULD NOT BE DISALLOWED. IN REPLY IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER THAT THERE IS MARGINAL INCREASE IN THE AMOUNT ADVANCED TO SUNDRY PARTIES WHEREAS THERE IS SUBSTANTIAL INCREASE TO UNAVOIDABLE ACCOUNTS I.E. TDS INTEREST RECEIVABLE SE RVICE TAX RECOVERABLE DEFERRED TAX ETC. IT IS ALSO SUBMITTED TH AT THE MARGINAL PAGE 10 OF 19 ITA NO5196 5197 4720 4721 392&393/DEL/10 INCREASE IN THE BALANCE OF SUNDRY PARTIES ACCOUNT IS ON ACCOUNT OF PURELY FOR BUSINESS CONSIDERATION. THE ASSESSING OFFICER W AS NOT SATISFIED AND HE MADE DISALLOWANCE OF EXCESS OF INTEREST EXPENDITURE/OVER INTEREST RECEIVED OF `.5 42 468/-. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE LD CIT (A) . IT IS NOTED BY THE LD CIT(A) THAT OUT OF TOTAL PAYMENT OF `.5 5 5 038/- ONLY AN AMOUNT OF `.3 27 211/- WAS ON ACCOUNT ON ACCOUNT OF INTEREST ON OVER DRAFT AND THE BALANCE AMOUNT WAS ON ACCOUNT OF BANK CHARGES AT VARIOUS PLACES AND COMMISSION ON BANK GUARANTEE. IT IS A LSO NOTED BY LD CIT(A) THAT THERE IS INCREASE OF `.18.72 LAKHS IN T HE OUT STANDING LOANS AND ADVANCES GIVEN BY THE ASSESSEE BECAUSE THE CLOSIN G BALANCE IS `.47.57 LAKHS AND THE OPENING BALANCE WAS `.28.85 L AKHS. IT IS ALSO NOTED BY LD CIT(A) THAT M/S HTS TOURS & TRAVELS PVT. L TD. IS A SISTER CONCERN OF THE ASSESSEE AND INTEREST FREE ADVANCES OF `. 19.50 LAKHS WAS MADE BY THE ASSESSEE OUT OF BUSINESS OVERDRAFT ACCOUNT MAINTAINED WITH THE BANK OF RAJASTHAN IN THE PRESENT YEAR. ON THIS BASIS HE CONCLUDED THAT INTEREST FREE ADVANCES WERE GI VEN OUT OF INTEREST BEARING BORROWED FUNDS AND HE CONFIRMED THE DISALLOWANCE OF `.1 70 625/- BEING 8.75% OF `.19.50 LAKHS. HE DELETE D THE BALANCE DISALLOWANCE MADE BY THE ASSESSING OFFICER. NOW THE REV ENUE IS IN APPEAL AGAINST RELIEF ALLOWED BY THE LD CIT(A) OF `. 3 71 843/- WHEREAS THE ASSESSEE IS IN APPEAL FOR THE DISALLOWANCE CONFIRMED BY THE LD CIT(A) TO THE EXTENT OF `.1 70 625/-. 15. LD DR OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS LD AR OF THE ASSESSEE SUPPORTED THE ORDER OF LD CIT(A) TO THE EXTENT RELIEF ALLOWED BY HIM. REGARDING DISALLOWANCE CONFIR MED BY HIM IT WAS SUBMITTED THAT DETAILED SUBMISSIONS WERE MADE BY THE ASSE SSEE BEFORE LD CIT(A) WHICH ARE REPRODUCED BY HIM ON PAG E 2 & 3 OF HIS ORDER. IT WAS SUBMITTED BEFORE THE LD CIT(A) THAT AS P ER THE STATEMENT PAGE 11 OF 19 ITA NO5196 5197 4720 4721 392&393/DEL/10 OF BANK OF RAJASTHAN FOR THE RELEVANT PERIOD IT CA N BE SEEN THAT ON 27 5.2005 WHEN THE ADVANCES OF `.19.50 LAKHS WAS GIVE N TO M/S HTD TOURS & TRAVELS (PVT) LTD. A SISTER CONCERN THERE IS DE BIT BALANCE IN THE BANK TO THE EXTENT OF `.38.36 LAKHS BEFORE ADVANCING OF THIS AMOUNT OF `.19.50 LAKHS AND `.18.27 LAKHS IS AVAILABLE AFTER ADV ANCING OF THIS AMOUNT OF `.19.50 LAKHS. IT WAS SUBMITTED THAT UNDER THIS FACTUAL POSITION IT CANNOT BE SAID THAT INTEREST BEARING BORR OWED FUNDS WAS GIVEN TO SISTER CONCERN AS INTEREST FREE ADVANCES. IT IS SUBMITTED THAT UNDER THESE FACTS THE DISALLOWANCE CONFIRMED BY THE L D CIT(A) SHOULD BE DELETED. 16. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GONE T HROUGH THE MATERIAL AVAILABLE ON RECORD. OUT OF TOTAL RELIEF A LLOWED BY LD CIT(A) OF `.3.72 LAKHS WE FIND THAT AN AMOUNT OF `.2.28 LAKHS WAS PAID BY THE ASSESSEE ON ACCOUNT OF BANK CHARGES AND COMMISSION ON BANK GUARANTEE WHICH STANDS INCLUDED IN THE TOTAL AMOUNT O F `.5.55 LAKHS. TO THIS EXTENT NO DISALLOWANCE CAN BE MADE BECAUSE IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE EXPENSES ON ACCOUNT OF BANK CHARGES AND COMMISSION ON BANK GUARANTEE IS NOT FOR BUSINESS PURP OSE. FOR THE BALANCE AMOUNT OF `.1.44 LAKHS FOR WHICH RELIEF IS AL LOWED BY THE LD CIT(A) WE FIND THAT IT WAS ALSO A SUBMISSION OF THE ASSESSE E BEFORE THE ASSESSING OFFICER THAT THERE WAS CREDIT BALANCE IN THE O VERDRAFT ACCOUNT FOR A FEW DAYS ONLY IN EACH MONTH FOR THE BU SINESS PURPOSE OF THOSE DAYS WHEN THE AMOUNT WAS PAID TO VARIOUS AIR LINE S VIA BSP CLEARING HOUSE (SETTLEMENT PLAN OF THE IATA) WHICH I S GENERALLY MADE FORTNIGHTLY ON 14 TH AND LAST DAY OF EACH MONTH. IN THE LIGHT OF THIS FACTUAL ASPECT THAT WHEN THE AMOUNT OF `.19.50 LAKH S WAS GIVEN BY THE ASSESSEE TO ITS SISTER CONCERN M/S HTS TOURS & TRAVELS PVT. L TD. ON 27.5.2005 THERE WAS DEBIT BALANCE OF `.38.36 LAKHS B EFORE SUCH INTEREST FREE ADVANCE AND `.18.27 LAKHS AFTER SUCH INT EREST FREE PAGE 12 OF 19 ITA NO5196 5197 4720 4721 392&393/DEL/10 ADVANCE IT HAS TO BE ACCEPTED THAT SUCH INTEREST FRE E ADVANCE WAS GIVEN BY THE ASSESSEE NOT OUT OF INTEREST BEARING BORROW ED FUNDS BUT OUT OF OWN FUNDS AVAILABLE WITH THE ASSESSEE AT THE REL EVANT POINT OF TIME. UNDER THIS FACTUAL POSITION WE ARE OF THE CONSI DERED OPINION THAT THE ASSESSEE WAS ABLE TO ESTABLISH DIRECT NEXUS OF VARIOUS I NTEREST FREE ADVANCES GIVEN BY IT WITH INTEREST FREE FUNDS AVAILABL E WITH THE ASSESSEE AND HENCE NO DISALLOWANCE OUT OF INTEREST PAYME NT IS JUSTIFIED. WE THEREFORE DELETE THE ENTIRE DISALLOWA NCE OF INTEREST MADE BY THE ASSESSING OFFICER. HENCE THE GROUND RAISED BY TH E REVENUE IS REJECTED AND GROUND NO.1 OF THE ASSESSEES APPEAL IS ALLO WED. 17. THERE IS NO OTHER GROUND IN THE REVENUE APPEAL GROUND NO.2 OF THE ASSESSEE APPEAL IS AS UNDER:- 2. THE LD CIT(A) ERRED ON FACTS AND IN LAW IN UPHOL DING THE DISALLOWANCE OF `.10 000/- U/S 14A OF THE ACT. 18. BRIEF FACTS OF THE CASE ARE THAT IT IS NOTED BY THE ASSESSING OFFICER ON PAGE NO.3 OF THE ASSESSMENT ORDER THAT THE A SSESSEE HAS SHOWN DIVIDEND INCOME OF `.4 31 575/- WHICH HAS BEEN CLAIMED EXEMPT BUT NO PROPORTIONATE EXPENSES ATTRIBUTABLE TO EARNING OF DIVIDEND INCOME HAS BEEN DISALLOWED OUT OF TOTAL EXPENDITURE O F THE BUSINESS AS PER THE PROVISIONS OF SECTION 14A OF THE ACT. THE ASSE SSING OFFICER MADE AN AD HOC DISALLOWANCE OF `.10 000/- ON THIS AC COUNT U/S 14A OF THE ACT. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATT ER IN APPEAL BEFORE LD CIT (A) BUT WITHOUT SUCCESS AND NOW THE ASS ESSEE IS IN FURTHER APPEAL BEFORE US. PAGE 13 OF 19 ITA NO5196 5197 4720 4721 392&393/DEL/10 19. IT IS SUBMITTED BY LD AR OF THE ASSESSEE THAT THIS AD HOC DISALLOWANCE IS NOT JUSTIFIED. LD DR OF THE REVENUE SUP PORTED THE ORDERS OF THE AUTHORITIES BELOW. 20. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GONE T HROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT IN PARA NO.6.3. OF HIS ORDER LD CIT(A) HAS NOTED THE JUDGMENT OF HON'BLE BOMBAY H IGH COURT RENDERED IN THE CASE OF GODREJ BOYCE & MFG. CO. LTD . AS REPORTED IN 234 CTR 1. THEREAFTER IT IS HELD BY LD CIT(A) THAT HAV ING CONSIDERED THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE TH E DISALLOWANCE OF `.10 000/- U/S 14A OF THE ACT APPEARS TO BE JUSTIFIED . WE ARE OF THE CONSIDERED OPINION THAT ALTHOUGH RULE 8D IS NOT APPLI CABLE IN THE PRESENT YEAR BUT SOME DISALLOWANCE HAS TO BE MADE BY TH E ASSESSING OFFICER U/S 14A ON REASONABLE BASIS. THE ASSESSING OFFICER HAS NOT GIVEN ANY BASIS REGARDING THIS DISALLOWANCE OF `. 10 0 00/- U/S 14A WE THEREFORE SET ASIDE THE ORDER OF THE LD CIT(A) ON TH IS ISSUE AND RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FO R A DECISION AFRESH IN THE LIGHT OF THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF GODREJ BOYCE MFG. CO. (SUPRA). THE ASSESSING OFFICER SHOULD PASS A SPEAKING ORDER IN THE LIGHT OF THIS DECISION OF H ON'BLE BOMBAY HIGH COURT AFTER PROVIDING AN ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STAT ISTICAL PURPOSES. 21. IN THE RESULT THE APPEAL OF THE ASSESSEE STANDS ALLO WED IN THE TERMS INDICATED ABOVE WHEREAS THE APPEALS OF THE REVEN UE STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 22. NOW WE TAKE UP TWO CROSS OBJECTIONS OF THE ASSESSEE. WE FIND THAT AS PER THESE TWO CROSS OBJECTIONS THE ASSESSEE HAS SUPPO RTED THE PAGE 14 OF 19 ITA NO5196 5197 4720 4721 392&393/DEL/10 ORDER OF LD CIT(A) REGARDING RELIEF ALLOWED BY HIM AND OTHER GROUNDS TAKEN BY THE ASSESSEE IN THE CROSS OBJECTION ARE TAKEN B Y THE ASSESSEE IN ITS APPEALS AND HENCE THESE TWO CROSS OBJECTIONS OF T HE ASSESSEE ARE IN FRUCTUOUS. LD AR OF THE ASSESSEE ALSO AGREED AND HENCE BOTH THESE CROSS OBJECTIONS OF THE ASSESSEE ARE DISMISSED AS INFRUCT UOUS. 23. NOW WE TAKE UP THE CROSS APPEALS FOR ASSESSMENT YEAR 2007-08. FIRST WE TAKE UP THE REVENUES APPEAL. 24. GROUND NO.1 IS GENERAL. GROUND NO.2 IS SIMILAR TO GROUND NO.2 IN ASSESSMENT YEAR 2006-07. IN ASSESSMENT YEAR 2006-07 AS PER PARA NO.7 ABOVE WE HAVE REJECTED THE GROUND OF REVENUE. BOTH SIDES AGREED THAT IN THIS YEAR ALSO THIS ISSUE CAN BE DECIDED ON SIMILAR LINES. HENCE IN THIS YEAR ALSO GROUND NO.2 OF REVENUE IS RE JECTED. 