ACIT, Kota v. RAM KISHAN VERMA, Kota

ITA 960/JPR/2010 | 2005-2006
Pronouncement Date: 08-07-2011 | Result: Partly Allowed

Appeal Details

RSA Number 96023114 RSA 2010
Assessee PAN ADDPK1093R
Bench Jaipur
Appeal Number ITA 960/JPR/2010
Duration Of Justice 11 month(s) 15 day(s)
Appellant ACIT, Kota
Respondent RAM KISHAN VERMA, Kota
Appeal Type Income Tax Appeal
Pronouncement Date 08-07-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 08-07-2011
Assessment Year 2005-2006
Appeal Filed On 23-07-2010
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO.960/ JP/2010 ASSESSMENT YEAR: 2005-06 PAN: ADDPK 1093 R THE ACIT VS. SHRI RAM KISHAN VERMA CIRCLE- 1 PROP. M/S. RESONANCE KOTA J-20 JAWAHAR NAGAR KOTA (APPELLANT ) (RESPONDENT) C.O. NO.81/JP/2010 (ARISING OUT OF ITA NO.960/ JP/2010) ASSESSMENT YEAR: 2005-06 PAN: ADDPK 1093 R SHRI RAM KISHAN VERMA VS. THE ADDL. CIT PROP. M/S. RESONANCE RANGE-1 J-20 JAWAHAR NAGAR KOTA KOTA (APPELLANT ) (RESPONDENT) DEPARTMENT BY : SHRI D.K. MEENA ASSESSEE BY : SHRI MAHENDRA GARGIEYA ORDER PER N.L. KALRA AM:- THE REVENUE HAS FILED AN APPEAL AGAINST THE ORDE R OF THE LD. CIT(A) KOTA DATED 29-04-2010 FOR THE ASSESSMENT YEAR 2005 -06. THE ASSESSEE HAS FILED THE CROSS OBJECTION. 2 2.1 THE FIRST GROUND OF APPEAL OF REVENUE IS AGAINS T REDUCING THE ADDITION ON ACCOUNT OF CASH REFUND OF TUITION FEES TO RS. 86 500/- AS AGAINST RS. 21 51 100/- MADE BY THE AO WHILE THE FIRST GRIEVANC E OF ASSESSEE IN CROSS OBJECTION IS AGAINST CONFIRMING SUCH ADDITION TO RS . 86 500/-. 2.2 THE RELEVANT FACTS AS NOTED BY THE AO ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDING THE AO FOUND THAT THE ASSESS EE HAS SHOWN TOTAL TUITION FEES FOR RS.83 73 040/- AS REFUNDED TO THE STUDENTS. THE ASSESSEE WAS REQUIRED TO FURNISH DETAIL OF SUCH STUDENTS WITH TH EIR ADDRESSES TO WHOM TUITION FEES HAVE BEEN REFUNDED. THE ASSESSEE INFOR MED THAT THE TUITION FEE WAS REFUNDED TO THOSE STUDENTS WHO LEAVE THE INSTIT UTION AFTER CERTAIN PERIOD OF THEIR ADMISSION. THE ASSESSEE ALSO FILED LIST OF SUCH STUDENTS WITH THEIR COMPLETE ADDRESSES TO WHOM TUITION FEES WAS REFUNDE D. THE AO NOTED THAT RS. 21 51 100/- WAS REFUNDED IN CASH TO 175 STUDE NTS WHEREAS IN 322 CASES THE REFUND WAS MADE THROUGH CHEQUES OUT OF TOTAL R EFUND OF RS. 83 73 040/-. 2.3 TO ASCERTAIN THE GENUINENESS OF SUCH REFUND OF TUITION FEES THE AO MADE ENQUIRIES U/S 133(6) FROM THESE STUDENTS ON TE ST CHECK BASIS . HE ALLEGED THAT IN SOME OF THE CASES THE NOTICES SENT U/S 133(6) WERE RECEIVED BACK WITH THE REMARK OF THE POSTAL AUTHORITIES THAT THE PERSONS ARE NOT AVAILABLE OR INCOMPLETE ADDRESSES AND IN 7 CASES HE ALLEGED THAT EITHER THE STUDENTS OR THEIR PARENTS TO WHOM TUITION FEES HAS BEEN REFUNDED IN CASH 3 DENIED TO HAVE RECEIVED ANY SUCH REFUND FROM THE AS SESSEE. TABLE OF SUCH PERSONS IS AVAILABLE AT PAGE 2 OF THE ASSESSMENT OR DER. AS STATED THE AO GAVE A SHOW CAUSE NOTICE DATED 22.11.2007 ASKING TO EXPLAIN WHY REFUND OF RS.21 51 100/- IN CASH BE NOT ADDED IN ITS INCOME A ND THE COPY OF LETTERS RECEIVED FROM SUCH PERSONS ARE ALSO STATED TO BE MA DE AVAILABLE TO THE ASSESSEE. THE ASSESSEE IN COMPLIANCE FILED A WRITTE N REPLY DATED 26.11.2007 REPRODUCED AT PAGE 3 OF THE ASSESSMENT ORDER. SUBSE QUENTLY IN 4 CASES ALSO LETTERS DENYING RECEIPT OF REFUND WAS RECEIVED WHI CH WAS ALSO CONFRONTED TO THE ASSESSEE. 2.4 NOT SATISFIED WITH REPLY OF THE ASSESSEE THAT H E DID NOT HAVE ANY CONTROL OVER THEM FOR THESE STUDENTS AS THEY HAD AL READY LEFT THE INSTITUTE THE AO OBSERVED THAT THE ASSESSEE HAS UTTERLY FAILED TO DISCHARGE HIS RESPONSIBILITY TO PROVE THAT SUCH PAYMENTS WERE ACT UALLY MADE AND CONCLUDED ALL THE STUDENTS TO WHOM PAYMENT OF TUITI ON FEES IN CASH HAVE BEEN SHOWN AND WHO HAVE RESPONDED TO THE NOTICES H AVE DENIED TO HAVE RECEIVED ANY TUITION FEES. THUS THE AO MADE ADDITI ON OF THE ENTIRE REFUND MADE IN CASH OF RS. 21 51 100/-. 2.5 IN THE FIRST APPEAL THE LD. CIT (A) HELD AS UN DER:- I HAVE PERUSED THE ASSESSMENT ORDER AND CONSIDERED SUBMISSIONS OF THE APPELLANT. THE ASSESSING OFFICER NOTICED THAT DURING THE RELEV ANT FINANCIAL YEAR THE APPELLANT HAD REFUNDED FEES OF RS.83 73 040/- TO 49 7 STUDENTS: OF WHICH 175 4 REFUNDS WERE MADE IN CASH THE TOTAL AMOUNT REFUNDE D IN CASH BEING RS.21 51 100/-. ON A TEST CHECK BASIS THE ASSESSING OFFICER ISSU ED NOTICES UNDER SECTION 133(6) OF THE IT ACT 1961 TO SOME STUDENTS ON THE GIVEN ADDRESS ASKING THEM TO CONFIRM THE RECEIPT OF REFUND BY THEM. THE ASSES SING OFFICER OBSERVED SOME ... NOTICES ... (WERE) RECEIVED BACK WITH THE REMAR K OF THE POSTAL AUTHORITIES THAT (SUCH) PERSONS ARE NOT AVAILABLE OR INCOMPLETE ADDR ESSES. AT THE SAME TIME SEVEN (7) STUDENTS SHOWN TO HAVE BEEN PAID REFUND IN CASH (DETAILS AT PAGE 2 OF THE ASSESSMENT ORDER) REPLIED BACK AND DENIED TO HAVE RECEIVED ANY TUITION FEES BACK FROM M/S RESONANCE. BY SHOW-CAUSE NOTICE DATE D 22.11.07 THE APPELLANT WAS REQUIRED TO EXPLAIN WHY REFUND OF TUITION FEE S IN CASH MAY NOT BE TREATED AS NOT GENUINE. SUBSEQUENT TO THE NOTICE-DATED 22.11.07 THE ASSESS ING OFFICER RECEIVED REPLIES FROM FOUR MORE PERSONS (DETAILS AT PAGE 3 O F THE ASSESSMENT ORDER) AND ON 05.12.07 THE ORIGINAL COPIES OF THE LETTERS RECEIV ED FROM SUCH PERSONS WERE ALSO SHOWN TO THE A/R OF THE ASSESSEE. NOT SATISFIED WITH REPLY OF THE APPELLANT THAT HE D ID NOT HAVE ANY CONTROL OVER THEM FOR THESE STUDENTS HAD LEFT THE INSTITUT E THE ASSESSING OFFICER OBSERVED THE ASSESSEE HAS UTTERLY FAILED TO DISCHARGE HIS R ESPONSIBILITY TO PROVE THAT SUCH PAYMENTS WERE ACTUALLY MADE AND CONCLUDED ALL THE STUDENTS TO WHOM PAYMENT OF TUITION FEES IN CASH HAVE BEEN SHOWN AND WHO HAV E RESPONDED TO THE NOTICES... HAVE DENIED TO HAVE RECEIVED ANY TUITION FEES. IT IS PERTINENT THAT EVENTUALLY THERE REMAINED RESP ONSES ONLY FROM SIX (6) STUDENTS DENYING RECEIPT OF REFUND. BECAUSE THE APP ELLANT WAS NOT ALLOWED ANY OPPORTUNITY TO CROSS-EXAMINE THE SIX STUDENTS IN M Y VIEW THE INFERENCE IN THESE SIX CASES IS PROVISIONAL MORE SO BECAUSE ON HIS OW N THE APPELLANT HAD SUBSEQUENTLY OBTAINED CLARIFICATION FROM REMAINING FIVE OF THE 11 STUDENTS DENYING THE VERSION GIVEN TO THE ASSESSING OFFICER AND ACCEPTING THAT THEY HAD INDEED RECEIVED REFUND OF FEES. ON A RANDOM PERUSAL OF THE APPLICATION FORMS FOR RE FUND THE ASSESSING OFFICER FOUND THAT THESE WERE NOT PROPERLY FILLED IN. HE NOTICED FOR EXAMPLE ON 10.06.2004 REFUND OF RS.11 800/- WAS SHOWN THRO UGH CASH TO NEELAM VERMA AND ON THE APPLICATION FOR THE FEE REFUND THERE IS NO SIGNATURE OF MISS NEELAM VERMA. HOWEVER IN THE PORTION OF THIS APPLICATION FOR OFFICE USE SIGNATURE ON REVENUE STAMP HAVE BEEN OBTAINED OF NEELAM VERMA. H OWEVER SUCH SIGNATURES DO NOT PROVE TO HAVE ACTUALLY RECEIVED SUCH AMOUNT OF TUITION FEES. SIMILAR WAS THE POSITION IN RESPECT OF APPLICATION FORMS AND PA YMENTS SHOWN TO SH. AMIT DAHIYA AMIT SINGH ABHEERA SHARMA ANKUSH NAG ABH INAV MARVEL RAKSHITA CHAUDHORY LAKSH SHARMA AND AKSHAY MALHOTRA. ON THE BASIS OF ENQUIRIES DIRECTLY MADE FROM SUCH STUDENTS TO WHOM REFUND OF TUITION IN CASH HAVE BEEN SHOWN IT IS PROVED THAT SUCH CASH PAYMENTS ARE NOT REAL GENUINE AND ACTUAL. THE OBSERVATION OF THE ASSESSING OFFICER IS INTRIGU ING: IS IT HIS CASE THAT PROOF OF REFUND OF FEES TO NEELAM VERMA IS DEFECTIV E BECAUSE SHE DID NOT SIGN IN THE APPROPRIATE PLACE OR WHY ELSE DOES HE HOLD THA T SUCH SIGNATURES DO NOT PROVE TO HAVE ACTUALLY RECEIVED SUCH AMOUNT OF TUITION FE ES. IN ANY CASE HE DID NOT 5 EXPLAIN WHY HE WAS NOT SATISFIED WITH PERUSAL OF AP PLICATION FORMS FOR REFUND OF FEES IN OTHER CASES NAMELY THE CASES OF AMIT DAH IYA AMIT SINGH ABHEERA SHARMA ANKUSH NAG ABHINAV MARVEL RAKSHITA CHAUDH ORY LAKSH SHARMA AND AKSHAY MALHOTRA. IT IS FURTHER SEEN THAT THE FIRST SET OF SEVEN (7) LETTERS CONTAINING DENIAL OF RECEIPT OF REFUND OF FEES WAS MADE AVAILABLE TO THE APPELLANT ON 22/11/2007 AND THE SECOND SET OF FOUR (4) LETTERS WAS SHOWN TO TH E A/R OF THE ASSESSEE ON 05/12/2007. IN NEITHER CASE THE APPELLANT