25. GROUND NO.3 OF THE REVENUES APPEAL IN THIS YEA R IS IDENTICAL TO GROUND NO.3 IN ASSESSMENT YEAR 2006-07. THIS GROUND OF THE REVENUE HAS BEEN PARTLY ALLOWED BY US FOR STATISTICAL PURPOSES IN ASSESSMENT YEAR 2006-07 AS PER PARA NO.11 ABOVE. TO THE EXTENT OF `.1.14 LAKHS THE GROUND OF THE REVENUE WAS REJECTED AND FOR THE R EMAINING AMOUNT OF `.1.80 LAKHS THE ISSUE HAD BEEN RESTORED BACK TO TH E FILE OF THE ASSESSING OFFICER FOR A FRESH DECISION AFTER EXAMINING TH E FACTUAL ASPECT AS TO WHETHER TDS WAS DEDUCTED BY THE ASSESSEE OR NOT U/S 194-I FROM THIS RENT PAYMENT BECAUSE THE PAYMENT EXCE EDS `.1.20 LAKHS. IN THE PRESENT YEAR ALSO THIS GROUND OF THE RE VENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE ASSESSING OFFICER HAS TO DECIDE THE ISSUE REGARDING ALLOWABILITY OF THE AMOUNT OF `.1 .80 LAKHS AFTER EXAMINING THE FACTUAL ASPECT AS TO WHETHER TDS WAS D EDUCTED BY THE ASSESSEE OR NOT U/S 194I. THIS GROUND OF THE REVENUE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. PAGE 15 OF 19 ITA NO5196 5197 4720 4721 392&393/DEL/10 26. GROUND NO.4 OF THE REVENUES APPEAL AND GROUND NO.1 OF THE ASSESSEES APPEAL ARE INTER-CONNECTED WHICH READ AS UNDE R:- 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD CIT(A) HAS BEEN IN RESTRICTING THE ADDITION O N ACCOUNT OF DISALLOWANCE OF INTEREST OF `. 67 830/- AS AGAINST `.4 82 290/- MADE BY THE ASSESSING OFFICER. 4.1. LD CIT(A) HAS IGNORED THE ASSESSEE PAID INTEREST ON BORROWED FUNDS FROM BANKS AND HAS NOT CHARGED INTEREST ON ADVANCES MADE. GROUND NO.1 OF THE ASSESSEES APPEAL: 1. THE LD CIT(A) ERRED ON FACTS AND IN LAW IN RESTRI CTING THE ADDITION ON ACCOUNT OF DISALLOWANCE OF INTEREST ON BA NK OVERDRAFT OF `.67 830/- 27. THE ISSUE INVOLVED AS PER THESE GROUND OF APPEALS IN REVENUE AND ASSESSEES APPEAL IS IDENTICAL TO THE ISSUE INVOLVED IN GROUND NO.4 OF REVENUES APPEAL AND GROUND NO.1 OF THE ASSESSEES AP PEAL IN ASSESSMENT YEAR 2006-07. IN ASSESSMENT YEAR 2006-07 THIS ISSU E HAS BEEN DECIDED BY US AS PER PARA NO.16 AND IT WAS HELD T HAT NO DISALLOWANCE CAN BE MADE OUT OF INTEREST EXPENDITURE BECAUSE THE ASSESSEE HAD BEEN ABLE TO ESTABLISH DIRECT NEXUS BETWEEN I NTEREST FREE ADVANCES GIVEN BY THE ASSESSEE AND INTEREST FREE FUNDS AVA ILABLE WITH THE ASSESSEE. IT WAS THE SUBMISSION OF BOTH SIDES THAT IN TH E PRESENT CASE ALSO THE FACTS ARE SIMILAR AND THE MATTER MAY BE DECIDED ON SIMILAR LINES. HENCE IN THE PRESENT YEAR ALSO WE HOLD THAT NO PART OF PAGE 16 OF 19 ITA NO5196 5197 4720 4721 392&393/DEL/10 INTEREST EXPENDITURE CAN BE DISALLOWANCE. ACCORDINGLY GROUND NO.1 OF THE REVENUE IS REJECTED AND GROUND NO.1 OF THE ASSESSEE S APPEAL IS ALLOWED. 28. GROUND NO.5 OF THE REVENUES APPEAL AND GROUND N O.2 OF THE ASSESSEES APPEAL ARE INTER-CONNECTED WHICH READ AS UNDER :-- 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD CIT(A) HAS BEEN IN RESTRICTING THE ADDITION U/ S 14A TO `.2 00 000/- AS AGAINST `.3 80 117/- MADE BY THE ASSE SSING OFFICER. 5.1. THE LD CIT(A) IGNORED THE FACT THAT THE DISALLO WANCE WAS MADE BY THE ASSESSING OFFICER IN ACCORDANCE WITH THE PR OVISIONS OF THE RULE 8D OF THE IT RULES 1962. GROUND NO.2 OF THE ASSESSEES APPEAL: 2. THE LD CIT(A) ERRED ON FACTS AND IN LAW IN RESTRI CTING THE ADDITION ON ACCOUNT OF DISALLOWANCE U/S 14A TO `.2 00 000/-. 2.1. THE LD CIT(A) IGNORED THE FACT THAT THERE HAS B EEN NO DIVIDED INCOME DURING THE YEAR AND THAT THE FORMULA GIVEN IN RULE 8D IS NOT APPLICABLE TO THE SAID ASSESSMENT YEAR A S IT HAS BEEN INSERTED W.E.F. 25.3.2008 APPLICABLE W.E.F. ASSE SSMENT YEAR 2008-09. 29. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFI CER HAS WORKED OUT DISALLOWANCE U/S 14A AS PER PROVISIONS OF RULE 8D O F IT RULES 1962. LD CIT(A) HAS CONFIRMED THE DISALLOWANCE TO THE EXTEN T OF `.2 LAKHS PAGE 17 OF 19 ITA NO5196 5197 4720 4721 392&393/DEL/10 AFTER CONSIDERING THE JUDGMENT OF HON'BLE BOMBAY HIG H COURT RENDERED IN THE CASE OF GODREJ BOYCE & MFG. CO. (SUPRA) BUT NO BASIS HAS BEEN INDICATED BY THE LD CIT(A) FOR HIS ORDER AS TO HOW H E HAS WORKED OUT THE DISALLOWANCE OF `.2 LAKHS. HE HAS SIMPLY STATED THAT AFTER CONSIDERED THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE THE PROPORTIONATE DISALLOWANCE U/S 14A OF THE INCOME TAX ACT 1961 IS RESTRICTED TO `.2 LAKHS. HENCE IT IS SEEN THAT THE DI SALLOWANCE CONFIRMED BY THE LD CIT(A) IS ON AD HOC BASIS. IN ASSESSM ENT YEAR 2006-07 THIS ISSUE HAS BEEN RESTORED BACK BY US TO THE FILE OF THE ASSESSING OFFICER FOR A FRESH DECISION IN THE LIGHT OF TH IS JUDGMENT OF HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF GO DREJ BOYCE & MFG. CO. (SUPRA). IN THE PRESENT YEAR ALSO WE SET ASID E THE ORDER OF THE LD CIT(A) ON THIS ISSUE AND RESTORE THIS MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR A FRESH DECISION IN THE LIGHT OF TH IS JUDGMENT OF HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF GO DREJ BOYCE & MFG. CO. (SUPRA). THE ASSESSING OFFICER SHOULD PASS NECESSARY ORDER AS PER LAW AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEI NG HEARD TO THE ASSESSEE. ACCORDINGLY GROUND NO.5 OF THE REVENUES AP PEAL AND GROUND NO.2 OF THE ASSESSEES APPEAL ARE ALLOWED FOR STAT ISTICAL PURPOSES. 30. IN THE RESULT THE APPEAL OF THE ASSESSEE STANDS ALL OWED IN THE TERMS INDICATED ABOVE WHEREAS THE APPEAL OF THE REVEN UE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 31. IN THE COMBINED RESULT BOTH THE APPEALS OF THE A SSESSEE ARE ALLOWED IN THE TERMS INDICATED ABOVE AND THE CROSS OBJ ECTIONS OF THE ASSESSEE ARE DISMISSED. BOTH THE APPEALS OF THE REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. PAGE 18 OF 19 ITA NO5196 5197 4720 4721 392&393/DEL/10 32. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE OF HEARING I.E. 31 ST MARCH 2011. SD/- SD/- (R.P. TOLANI) (A.K. GAR ODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 31.3.2011. HMS COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)- NEW DELHI. 5. THE DR ITAT LOKNAYAK BHAWAN KHAN MARKET NEW DEL HI. TRUE COPY. BY ORDER (ITAT NEW DELHI). PAGE 19 OF 19 ITA NO5196 5197 4720 4721 392&393/DEL/10