WAS GIVE N AN OPPORTUNITY TO CROSS- EXAMINE THESE PERSONS. AS AGAINST THIS THE ASSESSM ENT WAS MADE ON 18/12/2007. CLEARLY THERE IS MERIT IN CLAIM OF THE APPELLANT O F LACK OR DENIAL OF ADEQUATE OPPORTUNITY PARTICULARLY AS THE MATTERS WERE OLD A ND THE STUDENTS HAD LEFT THE INSTITUTE QUITE SOME TIME AGO. THE APPELLANT NEVERTHELESS CONTINUED TO PURSUE THE 45 STUDENTS TO WHOM THE ASSESSING OFFICER HAD WRITTEN LETTERS AND IN CO URSE OF APPEAL PROCEEDINGS BY LETTER DATED 12/02/2009(PB-2-8) THE APPELLANT EXPL AINED BUSINESS COMPULSION FOR REFUNDING FEES IN CASH. FURTHER BY LETTER DATED 10 /09/2009 THE APPELLANT MADE DETAILED SUBMISSION ALONG WITH FURTHER EVIDENCE OBT AINED FROM FIVE (5) OF THE ELEVEN (11) STUDENTS WHO HAD RESPONDED TO THE ASSE SSING OFFICER NOW DISOWNING THEIR EARLIER COMMUNICATION TO THE ASSESSING OFFICE R AND ACKNOWLEDGING RECEIPT OF REFUND OF FEES IN CASH. THIS EVIDENCE WAS MADE AVAI LABLE TO THE ASSESSING OFFICER AND HIS REPLY DATED 08/01/2010 (PB 38-39) HAS BEEN PERUSED. IN THIS REPLY AMONG OTHER THINGS HE REITERATED THAT TEST CHECK W AS A GOOD BASIS BUT I DO NOT AGREE FOR THIS IS NOT THE CASE OF A POT OF BOILING RICE WHERE ONE OR TWO GRAINS COULD TELL US THE STATE OF COOKING OF THE ENTIRE PO T OF RICE. BY LETTER DATED 05/02/2010 (PB 40-42) THE APPELLAN T PRODUCED LETTERS FROM EIGHT (8) OUT OF 45 WHO ACCEPTED THAT THEY HA D LEVIED THE REFUND IN CASH. THIS LETTER DATED 05/02/2010 ALONG WITH ENCLOSURES WAS MADE AVAILABLE TO THE ASSESSING OFFICER WHO DID NOT MAKE ANY ADVERSE COM MENTS. TO SUM UP FROM 175 CASES OF CASH REFUND THE ASSES SING OFFICER ISSUED NOTICE UNDER SECTION 133 OF THE I T ACT 1961 TO 45 PERSONS; ONLY ELEVEN (11) RESPONDED TO HIM DENYING RECEIPT OF REFUND OF FEES . IN COURSE OF APPEAL PROCEEDINGS THE APPELLANT PRODUCED LETTERS FROM FI VE (5) OF THE SAID 11 PERSONS NOW DISOWNING THEIR EARLIER LETTERS TO THE ASSESSIN G OFFICER AND CONFIRMING RECEIPT OF REFUND OF FEES. THESE LETTERS WERE MADE AVAILABL E TO THE ASSESSING OFFICER AND HIS REPLY DATED 08/01/2010(PB 38-39) HAS BEEN DISPO SED OFF ABOVE. IN THE RESULT ON RECORD THERE IS DENIAL OF RECEIPT OF CASH REFUND ONLY IN SIX (6) CASES AND THE TOTAL AMOUNT INVOLVED IS `86 500/-. IN THESE SIX CA SES TOO THE APPELLANT IS AGGRIEVED THAT HE WAS NOT GIVEN AN OPPORTUNITY TO C ROSS EXAMINE THESE PERSONS. WHILE THERE IS NO EVIDENCE THAT NOTICES ISSUED BY T HE ASSESSING OFFICER WERE INDEED SERVED IN REMAINING 34 CASES (45-11) I N COURSE OF APPEAL PROCEEDINGS THE APPELLANT PRODUCED LETTERS FROM EI GHT (8) OF THESE THIRTY FOUR (34) PERSONS CONFIRMING THE RECEIPT OF REFUND. IN THE EN D WHAT IS AVAILABLE ON RECORD IS PROVISIONAL DENIAL FROM SIX PERSONS AND THE TOTA L AMOUNT IS `86 500/-. IN THIS BACKDROP IN MY CONSIDERED VIEW THE DECISI ON OF ASSESSING OFFICER TO DISALLOW OF `21 51 100/- OF REFUND OF FEES IN CA SH IS BASED ON DENIAL BY ONLY 5 6 OUT OF 175 PERSONS AND FALTERING OBSERVATION ON APP LICATION FORMS FOR REFUND IN ONE CASE AND ALLUSION TO SIMILAR DEFECTS IN OTHER A PPLICATION FORMS IS NOT PROPER. IN MY OPINION THERE IS NO JUSTIFICATION TO EXTRAPO LATE PROVISIONAL FINDINGS IN SIX CASES TO ALL 175 CASES OF REFUND OF FEES IN CASH TO DISALLOW `21 51 000/-. HE HAS ALSO IGNORED A PLAUSIBLE BUSINESS NEED FOR REFUND O F FEES IN CASH AND HE ARRIVED AT HIS CONCLUSIONS WITHOUT GIVING SUFFICIENT OPPORTUN ITY TO THE APPELLANT TO FURNISH HIS DEFENSE ON MATTERS THAT WERE FAIRLY OLD. EVENTUALLY AS MENTIONED ABOVE ONLY EVIDENCE AVAIL ABLE ON RECORD IS THE PROVISIONAL DENIAL OF RECEIPT OF REFUND OF FEES IN 6 CASES AND THE TOTAL AMOUNT IS `86 500/- AND ONLY TO THIS EXTENT THE DECISION OF THE ASSESSING OFFICER TO DISALLOW CLAIM OF REFUND OF FEES IN CASH TO THE SIX (6) PERS ONS IS CONFIRMED. FOR REASONS GIVEN ABOVE THE DECISION TO EXTRAPOLATE TENTATIVE FINDINGS IN THESE SIX CASES TO REMAINING 169 CASES (175-6) RESULTING IN DISALLOWA NCE OF `20 64 600/ (`21 51 000/- LESS `86 500/-) IS NOT CONFIRMED. GROUND 1 OF THE APPEAL IS PARTLY ACCEPTED. 2.6 BEFORE US THE LD. AR HAS FILED THE FOLLOWING S UBMISSIONS. 1. FACTUAL BACKDROP AND BUSINESS NEED: BEFORE PROCEEDINGS ON THE MERITS OF THE CASE IT IS NECESSARY TO UNDERSTAND T HE FACTUAL BACKDROP I.E. THE BUSINESS POLICY AND NEED. THE ASSESSEE ENTERED IN T HE PROFESSION OF COACHING THREE YEARS BACK ONLY AND IT IS A MATTER OF COMMON KNOWLEDGE THAT KOTA IS A CENTRE KNOWN FOR THE BEST AVAILABLE COACHING INSTIT UTES IN THE COUNTRY IMPARTING EDUCATION FOR PREPARATION OF VARIOUS PROFESSIONAL C OURSES. SOME OF THE ESTABLISHED INSTITUTIONS ARE VERY OLD AND STUDENTS COME FROM ALL PARTS OF THE COUNTRY. THE ASSESSEE WAS ENGAGED IN IMPARTING COA CHING TO THE STUDENTS PREPARING FOR THE ENTRANCE EXAMINATIONS OF IIT. IN SUCH A COMPETITIVE ATMOSPHERE TO ENTER AND TO ESTABLISH ONESELF WAS CERTAINLY A TEDIOUS AND CHALLENGING TASK FOR THE ASSESSEE. UNLESS A GOOD BU SINESS POLICY WOULD HAVE BEEN THERE THE ASSESSEE COULD NOT HAVE BEEN SUCCESSFUL. THEREFORE TO WIN THE CONFIDENCE OF THE STUDENTS AND TO PROVE GENUINENESS ON ITS PART TO ARRANGE QU ICK REFUNDS OF THEIR TUITION FEES IN THE CASES OF UNSAT ISFIED STUDENTS WITHOUT MUCH FORMALITY WAS A PART OF GOOD BUSINESS POLICY. PROC EEDING ON THE SAME THE ASSESSEE USED TO QUICKLY REFUND THE TUITION FEES IN CASE THE STUDENT DID NOT FEEL SATISFY WITHOUT HARASSING HIM WITH A VIEW TO COMPEL LED RETAINING / CONTINUANCE . NEEDLESS TO SAY THAT A DELAYED REFUNDS AN ATTEMPT T O RETAIN THE STUDENT WOULD HAVE BROUGHT A BAD NAME TO THE ASSESSEE. IN ADDITION STUDENTS COME NORMALLY IN JULY WHEN TH E SESSION STARTS HOWEVER WITHIN A PERIOD OF 2-3 MONTHS FEW OF THE T HEM HAS TO GO BACK FOR VARIETIES OF REASONS VIZ THE CLIMATE DOES NOT SUIT SOME OF THE STUDENTS FEEL HOME- SICK SOME ARE NOT ABLE TO GO WITH THE STANDARD OF THE STUDIES/TUTORIALS OR FOR SOME OTHER REASONS. THEREFORE AGAINST THE TUITION FEES OF RS. `60 000/- TO RS. `70 000/- HARDLY RS. 10 000/- TO RS. 15 000/- ARE REFUNDED AN D NOT THE ENTIRE FEES WHICH IS HARDLY 5-10% OF TOTAL FEES CHARGED. WHEREVER IT WAS PRACTICABLE THE FEE WAS REFUNDED T HROUGH CHEQUE HOWEVER WHERE THERE WAS INSISTENCE AND PRACTICAL D IFFICULTIES FOR THE STUDENTS 7 WHO WERE COMING FROM REMOTE RURAL AREAS AND NOT HAV ING BANK ACCOUNT ALSO FEES HAD TOLD REFUNDED IN CASH. IT IS NOT THAT THIS HAS HAPPENED FOR THE FIRST TIME . THIS YEAR THE ASSESSEE HAD 3 796 REGISTRATIONS AND TUITION FEES THEREUPON WAS COLLECTED OF RS. 14 21 62 440/-. OUT OF 3 796 REGISTRATIONS THERE WERE 497 REFUND CASES WHICH CAME TO 13.09%. AS AGAINST THIS IN THE IMMEDIATELY PREC EDING YEAR OUT OF 3 237 REGISTRATIONS THERE WERE 490 SUCH REFUND CASES WHI CH CAME TO 15.14%. SUCH REFUND CASES CONTINUED IN LATER YEARS ALSO. THUS THIS YEAR AND THEREAFTER THERE HAS BEEN A GR ADUAL FALL IN THE PERCENTAGE OF SUCH REFUND CASES. THIS WAS NOTHING B UT A GOOD AND GENEROUS BUSINESS POLICY WHICH CERTAINLY INSPIRED CONFIDENCE AMONGST THE VARIOUS STUDENTS AND HAS ULTIMATELY RESULTED IN TO AN INCREASE IN TH E NUMBER OF REGISTRATIONS AND THE COLLECTION OF TUITION FEES AS WELL. THUS SUCH A DECISION AND CLAIM OF EXPENSES WAS TAKEN OUT DUE TO COMMERCIAL EXPEDIENCY. AGAIN IT IS NOT THE CASE WITH THIS ASSESSEE ONLY IN FACT IT IS A PREVAILING TRADE PRACTICE AND ALL OTHER SIMILAR COACHING INSTI TUTIONS INVARIABLY HAVE SUCH CASH REFUND CASES. UNFORTUNATELY HOWEVER THE AO H AS NOT AT ALL APPRECIATED THE FACTS OF THE CASE IN THE ENTIRETY OF THIS FACTUAL B ACKDROP. 2. FAULTY SAMPLE AND UNRELIABLE CONCLUSION OF THE A O: 2.1 OUT OF 497 REFUND CASES THE AO CONCENTRATED ON 175 REFUND CASES WHEREIN REFUND WAS MADE IN CASH. OUT OF 175 HE CHO OSE TO ISSUE QUERY LETTERS U/S 133(6) IN 45 CASES. OUT OF THOSE 45 CASES HE ALLEG ED THAT IN 11 CASES THERE WAS A NEGATIVE RESPONSE HOWEVER WITH REGARD TO THE REMAI NING 34 CASES THERE IS NEITHER ANY RESPONSE AT ALL NOR THERE IS ANYTHING TO SHOW T HAT THE AO PROCEEDED FURTHER OR MADE FRESH ATTEMPTS IN THOSE CASES OR IN SOME MORE OTHER CASES OUT OF 175 STUDENTS. ON THE OTHER HAND OUT OF THOSE 11 CASES IN AS MANY AS 5 CASES THE ASSESSEE PRODUCED FURTHER LETTERS CONFIRMING THE RE CEIPT OF THE REFUND OF FEES AND DENYING THEIR EARLIER VERSION. WHEN THE SAME WERE P ROVIDED TO THE AO HE DID NOT MAKE ANY ADVERSE COMMENT IN HIS REMAND REPORT VIDE DATED 08.01.2010 (PB 38- 39). THE ASSESSEE DID NOT STOP HERE ONLY BUT CONTIN UED MAKING EFFORT AND WITH REGARD TO THOSE 34 CASES ALSO WHEREUPON THE AO IS S ILENT COULD OBTAIN CONFIRMATORY LETTERS (PB 17-19 & 22-26) IN 8 CASES AND WERE SUBMITTED TO LD. CIT(A) VIDE WRITTEN SUBMISSION DATED 05.02.2010 (PB 40-42). HERE ALSO WHEN THE AO CONFRONTED THERE WAS NO ADVERSE COMMENT MAD E BY HIM. THESE FACT ARE TO BE FURTHER APPRECIATED IN THE LIGHT OF THE FACTS THAT THERE WAS NO EVIDENCE THAT NOTICES ISSUED BY THE AO IN ALL THOSE REMAINING 34 CASES (45-11) WERE EVEN SERVED OR NOT. MOREOVER OUT OF THOSE 11 DENIAL CAS ES (WHEREIN 5 STUDENTS ALREADY ACCEPTED LATER ON AS AFORESAID) FINALLY WHAT REMAIN ED WAS ONLY 6 DENIAL CASES OUT OF TOTAL 175 STUDENTS. NOW AGAIN OUT OF THOSE 6 CAS ES ONE WAS THE CASE OF NEELAM VERMA. THE AO STARTED FROM THIS CASE AND AFTER REFE RRING TO SOME MORE CASES HE REACHED TO A FIRM CONCLUSION WITH REGARD TO ALL THE 175 CASES. 2.2 IMPROPER SIZE & SELECTION OF SAMPLE: IN THESE CIRCUMSTANCES A QUESTION ARISES WHETHER THE SAMPLE CHOSEN BY THE AO IS A GOOD SAMPLE BASED UPON WHICH A REASONABLE & ACCEPTABLE CONCLUSION COU LD BE DRAWN. IT CAN BE SEEN THAT THE SAMPLE CHOSEN BY THE AO CONSISTED OF ONLY 11 CASES IN ALL FOR 175 CASES. 8 FIRSTLY THE SIZE OF THE SAMPLE ITSELF WAS TOO SHOR T (I.E. HARDLY 2% OF TOTAL REFUND CASES) TO BE RELIED UPON. SECONDLY IN ONE SOLITARY CASE OF NEELAM VERMA THE AO HIMSELF ADMITTED THAT THE RECEIPT WAS DULY SIGNED O N REVENUE STAMP. EVEN OUT OF 11 CASES 6 FAVORED THE ASSESSEE AND CONSTITUTED 54 .55% OF THE SAMPLE. WITH REGARD TO THE 5 DENIAL CASES IT WAS DIFFICULT FOR THE ASSESSEE TO OFFER ANY COMMENT IN ABSENCE OF ANY OPPORTUNITY OF CROSS EXAMINATION PROVIDED BY THE AO TO THE ASSESSEE.THEREFORE THE SAMPLE SO SELECTED GOES AGA INST THE CONCLUSION DRAWN BY THE AO. WITH REGARD TO THE ENTIRE POPULATION OF 175 CASES. SUCH A STATE OF AFFAIR WAS AGAINST THE THEORY OF STATISTICS. THE CONCLUSION SO DRAWN BY THE AO WAS A PROVISIONA L ONE ONLY BASED ON THE ENQUIRES MADE IN A VERY CASUAL MANNER WHICH IS ALSO REFLECTED IN HIS OWN OBSERVATION MENTIONED AT PAGE 5 PARA TOP WHERE HE S AYS THAT THE ASSESSEE APPEARS TO HAVE SHOWN SUCH PAYMENTS JUST TO REDUCE HIS TAXA BLE INCOME. 2.3 BEFORE GRANTING ANY REFUND OF TUITION FEES AS A MATTER OF PROCEDURE THE ASSESSEE USED TO OBTAIN A PRINTED APPLICATION F ORM WHICH CONTAINS COMPLETE DATE NAME AND PERMANENT ADDRESS OF THE STUDENT HI S PARENTAL HIS CLASS THE REASON BEHIND LEAVING THE INSTITUTION THE DETAILS OF FEES ALREADY PAID AND SIGNATURE ETC. THE OTHER PART WHICH IS MEANT FOR O FFICE USE THE AMOUNT REFUNDED THE MODE OF REFUND AND THE SIGNATURE OF THE RECIPIE NTS ARE AGAIN TAKEN WITH DATE. THE OBJECTION RAISED AND THE INFERENCE DRAWN BY THE AO ARE QUITE INTERESTING. HE OBJECTS THAT THE FORM WAS NOT PROPE RLY FILLED IN AS THERE WAS NO SIGNATURE ON THE APPLICATION PART. HOWEVER AT THE SAME TIME HE AGREES THAT ON THE OTHER PART WHICH IS MEANT FOR OFFICE USE HER SIGNA TURE ARE CERTAINLY THERE ON REVENUE STAMP BUT IN HIS VIEW THIS DO NOT PROVE TH AT SHE ACTUALLY RECEIVED THE REFUND. ADMITTEDLY THERE IS NO EVIDENCE NEITHER BRO UGHT ON RECORD BY HIM NOR REFERRED TO MAKE HIM DRAWING SUCH AN INFERENCE. HE FURTHER ALLEGED THAT SIMILAR WAS THE SITUATION IN SOME OTHER CASES AS WELL NAMED IN THE ASSESSMENT ORDER. HOWEVER HE DID NOT PROVIDE ANY DETAIL AS TO WHAT D EFECT HE COULD NOTE AND HOW HE COULD SAY THAT THE OTHER CASES WERE ALSO SIMILAR TO THAT OF NEELAM VERMA. 3. WHAT IS APPARENT IS REAL ONUS NOT DISCHARGED: IT IS A SETTLED LAW THAT WHAT IS APPARENT IS REAL UNLESS CONTROVERTED. THE ONUS LAY UPON THE PERSON WHO ALLEGES THAT WHAT IS APPARENT IS NOT REAL. KINDLY R EFER CIT (CENTRAL) V/S DAULAT RAM RAWATMULL (1973) 87 ITR 349 (SC) FOLLOWED RE CENTLY IN CIT V/S BEDI & CO. PVT. LTD. (1998) 230 ITR 580 (SC). IN THE PRESENT CASE WHAT WAS APPARENT WAS THAT THE ASSESSEES ADMITTEDLY OBTAIN APPLICATION FO RM FOR REFUND WHICH CONTAINED THE SIGNATURE OF THE PAYEE IN ADDITION TO HIS COMPL ETE NAME AND ADDRESS. THEREFORE IN ALL THE OTHER CASES (EXCEPT THE ALLEG ED CASES WHERE THERE WERE DENIAL BUT NOT THOSE CASES WHERE THERE WAS NO RESPONSE AT ALL) IT HAS TO BE ASSUMED THAT BASED ON THE APPLICATION FORM DULY SIGNED THERE WA S A DUE AND PROPER EVIDENCE IN SUPPORT OF CLAIM OF REFUND. IN ABSENCE OF ANY EV IDENCE CONTRARY THERE TO EITHER AVAILABLE OR BROUGHT ON RECORD BY THE AO THE ONUS TO PROVE THAT THE APPARENT IS NOT REAL IS NOT DISCHARGED. 5. DEFECTIVE ENQUIRY: THERE APART THE WAY / MANNER IN WHICH NATURE OF INQUIRY WAS MADE WAS ALSO DEFECTIVE AND DO NOT INSP IRE CONFIDENCE. ON THIS ASPECT IT WAS SUBMITTED (PB 3-4): 9 IT IS STATED BY THE LEARNED AO THAT HE HAD SENT IN QUIRY LETTERS TO STUDENTS TO WHOM REFUNDS WERE ISSUED. BUT IT IS NOT KNOWN AS TO HOW MANY NOTICES U/S 133(6) WERE ISSUED AND HOW MANY OF THEM WERE RECEIV ED BACK ON ACCOUNT OF INCOMPLETE OR INCORRECT ADDRESSES. IT IS ALSO NOT K NOWN AS TO WHAT DID THE AO DID TO ENFORCE REPLY AND COMPLIANCE FORM THOSE ADDRESSE ES. HE CHOSE NOT TO PROCEED WITH ASCERTAINING THE WHOLE TRUTH OBVIOUSLY FEARIN G THAT STUDENTS WHO DID NOT REPLY MIGHT CONFIRM THE ASSESSEES CLAIM OF GENUINE NESS OF THE REFUND. THE COPY OF THE LETTERS ISSUED TO THE STUDENTS (IT IS PRESUMED THAT THEY WERE IDENTICAL) WERE QUITE CRYPTIC AND ALSO SOUGHT ANSWERS TO VERY LIMITED QUESTION (S) USING TECHNICAL LANGUAGE OF THE INCOM E TAX LAW LIKE A.Y. WHICH IS QUITE LIKELY TO MISLEAD AND CONFUSE PEOPLE WHO ARE NOT AWARE OF THE DIFFERENCE BETWEEN THE FINANCIAL YEAR AND ASSESSMENT YEAR. IT IS NOT KNOWN WHETHER THE AO HAS ENSURED THAT THE LETTERS WHICH CAME BACK UNSERV ED CONTAINED THE ENTIRE ADDRESS PROVIDED BY THE APPELLANT OR IT WAS CORRECT LY MENTIONED. THE LEARNED ASSESSING OFFICER DISALLOWED THE ENTIRE CLAIM OF REFUND OF FEE AMOUNTING TO RS.21 51 100/- ON THE BASIS OF DENIAL BY 7 CASES OUT OF 175 SUCH CASES. WITHOUT PREJUDICE TO OUR SUBMISSION THAT THE CLAIM OF THE APPELLANT IS FULLY GENUINE WE WOULD LIKE TO SUBMIT THAT A DISALLOWANC E ON THE BASIS OF MERE 4% OF SUCH STUDENTS IS INCORRECT ILLOGICAL AND ARBITRARY . 6. NO OPPORTUNITY OF CROSS EXAMINATION: ON THIS ASP ECT IT WAS SUBMITTED (PB 4-5) SINCE THE ASSESSMENT PROCEEDINGS WERE DRAWING CLOS ING TO TIME BARRING DATE AND QUITE A FEW OF THE STUDENTS WERE OUTSTATIO N STUDENTS WE WERE MERELY SHOWN THEIR REPLIES AND COPIES OF THEIR REPLIES WER E NOT MADE AVAILABLE TO US. IT WAS OBVIOUS THAT THE AO WAS IN NO MOOD TO AFFORD US AND ADEQUATE OPPORTUNITY TO CROSS EXAMINE THE STUDENTS WHO HAD DENIED THE RE FUND OF FEES ON THE OTHER HAND HE PROCEEDED TO COMPLETE THE ASSESSMENT PROCEE DINGS IN A HURRIED MANNER (8 WORKING DAYS THEREAFTER) DRAWING ADVERSE INFEREN CE AGAINST THE ASSESSEE EVEN IGNORING THE CASES WHERE HE SHOULD HAVE NOT DRAWN S UCH AN INFERENCE. FOR EXAMPLE- ONE STUDENT NISHANT JINDAL OF CHITTORGARH WROTE TO AO THAT HE DOES NOT REMEMBER AS TO WHETHER HE RECEIVED THE REFUND OR NO T AS THE MATTER WAS OLD. SIMILARLY ANOTHER STUDENT ASHEKHA FROM MUZAFFARPUR (BIHAR) ALSO INFORMED THE AO IN SIMILAR MANNER. THE LEARNED AO CONVENIENTLY O MITTED TO MENTION EVEN THEIR RESPONSE IN THE ASSESSMENT ORDER WHICH TALKS VOLUMES ABOUT THE FAIR MINDEDNESS OF THE ASSESSING OFFICER. 7. REASONS BEHIND DENIAL: IT WAS SUBMITTED (PB-5) NOW COMING TO THE 11 CASES WHOSE DENIAL LETTERS W ERE SHOWN TO US. THE LEARNED AO DID PRECIOUS LITTLE TO SEE POSSIBLE REASONS FOR SUCH DENIALS. IN QUITE GOOD NUMBER OF CASES # THE REFUNDS ARE RECEIVED BY THE GUARDIANS AND STUDENT MAY NOT KNOW AFTER ALL MOST OF THEM WERE IN THEIR TEENS AT THE RELEVANT POINT OF TIME CONVERSELY THERE COULD ALSO BE CASES # WHERE THE REFUND IS RECEIVED BY THE STUDENT AND NOT REPOSTED TO THEIR PARENTS (N OT EVERY PARENT WILL GET BACK TO THE INSTITUTE TO CHECK ON THE VERACITY OF THEIR WAR DS STATEMENT).STILL FURTHER # THERE ARE BOUND TO BE CASES WHERE THE PARENT HAVIN G NOT DISCLOSED THE PAYMENT OF FEE (QUITE SIGNIFICANT AMOUNT ) IN THEIR RECORDS W OULD NOT LIKE TO ADMIT HE REFUND OF FEE. IN FACT MOST OF THE PARENTS WHO INSISTED O N CASH PAYMENT ARE LIKELY TO BE THOSE WHO MAY NOT HAVE PAID THE INSTITUTE FEE FROM THEIR CLEARLY EXPLAINED 10 SOURCES OF INCOME. IT IS MORE LIKELY TO BE IN THE C ASE OF GOVERNMENT SERVANTS. FOR GOVERNMENT SERVANTS AT ANOTHER STATION WHICH IS AL SO QUITE SIGNIFICANT. THE LEARNED AO ALSO MADE QUITE A FUSS OF THE ISSUE OF REFUND OF QU ERY LETTERS BECAUSE OF CHANGE OF ADDRESS OR INADEQUATE ADDRESS. HE FORG OT THAT THE STUDENTS WHO LEFT WERE NO LONGER IN TOUCH WITH US AND THERE WAS CERTA INLY NO PRACTICAL OR LEGAL NEED TO BE IN TOUCH WITH THEM AND KEEP TRACK OF THEIR AD DRESSES. UNFORTUNATELY THE LEARNED AO IGNORED ALL THE ABOVE FACTORS WHICH WAS PLAIN COMMON SENSE AND HARD REALITY OF LIFE AND INS TEAD HE PROCEEDED TO COMPLETE THE ASSESSMENT IN A HURRIED MANNER DRAWING ADVERSE INFERENCE IN THE MATTER. (PB 6) NOW REALIZING THE GRAVITY OF THE SITUATION THE APP ELLANT APPROACHED SOME OF THE PERSONS (11 PERSONS WHO HAD DENIED REFUND OF FEES) FOR ENQUIRING AS TO UNDER WHAT CIRCUMSTANCES THEY HAD DENIED RECEIPT OF REFUND OF FEE. 1. IN THE CASE OF AKSHAY MALHOTRA OF JHANSI (UP) WHEN FATHER OF THE STUDENT) DR. A.K.MALHOTRA) WAS CONTACTED HE EXPLAI NED THE CIRCUMSTANCES UNDER WHICH REFUND OF FEE WAS DENIED. HIS CONFIRMATION LE TTER (PB 20) IN HIS OWN HANDWRITING IN RESPECT OF REFUND OF FEE IS ENCLOSED FOR YOUR KIND PERUSAL. 2. IN THE CASE OF AMIT PAREEK IT WAS CASE OF DENIAL BY SON. WHEN FATHER OF THE STUDENT WAS CONTACTED THE HAS ADMITTED THE RECEIPT OF REFUND. COPY OF THE CONFIRMATION LETTER IS ENCLOSED FOR YOU KIND PERUSA L (PB 21 ). 3. IN THE CASE OF LAKSHA SHARMA OF BEAWAR THE LETTER OF THE AO WAS WRONG IN AS MUCH AS THAT THE STUDENT WAS ASKED AS T O WHETHER HE HAD RECEIVED THE REFUND OF RS.51 000/- WHEREAS THE AMOUNT INVOLVED W AS ONLY RS.5 000/-. 8 . NO MOTIVE OF TAX EVASION: ALSO IT IS RELEVANT TO CONSIDER THE MOTIVE IF ANY BEHIND SUCH REFUNDS. THE FACT TO BE APPRECIATED IS THAT AN ASSESSEE WHO HAD RETURNED INCOME OF `3.94 CRORE IN THE SUBJECTED YEA R IT IS HARD TO BELIEVE WOULD HAVE INDULGED IN SUCH A PRACTICE OF MAKING A CLAIM OF FALLS REFUND OF TUITION FEES FOR A SMALL AMOUNT OF `21 51 100/-. IN FACT THERE WERE AT LEAST 80 MORE SUCH CASES WHERE ALTHOUGH THE STUDENTS DISCONTINUED BUT MADE NO CLAIM OF REFUND AND THE ASSESSEE IF WANTED COULD HAVE SHOWN REFUND IN THOS E 80 CASES ALSO. BUT CERTAINLY THAT WAS NOT THE INTENTION OF THE ASSESSEE. 9. SOME MORE FACTS WORTH CONSIDERATION SUBMITTED A RE AS UNDER :(PB-7 PARA 3 PARA 4 PARA 6 7) 3. THERE IS NO CHALLENGE TO THE FACT THAT THE STUD ENTS TO WHOM REFUND OF FEES WAS MADE HAD CEASED TO BE STUDENTS OF THE INST ITUTE AFTER THE REFUND OF FEES WHETHER THE PAYMENT WAS BY CHEQUE OR IN CASH. THERE IS CONTEMPORARY RECORD OF THEIR DISCONTINUATION OF STUDIES IN AS MUCH AS THAT THE RECORD OF PERIODICAL TESTS UNDERTAKEN BY THEM SHOWS THAT THE STUDENTS IN QUEST ION DID NOT APPEAR IN ANY PERIODICAL TESTS CONDUCTED AFTER REFUND OF FEES. TH E RECORDS OF SUCH TESTS IS PRODUCED BEFORE YOUR HONOUR FOR KIND PERUSAL. 11 4. IT WILL BE APPRECIATED THAT MOSTLY STUDENTS FROM OUTSTATION WOULD REFUSE TO ACCEPT OUTSTATION CHEQUES AND THEN GET IN TO THE HASSLES OF OUTSTATION CLEARANCE ETC. INSPITE OF THAT WE HAVE NOT REFUNDE D FEE IN CASH TO ANY STUDENT IN EXCESS OF RS.20 000/- 6. THAT ANY PERSON WHO HAD NOT SHOWN THE PAYMENT OF FEE TO THE INSTITUTE IN HIS ACCOUNTS/ RECORDS WOULD DEFINITELY AVOID AN SWERING TO QUERY FROM THE INCOME TAX DEPARTMENT AS TO RECEIPT OF REFUND FROM THE INSTITUTE. THIS IS FURTHER HIGHLIGHTED BY THE FACT THAT LARGER NUMBER OF PEOPL E TO WHOM QUERY LETTERS WERE WRITTEN BY LEARNED AO REFRAINED FROM RESPONDING TO THE QUERY OF THE AO. 7. EVEN IN THE REPLIES RECEIVED THERE ARE INSTANCES WHERE THEY HAVE STATED THAT THEY DO NOT REMEMBER IT BECAUSE IT IS AND OLD MATTER. IT WAS UNJUSTIFIED FOR AO TO DRAW ADVERSE INFERENCE FROM SUCH REPLIES. FO R EXAMPLE TAKE THE CASES OF STUDENTS FROM MUZAFFARPUR AND CHITTORGARH AS MENTIO NED EARLIER. 9. IT WILL BE APPRECIATED THAT IN CASE OF STUDENTS COMING FROM OUTSTATION GUARDIANS DO NOT ALWAYS ACCOMPANY THEIR WARDS ESPEC IALLY AT THE TIME OF LEAVING THE INSTITUTE. WHEN SUCH STUDENTS ARE REFUNDED FEE THEY MIGHT FOR OBVIOUS REASONS NOT DISCLOSE THE SAME TO THEIR GUARDIANS/P ARENTS . THIS WILL OBVIOUSLY RESULT IN MISMATCH OF INFORMATION. IT CANT BE DENIED THAT THE TOTALITY OF THE FACTS A ND CIRCUMSTANCES MUST HAVE CONSIDERED AND AFTER CONSIDERING THE CUMULATIV E EFFECT ONLY THEREAFTER CONCLUSION COULD AND SHOULD HAVE BEEN DRAWN. THE AO HOWEVER PROCEEDED IN A HASTY MANNER BY MAKING A CASUAL ENQUIRY AND BASED O N A FAULTY AND INSUFFICIENT SAMPLE DREW HIS CONCLUSION AWAY FROM THE HUMAN PRO BABILITIES PRACTICAL DIFFICULTIES BUSINESS POLICY NEED PAST HISTORY T HE OTHER SIMILAR TRADE PRACTICES ETC. HENCE THE LD. CIT (A) RIGHTLY DELETED THE DIS ALLOWANCE. 10. ONE IMPORTANT ASPECT APPEARS TO HAVE ESCAPED ATTENT ION IS THAT IT IS NOT A CASE OF MAKING A CLAIM OF AN EXPENDITURE AS SUCH BUT WAS A CASE OF NET RECEIPT (I.E. NET OF REFUNDS) OR IN OTHER WORDS LE SSER RECEIPTS. INSTEAD OF CLAIMING EXPENDITURE THE ASSESSEE WAS IN RECEIPT OF TUITION FEES (NET OF REFUND). TO ALLEGE A RECEIPT AS INCOME OF THE ASSESSEE ONUS ALWAYS LAY UPON THE REVENUE. THEREFORE IT WAS FOR THE AO TO PROVE THE CORRECT AMOUNT OF RE CEIPT TO COMPUTE INCOME. 11. SUBMISSION ON THE CO : - A CONTINUED READING OF THE ORDER OF THE LD. CIT(A) WOULD CLEARLY SUGGESTS THAT HE WAS FULLY SAT ISFIED WITH THE FACTS OF CASE AND SUBMISSIONS MADE. HE HIMSELF STATED THAT THE CO NCLUSION OF THE AO WITH REGARD TO THE DENIAL CASES WAS ONLY PROVISIONAL AND THE RECEIPT OF THE CONFIRMATION BACK IN 5 CASES (OUT OF 11 DENIAL CAS ES) AND IN OTHER 8 CASES (OUT OF 34 CASES) THERE WAS NO JUSTIFICATION TO EXTRAPOLATE SUCH PROVISIONAL FINDINGS TO ALL THE 175 REFUND CASES. THEREFORE STILL PARTLY SUSTA INING THE ADDITION WITH REGARD TO THE 6 CASES IN A MECHANICAL MANNER FOR `86 500/- W AS NOT AT ALL JUSTIFIED AND SHOULD HAVE BEEN DELETED. THE CIT(A) RIGHTLY DELETED THE DISALLOWANCE BUT WAS UNJUSTIFIED IN PARTLY SUSTAINING.HENCE THIS GROUND OF THE REVENUE BE DISM ISSED. 12 2.7 ON THE OTHER HAND THE LD. DR HAS RELIED UPON T HE ORDER OF AO. THE AO HAS MADE TEST CHECK OF REFUNDS PAID IN CASH AND THE INFORMATION COLLECTED THROUGH ENQUIRY REVEALED THAT THE STUDENT S HAVE NOT RECEIVED THE REFUND IN CASH. HENCE THE AO WAS JUSTIFIED IN MAKI NG THE ADDITION. 2.8 WE HAVE HEARD BOTH THE PARTIES. THE ASSESSEE IS REFUNDING THE TUITION FEE TO THOSE STUDENTS WHO ARE NOT KEEN TO PURSUE TH E COACHING IN THE INSTITUTE. REFUND IS NOT OF THE ENTIRE FEE. IT IS A NORMAL INC IDENCE OF BUSINESS OF COACHING TO REFUND PART OF THE TUITION FEE IF THE S TUDENT WANTS TO LEAVE BEFORE THE END OF PERIOD UPTO WHICH HE HAS TO CONTINUE. TH E AO WAS DOUBTFUL OF THE ENTRIES RELATING TO REFUNDS MADE IN CASH. IN MANY C ASES RECEIPT OF REFUNDS STANDS ADMITTED. THE ASSESSEE IS HAVING RECEIPTS TO SHOW THE PAYMENT. THE ONUS WAS ON THE REVENUE TO ESTABLISH THAT SUCH RECE IPTS ARE NOT GENUINE. THE RECEIPTS ARE PREPARED BY THE STAFF AND SIGNATURE OF THE STUDENT IS TAKEN. IN CASES WHERE THE REVENUE HAS BEEN ABLE TO COLLECT EV IDENCE THEN SUCH RECEIPTS CAN BE HELD AS NON-GENUINE. WE HAVE NOTICED THAT RE CEIPT OF REFUND IS BY THE STUDENT I.E. SHRI ABHUAV MARVAL WHILE THE LETTER ST ATING THAT REFUND HAS NOT BEEN RECEIVED IS BY HIS FATHER. THE FATHER OF NEELA M VERMA ADMITTED THAT HER DAUGHTER DISCONTINUED THE COACHING AND SECOND INSTA LLMENT WAS NOT 13 DEPOSITED BUT HE STATED THAT REFUND OF RS. 15 000/- HAS NOT BEEN RECEIVED. THE RECEIPT OF REFUND IS SIGNED BY NEELAM VERMA AND THE ENQUIRY SHOULD HAVE BEEN MADE FROM HER. HENCE THE ADDITION WOULD NOT HAVE BEEN MADE IN RESPECT OF THESE TWO CASES. IN RESPECT OF OTHER FOU R CASES NO DETAILS WERE FURNISHED BEFORE US IN THE PAPER BOOK. HENCE REFUN D TO THESE TWO STUDENTS SOF RS. 14 500 PLUS 11800 I.E. RS. 26 300/- COULD N OT HAVE BEEN MADE. THE ADDITION ON ACCOUNT OF REFUND OF FEES IS REDUCED TO RS. 60 200/-. SINCE THE ASSESSEE IS HAVING RECEIPTS HENCE NO ADDITION CAN BE MADE WITHOUT HAVING ANY ADVERSE MATERIAL. HENCE THE BALANCE REFUND HAS BEEN RIGHTLY DELETED BY THE LD. CIT(A). 3.1 THE SECOND GROUND OF APPEAL OF REVENUE IS AGAIN ST DISALLOWANCE OF ADVERTISEMENT EXPENSES OF RS. 63 000/- 3.2 THE ASSESSEE CLAIMED TOTAL ADVERTISEMENT EXPENS ES AT RS.94 45 808/-. DURING EXAMINATION OF SUCH EXPENSES IT WAS FOUND T HAT FOLLOWING EXPENSES HAVE NOT BEEN INCURRED FOR ADVERTISEMENT. IN OTHER WORDS THOUGH THE PAYMENT WAS MADE BUT THE SAME WAS NOT IN CONNECTION TO ANY ADVERTISEMENT OF BUSINESS USE. DATE AMOUNT REMARKS 21.05.2004 5 000/- PAYMENT TO CRICKET CLUB 21.05.2004 5 000/- -DO- 14.08.2004 10 000/- NO BILLS WAS AVAILABLE 18.08.2007 7 000/- PAYMENT TO ABVP NO ADVERTISEMEN T 20.08.2007 10 000/- PAYMENT TO BABULAL DERIYA (NO 14 SUPPORTING BILL). 07.09.2007 11 000/- PAYMENT ON ACCOUNT OF DONATION. 07.10.2007 15 000/- PAYMENT TO ABVP 63 000/- THE ASSESSEE WAS REQUIRED TO EXPLAIN DURING THE ASS ESSMENT PROCEEDINGS AS TO WHY SUCH EXPENSE MAY NOT BE DISALLOWED AS EITHER BILLS ARE NOT THERE OR ADVERTISEMENT IS NOT PROVED. THE ASSESSEE HAS NOT G IVEN ANY SATISFACTORY EXPLANATION. AS THESE EXPENSES HAVE NOT BEEN INCURR ED FOR ADVERTISEMENT OR FOR ANY OTHER BUSINESS PURPOSES THEREFORE THE SAM E WERE DISALLOWED AND ACCORDINGLY ADDITION OF RS.63 000/-WAS MADE. 3.3 IN THE FIRST APPEAL THE LD. CIT (A) HELD AS UN DER:- IN LIGHT OF ABOVE IN MY VIEW THE EXPENSES IN QUE STION WERE INDEED ADVERTISEMENT EXPENSES. IN THE ASSESSMENT OR DER THE ASSESSING OFFICER DID NOT EXPLAIN WHY EXPENSES ON BANNERS DIS PLAYED IN FUNCTIONS WHERE STUDENTS WOULD BE PRESENT DID NOT C ONSTITUTE ADVERTISEMENT FOR THE APPELLANT AND IN HIS LETTER D ATED 08/01/2010 THE ASSESSING OFFICER ADOPTED AN UNREALISTIC AND IMPRAC TICAL WHEN HE STATED ADVERTISEMENT EXPENSES ARE ONLY THOSE EXPE NSES WHICH WERE INCURRED ON BANNER TO BE DISPLAYED. IN GIVEN FACTS AND CIRCUMSTANCES THE ADDITION OF `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`50 000/- IS NOT CONF IRMED. GROUND 3 OF THE APPEAL IS ACCEPTED. 4.4 WE HAVE HEARD BOTH THE PARTIES. THE LD. CIT(A ) HAS APPRECIATED THE FACTS IN PROPER PERSPECTIVE AND WE DO NOT FEEL TO I NTERFERE WITH THE FINDING OF THE LD. CIT(A). 5.1 THE FOURTH GROUND OF APPEAL IS AGAINST DELETING THE ADDITION OF RS. 50 000/- OUT OF BUILDING AND MAINTENANCE ACCOUNT. 5.2 THE AO NOTED THAT THE ASSESSEE HAS CLAIMED EXPE NSES UNDER THE HEAD BUILDING MAINTENANCE ACCOUNT AT RS.10 82 443/- . T HERE ARE CERTAIN EXPENSES WHICH HAVE BEEN INCURRED IN CASH AND WHIC H ARE NOT SUPPORTED BY THE BILLS. FOR EXAMPLE PAYMENT OF RS.2 370/- ON 2 5.05.2004; RS.3 000/- ON 10.07.2007; RS.12 826/- ON 27.06.2007 ARE WITHOUT A NY AUTHENTIC BILLS. AS THE PAYMENT MADE IN CASH AND EITHER WITHOUT ANY BIL LS OR THROUGH SELF MADE VOUCHERS IS NOT SUBJECT TO PROPER VERIFICATION THER EFORE TO COVER UP THE 19 POSSIBLE LEAKAGE OF INCOME RS.50 000/- ARE DISALLO WED FROM THE BUILDING MAINTENANCE EXPENSES AND ADDED IN THE INCOME OF THE ASSESSEE. 5.3 IN THE FIRST APPEAL THE LD. CIT (A) HELD AS UNDER: - THE TOTAL EXPENDITURE ON BUILDING MAINTENANCE DEBI TED TO THE PROFIT LOSS ACCOUNT IS RS. 10 82 443/-. IN CONTEXT OF THIS HUGE AMOUNT OF EXPENDITURE AND GIVEN THE NATURE OF WORK I FIND MERIT IN CLAIM OF THE APPELL ANT THAT FROM TIME TO TIME PETTY WORKS BECOME NECESSARY AND THESE HAVE TO BE CARRIED OUT THROUGH SMALL-TIME ILLITERATE MASONS AND CONTRACTORS WHO DO NOT CARRY BILL BOOKS AND SEEK PAYMENTS IN CASH. IN ANY CASE HE IDENTIFIED ONLY THREE SUCH BILLS AND THE TOTAL AMOUNT IS LESS THAN RS. 19 000/-. I ALSO DO NOT AGREE WITH LOGIC OF THE APPELLANT (SHOULD BE AO) THAT DISALLOWANCE IS REQUIRED TO COVER UP POSSIBLE LEAKAGE OF INCOME. THE DISALLOWANCE OF RS. `50 000/- IS NOT CONFIRMED. GRO UND 4 OF THE APPEAL IS ACCEPTED. 5.4 WE HAVE HEARD BOTH THE PARTIES. THE DISALLOWANC E CANNOT BE MADE ON THE GROUND THAT PAYMENTS WERE MADE IN CASH. NO EVID ENCE IS COLLECTED TO SUGGEST THAT PAYMENTS WERE NOT GENUINE. THE AO COUL D HAVE EXAMINED THE PERSON WHO MADE THE PAYMENT AND VERIFIED THE VOUCHE RS. WE FEEL THAT THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE. 6.1 THE FIFTH GROUNDS OF APPEAL IS AGAINST RESTRICT ING THE DISALLOWANCE TO RS. 58 711/- AND RS. 81 753/- OUT OF TELEPHONE AND VEHICLE EXPENSES DISALLOWED AT RS. 2 93 557/- AND RS. 4 08 765/-. 6.2 THE AO NOTED THAT THE ASSESSEE HAS INCURRED TOTAL E XPENSES ON TELEPHONE AND MOBILES AT RS.2 93 557/-. THE ASSESSE E WAS REQUIRED TO FURNISH 20 DETAIL OF TELEPHONE AND MOBILE EXPENSES AS ALSO THE PLACE OF INSTALLATION OF TELEPHONES AND DETAIL OF PERSONS TO WHOM MOBILES HA VE BEEN PROVIDED. THE ASSESSEE WAS REQUIRED TO EXPLAIN AS TO WHY PERSONAL USE OF TELEPHONE AND MOBILES MAY NOT BE DISALLOWED AND ADDED IN THE INCO ME OF THE ASSESSEE. AS DETAILED FILED BY THE ASSESSEE THREE MOBILES ARE OW NED BY THE PROPRIETOR. TWO TELEPHONES ARE ALSO INSTALLED AT THE RESIDENCE OF THE PROPRIETOR. THE ASSESSEE HAS INCURRED RS.47 883/- ON THE USE OF TEL EPHONE AND MOBILES OF THE PROPRIETOR. THE PERSONAL USE OF OTHER TELEPHONES IN STALLED AT THE BUSINESS PREMISES ALSO NOT RULED OUT. IN THIS BACKGROUND 1/5 OF TOTAL EXPENSES OF RS.2 93 557/- IS ESTIMATED AS PERSONAL USE AND ACC ORDINGLY RS.58 711/- ARE DISALLOWED AND ADDED IN THE INCOME OF THE ASSESSEE. 6.3 THE ASSESSEE HAS CLAIMED TOTAL VEHICLE EXPENSES AT RS.4 08 765/-. THE ASSESSEE IS HAVING 10 CARS OUT OF WHICH TWO ARE BEI NG USED BY THE PROPRIETOR ON WHICH EXPENDITURE OF RS.1 29 035/- IS SHOWN. THE OTHER VEHICLES ARE STATED TO BE STAFFERS. THE ASSESSEE WAS REQUIRED VI DE ORDER SHEET ENTRY DATED 26.11.2007 TO EXPLAIN AS TO WHY PERSONAL USE OF THE VEHICLES MAY NOT BE DISALLOWED AND ADDED IN THE INCOME OF THE ASSESSEE. THE ASSESSEE HAS NOT DISPUTED THE PERSONAL USE AND ACCORDINGLY DISALLOWE D AND ADDED IN THE INCOME OF THE ASSESSEE. 6.4 IN THE FIRST APPEAL THE LD. CIT(A) HELD AS UND ER:- 21 I HAVE PERUSED THE ASSESSMENT ORDER AND CONSIDERED SUBMISSIONS (PB 10-11) OF THE APPELLANT. THE ASSESSING OFFICER NOTICED THAT AN AMOUNT OF RS. 2 93 557/- WAS DEBITED TO THE P&L ACCOUNT ON ACCOUNT OF TELEPHONE AND MOBILE EXPENSES. HE FURTHER FOUND THAT DURING THE YEAR THE APPELLANT WHO IS THE PROPRIETOR OF RESONANCE HAD USED 3 MOBILE PHONES AND 2 LAND L INES WERE INSTALLED AT HIS RESIDENCE ON WHICH EXPENSES OF RS.47 883/- WAS INCURRED. IN ABSENCE OF DETAILS OF USAGE OF THE PHONES THE A SSESSING OFFICER DISALLOWED 1/5 OF TOTAL EXPENSES OF RS.2 93 557/- WHICH RESULTED IN ADDITION OF RS.58 711/-. IN COURSE OF APPEAL PROCEE DINGS THE APPELLANT SUBMITTED THAT DISALLOWANCE FOR PERSONAL USE SHOULD BE APPLIED TO 3 MOBILES USED BY THE APPELLANT AND 2 LAND LINES AT H IS RESIDENCE BECAUSE ALL OTHER TELEPHONES WERE DEDICATED FOR BUSINESS PURPOS ES. I AM SATISFIED WITH THIS CLAIM OF THE APPELLANT. SIMILARLY FIND MERIT IN CLAIM OF THE APPELLANT THAT DISALLOWANCE FOR PERSONAL USE AT 1/5 SHOULD AP PLY ONLY TO THE EXPENSES OF RS.1 29 035/- ON TWO CARS EXCLUSIVELY USED BY T HE APPELLANT. IN CONCLUSION I AM SATISFIED WITH THE CONTENTION O F THE APPELLANT THAT DISALLOWANCES FOR PERSONAL USE AT 1/5 SHOULD APPLY ONLY TO 3 MOBILES USED BY HIM AND 2 LAND LINES INSTALLED AT HIS RESID ENCE AND ALSO ONLY TO THE TWO CARS USED EXCLUSIVELY BY THE APPELLANT. THE ASS ESSING OFFICER IS DIRECTED TO COMPUTE THE DISALLOWANCES 1/5 ON RS.47 883/- BEING THE EXPENSES ON 3 MOBILES AND 2 LANDLINES MENTIONED ABO VE AND RS.1 29 035/- ON TWO CARS USED BY THE APPELLANT. GROUND 5 O F THE APPEAL IS PARTLY ACCEPTED. 6.5 WE HAVE HEARD BOTH THE PARTIES. THE TELEPHONES INSTALLED AT BUSINESS PREMISES CANNOT BE CONSIDERED FOR PERSONAL USE. THE LD. CIT(A) HAS RIGHTLY REDUCED THE DISALLOWANCE. WE FEEL THAT THE ORDER OF THE LD. CIT(A) IS FAIR AND 22 REASONABLE. HENCE GROUND OF APPEAL NO 2 OF CROSS O BJECTION IS ALSO DISMISSED VIDE WHICH THE ASSESSEE IS AGGRIEVED AGAI NST CONFIRMATION OF PART OF THE DISALLOWANCE. 7.1 THE SIXTH GROUND OF APPEAL RAISED BY REVENUE IS AGAINST RELIEF OF RS. 1.00 LAC OUT OF COPY CHECKING EXPENSES. 7.2 THE FACTS OF THE CASE NOTED BY THE AO ARE AS UNDER: - AS PER AUDIT REPORT IN FORM NO.3CB THE ASSESSEE H AS PAID RS.93 500/- (CORRECT FIGURE RS.9.35 LACS OF COPY CHECKING) ( PB 64 ) TO M/S SRK ASSOCIATES ON ACCOUNT OF COPY CHECKING. THE ASSESSEE VIDE QUES TIONNAIRE DATED 18.09.2007 WAS REQUIRED TO JUSTIFY PAYMENT OF M/S SRK ASSOCIAT ES. IT MAY BE MENTIONED THAT M/S SRK ASSOCIATES IS A PROPRIETORS CONCERN OF SMT. SUNITA VERMA WHO HAPPENED TO BE WIFE OF THE ASSESSEE I.E. SHRI RAM K ISHAN VERMA. THE ASSESSEE VIDE WRITTEN REPLY DATED 08.10.2007 S STATED THAT T HESE PAYMENT HAVE BEEN MADE TO M/S SRK ASSOCIATES FOR CHECKING OF TEST COPIES W ERE USE TO BE CHECKED BY THEIR OWN FACULTY AND THAN IT WAS EFFECTING WERE EF FICIENCY IN TEACHING. THEREFORE IT WAS FURTHER STATED THAT ALL PAYMENTS HAVE BEEN M ADE IN CASH AND THAT M/S SRK ASSOCIATES IS ALSO AN EXISTING ASSESSEE UNDER PAN ADHPV3721D. I HAVE CAREFULLY CONSIDERED THE WRITTEN REPLY OF TH E ASSESSEE. IT MAY BE SEEN THAT IN WRITTEN REPLY THE ASSESSEE HAS JUSTIFI ED THE PAYMENT BUT THIS PAYMENT BEING COVERED U/S 40A(2)(B) OF I.T.ACT 1961 THE A SSESSEE HAVE TO PROVE THAT THE PAYMENT WAS NOT IN EXCESS OF BUSINESS NEEDS AND THA T THE SAME WERE ALSO AS PER THE PREVAILING MARKET RATED. THE ASSESSEE HAS ALSO NOT FILED ANY DETAIL AS TO WHAT RATE WAS FIXED FOR CHECKING OF EACH COPY AND ON PER USAL OF BILLS ISSUED BY M/S SRK ASSOCIATES. IT IS FOUND THAT THERE IS NOT MENTI ON OF NUMBER COPY AND THE RATE 23 OF CHECKING OF PER COPIES IN THE BILLS SO RAISED. I T ALSO APPEARS THAT BUSINESS PREMISES OF M/S RESONANCE HAVE BEEN USED FOR SUCH W ORK AND ALSO THAT SUCH WORK WAS GOT DONE THROUGH THE PAID EMPLOYEES. THERE FORE THOUGH THE INCURRENCE OF SUCH EXPENSES IS NOT DISPUTED BUT THE PAYMENT WA S DEFINITELY IN EXCESS TO THE BUSINESS NEEDS. ACCORDINGLY OUT OF THE TOTAL PAYMEN T RS.1 LAC IS DISALLOWED U/S 40A (2) (B) OF I.T.ACT AND ADDED IN THE INCOME. 7.3 IN THE FIRST APPEAL THE LD. CIT(A) HELD AS UND ER: I HAVE PERUSED THE ASSESSMENT ORDER CONSIDERED SU BMISSIONS (PB 11) OF THE APPELLANT AND CAREFULLY STUDIED VARIOUS PRO VISIONS OF LAW. THE ASSESSING OFFICER NOTICED THAT THE APPELLANT HA D PAID RS.9 33 000/-(CORRECT FIGURE RS.9.35 LACS ) (PB 64) FOR COPY CHECKING TO SRK ASSOCIATES A PROPRIETARY CONCERN OF SUNITA VER MA HIS WIFE AND AFTER CONSIDERING REPLY DATED 8.10.07 HE OBSERVED THE ASSESSEE. THE PAID EMPLOYEES. CONSEQUENTLY HE INVOKED SECTION 40A(2)(B) OF THE I T ACT 1961 AND DISALLOWED RS.1 00 000/- ON ADHOC BASIS. IN MY CONSIDERED OPINION THE ASSESSING OFFICER WAS WRONG IN HOLDING THAT IT WAS THE RESPONSIBILITY OF THE APPEL LANT TO PROVE THAT THE PAYMENT WAS NOT IN EXCESS ... AND (IT WAS) ... AS P ER THE PREVAILING MARKET RATE. A PLAIN READING OF THE SECTION SHOWS THAT UN DER LAW IT WAS RESPONSIBILITY OF THE ASSESSING OFFICER TO SHOW THA T EXPENSES THROUGH OR PAYMENTS TO SPECIFIED PERSONS WERE EXCESSIVE OR U NREASONABLE WITH REFERENCE TO FAIR MARKET VALUE AND THAT SUCH PAYMEN TS DID NOT SERVE LEGITIMATE NEEDS OF THE BUSINESS OR PROFESSION. INS TEAD OF FULFILLING THE STATUTORY OBLIGATION CAST UPON HIM THE ASSESSING O FFICER MERELY SHIFTED THE ONUS ON THE APPELLANT. FURTHER THERE IS NO EVIDENCE ON RECORD THAT AFTER RECEIPT OF ABOVE MENTIONED DETAILS IN RESPECT OF DEALINGS WITH SRK A SSOCIATES THE ASSESSING OFFICER HAD REQUIRED THE APPELLANT TO PRO DUCE THE DETAILS OF RATES AND NUMBER OF COPIES GOT CHECKED THROUGH SRK ASSOCI ATES. IT IS ALSO SEEN THAT IN THE ASSESSMENT ORDER THE AS SESSING OFFICER HAS WRONGLY RECORDED THAT ALL PAYMENTS HAVE BEEN MADE IN CASH AS THERE IS EVIDENCE THAT PAYMENTS TO SRK ASSOCIATES WERE MADE BY CHEQUE. BY LETTER DATED NIL RECEIVED BY THE ASSESSING OFFICER ON 8.10.07 THE APPELLANT 24 HAD SUBMITTED THE INSTITUTE IS ORGANIZING WEEKLY/ FORTNIGHTLY AND MONTHLY TESTS AS WELL AND MAJOR- TEST SELECTION TES T. COPIES OF MAJOR/SELECTION TEST IS EXAMINED/CHECKED BY THE FAC ULTIES. BUT THE FACULTIES FELT DIFFICULTIES IN CHECKING WEEKLY/FORTNIGHTLY TE ST COPIES BECAUSE LACK OF TIME AND THE SAID JOB WAS EFFECTING THEIR EFFICIENC Y IN TEACHING. THIS WAS VERY MUCH FELT AND COMPLAINTS FROM PARENTS OF THE S TUDENTS WERE HEARD. THEREFORE ARRANGEMENT FOR CHECKING THOSE TEST COPIE S WAS MANAGED FROM OUT SOURCES AND THE JOB WAS ASSIGNED TO SRK ASSOCIA TES KOTA. SRK ASSOCIATES HAVE MANAGED THE COPY CHECKING BY APPOIN TING THE QUALIFIED PERSONALS ON PAYMENT BASIS AND OVER ALL TIMELY SUBM ISSION OF CHECKING LIST/REPORT/RESULTS WAS TAKEN OVER BY SRK ASSOCIATE S FOR WHICH NECESSARY PAYMENTS WERE MADE. ALL SUCH PAYMENTS ARE MADE THRO UGH A/C PAYEE CHEQUES TO SRK ASSOCIATES AND AS SRK ASSOCIATES IS ALSO A INCOME TAX ASSESSEE PAYMENT BY THEM IS ALSO MADE THROUGH A/C PAYEE CHEQUES. SRK ASSOCIATES KOTA PROP SMT. SUNITA VERMA PAN ADHPV3 721D. THE ASSESSING OFFICER DID NOT BRING ON RECORD ANY E VIDENCE ON RECORD TO SHOW THAT SRK ASSOCIATES GOT THE CHECKING WORK DONE THROUGH THE PAID EMPLOYEES OF THE APPELLANT AND IN ABSENC E OF ANY EVIDENCE THE APPEARANCE CANNOT BE THE BASIS FOR A DISALLOWANCE . YET AGAIN THE ASSESSING OFFICER HAS NOT GIVEN ANY BASIS FOR ADOPT ING THE FIGURE OF RS.1 00 000/- FOR MAKING DISALLOWANCE. THE FACT THAT THE PROPRIETOR OF SRK ASSOCIATES WAS WIFE OF THE APPELLANT IS GOOD REASON FOR INVOKING SECTION 40A ( 2)(B) OF THE IT ACT 1961. BUT THE ADHOC DISALLOWANCE IS NOT JUSTIFIED F OR THIS DECISION IS ONLY BASED ON ASSUMPTIONS AND GUESSWORK AND THE ASSESSIN G OFFICER DID NOT SHOW THAT PAYMENTS TO SRK ASSOCIATES WERE EXCESSIVE WITH REFERENCE TO FAIR MARKET PRICES FOR SUCH SERVICES OR THAT THERE WAS NO LEGITIMATE NEED FOR SUCH PAYMENTS. THE DISALLOWANCE OF RS.1 00 000/- IS NOT CONFIRMED AND GROUND 6 OF THE APPEAL IS ACCEPTED. 25 7.4 WE HAVE HEARD BOTH THE PARTIES. THE AO HAS NOT DISPUTED THE INCURRING OF EXPENSES. THE HON'BLE APEX COURT IN TH E CASE OF CIT VS EDWARD KEVENTER (P) LTD. 115 ITR 149 OBSERVED THAT THE AO MUST NOT APPLY PROVISIONS OF SECTION 40A(2)(B) [IN THE OLD ACT AS SECTION 10(4A) CAPRICIOUSLY AS A MATTER OF ROUTINE AND SECTION IS TO BE APPLIED JUDICIOUSLY. THE LEGITIMATE BUSINESS NEEDS MUST BE JUDGED FROM T HE VIEWPOINT OF A PRUDENT BUSINESS MAN. THE BENEFIT DERIVED OR OCCURR ING MUST ALSO BE CONSIDERED FROM THE ANGLE OF A PRUDENT BUSINESSMAN. BENEFIT MAY NOT NECESSARILY BE CAPABLE OF ACCURATELY MEASURED IN TE RMS OF POUND SHILLINGS AND PENCE IN ALL CASES. WHEN THE AO HAS ACCEPTED TH E GENUINENESS OF PAYMENT THEN THERE MUST BE SOME MATERIAL TO SUGGEST THAT FAIR MARKET VALUE OF SERVICES RENDERED BY A CONCERN COVERED U/S 40A(2 )(B) IS LESS AS COMPARED TO ACTUAL PAYMENT. HENCE IN ABSENCE OF EVIDENCE CO LLECTED BY THE AO WE FEEL THAT THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION. 8.1 THE SEVENTH GROUND OF APPEAL OF REVENUE IS THAT THE LD. CIT(A) HAS DELETED THE ADDITION OF RS. 15 862/- OUT OF COMPUTE R EXPENSES. 8.2 THE FACTS OF THE CASE NOTED BY THE AO ARE AS UNDER :- THE ASSESSEE HAS CLAIMED TOTAL EXPENSES OF RS.3 54 092/- UNDER THE HEAD COMPUTER EXPENSES. THE CLAIM OF THE ASSESSEE WAS EXAMINED BY WAY OF RANDOMLY CHECKING THE BILLS AND WAS FOUND THAT THE ASSESSEE HAS CLAIMED AN EXPENDITURE OF RS. 12 587/- ON 08.04.2004 ON ACCOUNT OF PAYMENT MADE TO M/S ASSETS SOLUTIONS 26 AND THIS INCLUDED EXPENDITURE OF RS.11 987/- ON ACC OUNT OF PURCHASE OF PENTIUM (IV) 2GHZ MERCURY MOTHER BOARD. SIMILARLY EXPENDITURE INCURRED ON 27.04.2004 FOR RS.6 335/- I NCLUDED RS.3 875/- ON ACCOUNT OF PURCHASE OF ONE UPS. THESE PAYMENTS WERE PRIMA-FACIE OF CAPITAL NATURE AS NEW ITEMS/ASS ETS WERE PURCHASED BY THE ASSESSEE. THE A/R OF THE ASSESSEE WAS CONFRONTED ON THIS ISSUE DURING THE COURSE OF PROCEEDING ITSEL F AND HE HAS NOT GIVEN ANY SATISFACTORY EXPLANATION. THEREFORE TOTA L EXPENSES FOR RS.15 862/- ARE HELD TO BE OF CAPITAL NATURE AND THE SAME ARE DISALLOWED AND ADDED IN THE INCOME OF THE ASSESSEE. 8.3 IN THE FIRST APPEAL THE LD. CIT(A) HELD AS UND ER: I HAVE PERUSED THE ASSESSMENT ORDER AND CONSIDERED SUBMISSIONS (PB 11-12) OF THE APPELLANT. THE ASSESSING OFFICER DISALLOWED RS.15 862/- FROM COMPUTER EXPENSES HOLDING THAT EXPENDITURE OF RS.1 2 587/- ON PURCHASE OF MOTHER BOARD AND RS.3 875/- FOR PURC HASE OF ONE UPS WERE PRIMA-FACIE OF CAPITAL NATURE. IN COURSE OF APPEAL PROCEEDINGS BY LETTER DATED 05 .02.10 THE APPELLANT SUBMITTED EXPENSES OF RS.11 987/- T HE PAYMENT WAS MADE FOR REPAIR/REPLACEMENT AND UP GRADATION OF COM PUTER MOTHER BOARD WHICH IS NOTHING BUT A REPAIR AND RS.3 875/- WAS ALSO PAID FOR REPLACEMENT OF A PART OF THE COMPUTER I.E. UPS . THERE IS NO DOUBT THAT THE MOTHERBOARD IS A COMPONE NT OF THE COMPUTER AND EXPENDITURE ON ITS REPLACEMENT CAN NOT BE TREATED AS A CAPITAL COST. ON THE OTHER HAND THE UPS TH OUGH NECESSARY FOR A COMPUTER IS A SEPARATE COMPONENT AND DECISIO N OF THE ASSESSING OFFICER TO TREAT ITS COST AS CAPITAL COS T IS IN ORDER. THE ASSESSMENT ORDER SHOULD BE MODIFIED ACCORDINGLY. GR OUND 7 IS PARTLY ACCEPTED. 27 8.4 WE HAVE HEARD BOTH THE PARTIES. THE LD. CIT(A) HAS RIGHTLY APPRECIATED THAT EXPENSES DELETED ARE OF CURRENT RE PAIR AND ARE NOT CAPITAL EXPENSES. WE THEREFORE HOLD THAT THE LD. CIT(A) WA S JUSTIFIED IN DELETING THE EXPENSES. 9.1 THE EIGHTH GROUND OF APPEAL IS AGAINST RELIEF O F RS. 71 233/- OUT OF STAFF WELFARE EXPENSES. 9.2 THE FACTS OF THE CASE NOTED BY THE AO ARE AS UN DER:- THE ASSESSEE HAS CLAIMED TOTAL EXPENSES OF RS.7 1 2 330/- UNDER THE HEAD STAG WELFARE EXPENSES. ON RANDOM VER IFICATION DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS FOUND THAT MOST OF THESE EXPENSES HAVE BEEN INCURRED IN CASH A ND ALSO THAT PART OF THE EXPENSES ARE CLAIM ON THE BASIS OF SELF MADE VOUCHERS. FOR EXAMPLE THE ASSESSEE HAS SHOWN EXPENDITURE OF R S.25 000/- ON 08.09.2004 AND THIS EXPENDITURE WAS INCURRED THROUG H SHRI SANJAY GUPTA AND IT WAS CLAIMED ON THE BASIS OF SELF MADE VOUCHERS (VOUCHERS PREPARED BY SHRI SANJAY GUPTA). SIMILARLY EXPENDITURE INCURRED ON 01.10.2001 FOR RS. 25 000/- ON 30.10.2 007 FOR RS.25 223/- 30.11.2007 FOR RS.19 089/- 30.12.2004 FOR RS.24 980/- 30.01.2005 FOR RS.24 881/- WERE OF THE SAME TYPE. AS THESE EXPENSES HAVE PARTLY INCURRED IN CASH AND ALS O NOT SUPPORTED BY AUTHENTIC BILLS. THEREFORE POSSIBILITY OF LEAKA GE OF INCOME CAN NOT BE RULED OUT. ON ACCOUNT OF THESE DEFECTS 1/10 OF TOTAL STAFF WELFARE EXPENSES WHICH ARRIVES AT RS.71 233/- ARE D ISALLOWED AND ADDED IN THE INCOME OF THE ASSESSEE. 9.3 IN THE FIRST APPEAL THE LD. CIT(A) HELD AS UND ER: 28 I HAVE PERUSED THE ASSESSMENT ORDER AND CONSIDERED SUBMISSIONS (PB 12) OF THE APPELLANT. THE ASSESSING OFFICER DISALLOWED 1/10 OF TOTAL STAF F WELFARE EXPENSES BECAUSE HE NOTICED THAT EXPENDITURE OF RS. 25 000/- ON 08.09.04 WAS INCURRED THROUGH SANJAY GUPTA AND SUP PORTED WITH SELF MADE VOUCHER (VOUCHER PREPARED BY SANJAY GUPTA ). IN THE ASSESSMENT ORDER HE LISTED FURTHER 5 ITEMS WITH A CRYPTIC OBSERVATION THAT THESE WERE OF THE SAME TYPE. IN LETTER DATED 05.02.10 THE APPELLANT SUBMITTED A LUMP SUM AMOUNT OF RS.71 233/- (10% OF THE TOTAL EXPENSE S) IS DISALLOWED ON THE REASONS THAT THE VOUCHERS ARE SEL F MADE. THE QUOTED CASE IS OF VOUCHER MADE BY SANJAY GUPTA. IT IS VERY HUMBLY SUBMITTED THAT SH SANJAY GUPTA IS NEITHER A EMPLOYE E NOR A RELATIVE OF THE ASSESSEE AND THEREFORE VOUCHER PREPARED BY H IM CANNOT BE TERMED AS SELF MADE VOUCHER. THESE VOUCHERS ARE ISS UED BY THE PERSON WHO HAS SUPPLIED THE ITEMS/SERVICES REGARDIN G STAFF WELFARE. THE SOLE EXAMPLE OF SELF-MADE VOUCHER GIVEN IN THE ASSESSMENT ORDER IS THE VOUCHER IN HIS OWN WORDS VOUCHER PREPARED BY SANJAY GUPTA. SINCE SANJAY GUPTA IS N OT A PART OF ESTABLISHMENT OF THE APPELLANT THIS VOUCHER AS ME NTIONED BY THE APPELLANT IS NOT A SELF-MADE VOUCHER. THE ASSESSIN G OFFICER DID NOT ELABORATE ON THE OTHER FIVE ITEMS WHICH WERE OF T HE SAME TYPE. IN SHORT THE ADHOC DISALLOWANCE FROM STAFF WELFARE EXPENSES IS WITHOUT BASIS AND IS RIOT CONFIRMED AN D THE ADDITION OF RS.71 233/- IS DELETED. GROUND 8 OF THE APPEAL IS ACCEPTED. 9.4 WE HAVE HEARD BOTH THE PARTIES. BEFORE THE LD. CIT(A) THE ASSESSEE HAS NOT GIVEN THE DETAILS OF SERVICES RENDERED. TH E PAPER BOOK ALSO DO NOT 29 CONTAIN COPY OF SUCH VOUCHERS. THE AO HAS MENTIONED THAT SOME EXPENSES ARE NOT SUPPORTED BY AUTHENTIC BILLS. WE THEREFORE FEEL THAT AO WAS JUSTIFIED IN DISALLOWING PART OF THE EXPENDITURE. THE DISALLO WANCE IS EXCESSIVE AND HENCE IS RESTRICTED TO RS. 35 000/-. IT IS NOTICED THAT PART OF SUCH EXPENSES FOR WHICH NO INDEPENDENT BILLS ARE AVAILABLE ARE IN ROU ND FIGURES. 10.1 THE NINTH GROUND OF APPEAL IS AGAINST RESTRICT ING THE INTEREST AT 6% INSTEAD OF 11% ON INTEREST FREE PAYMENT. 10.2 THE FACTS NOTED BY THE AO IS AS UNDER:- ON PERUSAL OF COMPUTATION OF INCOME IT WAS FOUND T HAT THE ASSESSEE HAS PAID INTEREST TO BANK AGAINST LOAN AND OVERDRAFT FOR RS.10 99 099/- AND SUCH INTEREST PAYMENT WAS REDUCE D FROM THE BANK INTEREST FOR FDR FOR RS.24 46 843/-. ON PERUSAL OF SCHEDULE- VIII OF THE BALANCE SHEET IT WAS FOUND THAT THE AS SESSEE HAS MADE INTEREST FREE ADVANCES TO THE FOLLOWING PERSONS: (A O PG 11) THE ASSESSEE AS PER THIS OFFICE LETTER NO.14-12-200 7 WAS INFORMED THAT AS PER COMPUTATION OF INCOME HE HAS SHOWN INTEREST FROM BANK FDRS FOR RS.24 46 843/- AND AGAINST THIS INCOME INTEREST PAYMENT TO BANK ON LOAN AND OVERDRAFT HAVE BEEN SHOWN AT RS.10 99 099/-. IT WAS ALSO BROUGHT TO HIS NOTICE T HAT AS PER SCHEDULE-8 HE HAS ADVANCED LOANS TO VARIOUS PERSON S WHICH WERE OUTSTANDING AT RS.98 23 950/- AND ON SUCH ADVANCES NO INTERESTS HAVE BEEN CHARGED. THIS INDICATED THAT ON THE ONE H AND HE WAS PAYING INTEREST ON BANK OVERDRAFTS ON THE OTHER HAN D HE HAS MAKING INTEREST FREE ADVANCES AND IN THIS MANNER THE INTER EST BEARING FUNDS HAVE BEEN UTILIZED FOR MAKING INTEREST FREE ADVANCE S. 30 THE ASSESSEE WAS REQUIRED TO EXPLAIN AS TO WHY INTE REST PAID ON BANK OVERDRAFT MAY NOT BE DISALLOWED AS THE SAME HAVE BEEN USED NOT FOR BUSINESS PURPOSES BUT FOR MAKING INTER EST FREE ADVANCES. THE ASSESSEE HAS SUBMITTED A WRITTEN REPL Y DATED 18-12- 2007 AND IT WAS STATED THAT THE ASSESSEE HAS NOT GIVEN ANY LOAN/ADVANCE (SCHED ULE-8) BY TAKING OVERDRAFT FROM THE BANK. THE LOANS/ADVANC ES ARE GIVEN OUT OF THE CAPITAL OF THE ASSESSEE WHICH IS MUCH MO RE THAN THE ADVANCE GIVEN. THE CAPITAL OF THE ASSESSEE IS OF RS .5 70 74 967/- AS ON 31-03-2005 AND THE ADVANCES GIVEN ARE ONLY RS .98 93 950/-. THEREFORE THE PRESUMPTION THAT THE ASSESSEE HAS USE D THE INTEREST BEARING FUNDS FOR MAKING INTEREST FREE ADVANCE IS N OT CORRECT. T IS ALSO SUBMITTED THAT BEING A PRUDENT MAN THE A SSESSEE HAD TAKEN FDRS FOR A LONGER PERIOD SO THAT HIGHER RATE OF INTEREST IS EARNED. IF THE PREMATURE PAYMENT OF FDR WOULD HA VE BEEN TAKEN OR FDR FOR A SHORTER PERIOD COULD HAVE BEEN TAKEN INTEREST MUCH LESS THAN THE NET INTEREST RECEIVED (TOTAL INTEREST LESS INTEREST CHARGED BY BANK ON TOTAL OVERDRAFT LIMIT USED DURIN G THE YEAR) WOULD HAVE RECEIVED WHICH AS A LOSS TO THE ASSESSEE . HENCE THE ASSESSEE HAS ADOPTED THE SAID POLICY I.E. HE PURCHA SED THE FDRS AND GOT THE OVERDRAFT LIMIT AND THUS INTEREST IS E ARNED ON THE TOTAL AMOUNT FOR THE WHOLE PERIOD WHILE INTEREST IS PAID ONLY FOR A VERY FEW PERIOD ON SMALL AMOUNTS. IT IS AGAIN SUBMITTED THAT THE CAPITAL OF THE ASSES SEE IS MUCH MORE AND THE ASSESSEE IS THE ONLY PERSON WHO IS SUP POSED TO MANAGE HIS AFFAIRS IN HIS OWN MANNER I HAVE GONE THROUGH THE WRITTEN SUBMISSION OF THE A SSESSEE AND I HAVE ALSO ENQUIRED ABOUT THE NATURE OF SUCH A DVANCES. IT IS 31 FOUND THAT EXCEPT THE FOLLOWING ADVANCES THE REMAI NING ADVANCES ARE NOT FOR ANY BUSINESS 1. PARVEEN VERMA RS.15 000/- 2. BHAWANI SINGH MANDOLI RS.1 30 000/- 3. VAIBHAV SINGHAL RS.30 000/- TOTAL RS.1 75 000/- THE REMAINING ADVANCES FOR RS.96 48 950/- HAVE BEE N MADE TO THE PERSONS WITH WHOM THE ASSESSEE WAS NOT HAVING ANY BUSINESS. AS REGARDS WRITTEN SUBMISSION OF THE ASSE SSEE THAT THE ASSESSEE HAS NOT GIVEN ANY LOAN/ADVANCES BY TAKING OVERDRAFTS IS FACTUALLY NOT CORRECT AND IN FACT THE ASSESSEE IN T HE SAME REPLY HAS ADMITTED THAT OVERDRAFT LIMITS WERE UTILIZED ON THE FDRS OF THE LONGER PERIOD. IN FACT THE ASSESSEE AS PER HIS OWN VERSION AVAILED OVERDRAFT LIMIT ON HIS FDRS AND ON SUCH LOANS MORE INTEREST WAS PAID AS COMPARED TO INTEREST RECEIVED. AS REGARDS A NOTHER CONTENTION OF THE ASSESSEE THAT HE WAS HAVING CAPIT AL FOR RS.5 70 74 967/- AS ON 31 ST MARCH 2005 AND THAT LOAN ADVANCES ARE GIVEN OUT OF CAPITAL OF THE ASSESSEE IT MAY BE STATED TH AT THOUGH IT IS CORRECT THAT THE ASSESSEE WAS HAVING CAPITAL TO SUC H AN EXTENT BUT IT IS ALSO CORRECT THAT THE CAPITAL REMAINED UTILIZED MAINLY IN THE FIXED ASSETS FOR RS.213.99 LACS OTHER FIXED ASSETS FOR R S.247.10 LACS AND INVESTMENT IN MOVEABLE ASSETS FOR RS.375.19 LACS ET C. APART FROM HIS OWN CAPITAL THE ASSESSEE WAS HAVING LOANS AND B ORROWINGS FOR RS.349.16 LACS MAINLY LOAN FROM BANKS AND OTHER CRE DITORS FOR RS.221.37 LACS. THE EXISTENCE OF SUCH HUGE LOANS AN D OTHER LIABILITIES ITSELF PROVES THAT THE CAPITAL OF THE A SSESSEE WAS NOT ADEQUATE AND THEREFORE HE HAS TO BORROW FUNDS. ALL THESES FACT PROVES THAT THE ASSESSEE HAS BORROWED FUNDS FROM TH E BANKS ON WHICH INTEREST HAS BEEN PAID AND PART OF THESES BOR ROWED FUNDS HAVE BEEN UTILIZED FOR MAKING INTEREST FREE ADVANCE S. THEREFORE IT IS HELD THAT AMOUNT ADVANCED TO ABOVE MENTIONED PER SONS FROM 32 BORROWED FUND AND ACCORDINGLY INTEREST PAYMENTS ON SUCH ADVANCES NOT CHARGED FROM SUCH PERSONS ARE TO BE T REATED NOT FOR ANY BUSINESS USE AND TO BE DISALLOWED. THE RATIO OF JUDGMENT IN THE CASE OF COMMISSIONER OF INCOME TAX V/S ABHISHEK IND USTRIES LIMITED REPORTED IN (2006) 286 ITR 1 (P&H) ALSO LAID DOWNS THE SAME PRINCIPLE. THE INTEREST ON SUCH BORROWED FUNDS AT THE PREVAILING RATE OF INTEREST OF 11% UTILIZED FOR MAK ING INTEREST FREE ADVANCES ARRIVES AT RS.8 03 702/-. THEREFORE INTERE ST AMOUNTING TO RS.8 03 702/- IS DISALLOWED OUT INTEREST PAYMENT OF RS.10 99 099/-. PENALTY PROCEEDINGS U/S 271(1) (C) OF I.T.ACT 1961 ARE ALSO INITIATED SEPARATELY. 10.3 IN THE FIRST APPEAL THE LD. CIT (A) HELD AS U NDER:- I HAVE PERUSED THE ASSESSMENT ORDER AND CONSIDERED SUBMISSIONS (PB 13-14) OF THE APPELLANT. THE ASSESSING OFFICER NOTICED THAT ON ONE HAND THE APPELLANT HAD GIVEN INTEREST-FREE ADVANCE TO 24 PERSONS THE TOTAL AMOUNT OF SUCH ADVANCE BEING RS.98 23 950/- ON THE OTHER HE HAD BORROWED MONEY FROM THE BANK ON WHICH INTEREST OF RS.10 99 0 99/- WAS PAID TO THE BANK. THE ASSESSING OFFICER DID NOT FIND MERIT IN CLAIM O F THE APPELLANT THAT THESE INTEREST-FREE LOANS WERE NECES SARY FOR HIS BUSINESS. FROM SUBMISSIONS IN APPEAL IT IS NOT DIF FICULT TO APPRECIATE THAT THE ASSESSING OFFICER WAS RIGHT IN HOLDING THAT THE SAID LOANS HAD NO OBVIOUS BUSINESS PURPOSE OR JUSTI FICATION. FOR INSTANCE IN SUBMISSIONS BEFORE ME (LETTER-DATED 10 .09.09) THE APPELLANT HAD ACKNOWLEDGED THAT LOAN OR ADVANCE OF RS.48 00 000/- TO SH MUKESH JAIN WAS GIVEN FOR HE HAD HELPED THE A PPELLANT DURING HIS EDUCATION PERIOD; CLEARLY NOT A BUSINESS PURPOSE. IT MAY 33 BE UNDERSCORED THAT THIS SINGLE LOAN IS MORE THAN H ALF OF THE INTEREST-FREE ADVANCE TO 24 PERSONS OF RS.98 98 23 950/-. THE ASSESSING OFFICER WAS NOT IMPRESSED WITH THE AR GUMENT OF THE APPELLANT THAT INTEREST-FREE ADVANCES OF RS. 98 93 950/- WERE MADE OUT OF HIS OWN CAPITAL OF RS.5 70 74 967/-. AT PAGE 11 OF THE ASSESSMENT ORDER THE ASSESSING OFFICER RECORDED AS REGARDS ... CONTENTION OF THE ASSESSEE THAT HE WAS HAVING CAPIT AL FOR RS.5 70 74 967/- AS ON 31 ST MARCH 2005 AND THAT LOAN ADVANCES ARE GIVEN OUT OF CAPITAL OF THE ASSESSEE IT MAY BE STA TED THAT THOUGH IT IS CORRECT THAT THE ASSESSEE WAS HAVING CAPITAL TO SUCH AN EXTENT BUT IT IS ALSO CORRECT THAT THE CAPITAL REMAINED UTILIZ ED MAINLY IN THE FIXED ASSETS FOR RS.213.99 LACS OTHER FIXED ASSETS FOR RS.247.10 LACS AND INVESTMENT IN MOVEABLE ASSETS FOR RS.375.1 9 LACS ETC. APART FROM HIS OWN CAPITAL THE ASSESSEE WAS HAVING LOANS AND BORROWINGS FOR RS.349.16 LACS MAINLY LOAN FROM BANK S AND OTHER CREDITORS FOR RS.221.37 LACS. THE EXISTENCE OF SUCH HUGE LOANS AND OTHER LIABILITIES ITSELF PROVES THAT THE CAPITAL OF THE ASSESSEE WAS NOT ADEQUATE AND THEREFORE HE HAS TO BORROW FUNDS. IN THIS BACKDROP HE RELIED ON DECISION IN THE CASE OF ABHISHEK INDUS TRIES LTD (286 ITR 1) AND DISALLOWED INTEREST OF RS.8 03 702/- BE ING INTEREST AT 11% AT PREVAILING RATE OF INTEREST ACCORDING TO HIM. IN COURSE OF APPEAL PROCEEDINGS THE APPELLANT ESSE NTIALLY REITERATED HIS CONTENTION BEFORE THE ASSESSING OFFI CER THAT INTEREST FREE LOANS WERE GIVEN OUT OF HIS CAPITAL. IN MY OPI NION THE ASSESSING OFFICER HAS ALREADY SQUARELY DEMOLISHED T HIS CLAIM AND THE APPELLANT DID NOT BRING ANY FURTHER EVIDENCE TO JUSTIFY A REVIEW OF THE DECISION OF THE ASSESSING OFFICER. I AGREE W ITH THE ASSESSING OFFICER THAT INTEREST-FREE ADVANCES AMOUNTING TO RS .98 93 950/- WERE GIVEN FOR PERSONAL AND NON-BUSINESS PURPOSES A ND WERE NOT GIVEN FROM THE CAPITAL OF THE APPELLANT. 34 AT THE SAME TIME THE ASSESSING OFFICER DID NOT BRI NG ANY MATERIAL ON RECORD TO SUPPORT HIS USE OF 11% AS TH E PREVAILING MARKET RATE. ON THE OTHER HAND I FIND MERIT IN CLA IM OF THE APPELLANT THAT THE PREVAILING INTEREST RATE DURING THE PERIOD WAS NOT 11% BECAUSE HIS FDRS IN THE BANK YIELDED ONLY 5.75 TO 6%. ADDITIONALLY IN MY VIEW THE BANK RATE FOR INTERES T ON FDRS IS CERTAINLY A GOOD INDICATOR OF PREVAILING MARKET RAT ES. THE ASSESSING OFFICER IS DIRECTED TO USE 6% AS THE RATE OF INTERE ST IN PLACE OF 11% AND RECOMPUTE THE DISALLOWANCE. GROUND 9 OF THE APP EAL IS PARTLY ACCEPTED. 10.4 WE HAVE HEARD BOTH THE PARTIES. THE ASSESSEE I S HAVING SUFFICIENT CAPITAL. IF THERE ARE MIXED FUNDS THAT NON-INTEREST BEARING FUNDS ARE TO BE CONSIDERED AS UTILIZED FOR NON-INTERST BEARING ADVA NCES. IT IS THE ASSESSEE WHO HAS TO TAKE A BUSINESS DECISIONS. FEES IS GENER ALLY RECEIVED AT THE BEGINNING AND SURPLUS FUNDS ARE USED FOR MAKING FIX ED DEPOSTS AS RECEIPTS ARE IN ADVANCES WHILE EXPENSES ARE SPREAD OUT THROU GHOUT THE YEAR. SINCE INTERST FREE ADVANCES ARE LESS THAN THE CAPITAL AND THE AO HAS NOT BROUGHT ON RECORD ANY NEXUS OF INTEREST BEARING LOANS BEING U SED THE AO COULD NOT HAVE DISALLOWED THE INTEREST. THERE IS NO ONUS ON T HE ASSESSEE TO ESTABLISH THAT INTEREST FREE ADVANCES ARE OUT OF INTEREST BER ING ADVANCES IF NON-INTEREST BEARING FUNDS ARE MORE. RELIANCE IS PLAED ON THE DE CISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS RELIANCE U TILITIES AND POWER LTD. 35 313 ITR 340 AND HON'BLE DELHI HIGH COURT IN THE CAS E OF CIT VS BHARTI TELEVENTURE LTD. 2010-TIOL-51-HC-DEL. THERE IS NO P ROVISION IN THE ACT WHICH MAY COMPEL AN ASSESSEE TO EARN INCOME. 11.1 THE ASSESSEE IN THE CROSS OBJECTION IS AGGRIEV ED AGAINST CONFIRMING OF ADDITION. 11.2 AFTER CONSIDERING THE FACTS AS ABOVE WE FEEL THAT THE AO WAS NOT JUSTIFIED IN MAKING ANY DISALLOWANCE. HENCE DISALL OWANCE IS DELETED. 12.1 THE LAST GRIEVANCE IN CROSS OBJECTION IS AGAIN ST CHARGING OF INTEREST. 12.2 THE INTEREST IS MANDATORY AND THE ASSESSEE WIL L GET CONSEQUENTIAL RELIEF. 13. IN THE RESULT THE APPEAL OF THE REVENUE AND CR OSS OBJECTION OF THE ASSESSEE ARE PARTLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 08-0 7-2011 SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED; 08 /07/2011 *MISHRA COPY FORWARDED TO :- 1. THE ACIT CIRCLE- 1 KOTA / THE ADDL. CIT RANGE -1 KOTA 2. SHRI RAM KISHAN VERMA KOTA 3. THE LD. CIT (A) JAIPUR 4. THE LD. CIT BY ORDER 5. THE LD.DR 6. THE GUARD FILE (ITA NO.960/JP /10) A.R ITAT JAIPUR 36 37 38