DCIT, NEW DELHI vs. M/S. HIMACHAL FUTURISTIC COMMUNICATIONS LTD., NEW DELHI

PDF

ITA 6225/DEL/2013Status: DisposedITAT Delhi26 October 2021AY 2003-0440 pages

No AI summary yet for this case.

Cases cited in this judgment

Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.

CIT v. AIMIL Ltd.
321 ITR 508 · 2010 · HC
1,629 citing
Friends Clearing Agency (P.) Ltd. v. Commissioner of Income
332 ITR 269 · 2011 · HC
38 citing
S.A. Builders v. CIT
208 ITR 1 · 2007 · SC
37 citing

Income Tax Appellate Tribunal, [DELHI BENCH “C”: NEW DELHI]

Before: SHRI KUL BHARAT & SHRI PRASHANT MAHARISHI

For Appellant: Shri Rakesh Joshi, C. A.;

For Respondent: Shri Najani [CIT] – D.R.;, Shri Rakesh Joshi, C. A.;

Hearing: 05/08/2021Pronounced: 26/10/2021

O R D E R PER PRASHANT MAHARISHI, A. M.

These are the bunch of several appeals filed by the Revenue and certain cross appeals by the assessee for several years involving common issues and, therefore, both the parties argued them together. After hearing the arguments of the parties, these appeals are disposed of, by this common order. Assessment year 2002-03 2. I. T. Appeal No. 5741(Del)/2013 is filed by the ld. Dy. Commissioner of Income Tax, Central Circle–I, New Delhi, against the order passed by the Commissioner of Income Tax (Appeals)–3, New Delhi, dated 21.08.2013 for assessment year 2002-03. 3. The Revenue has raised the following grounds of appeal:- “1. On the facts and in the circumstances of the case, the CIT(A) has erred in deleting the addition of Rs.8,28,506/- made on account of profit of circular transaction.

2. On the facts and in the circumstances of the case, the CIT(A) has erred in deleting the disallowance of Rs.4,97,18,139/- made on account of disallowance of deduction claimed u/s 80IB of the I.T. Act

3. On the facts and in the circumstances of the case, the CIT (A) has erred in deleting the disallowance of Rs.6,30,75,938/- made on account of disallowance of expenditure on Research & Development.

4. On the facts and in the circumstances of the case, the CIT(A) has erred in deleting the disallowance of Rs.5,00,000/- made on account of travelling expenses incurred on the family members of the directors of the company.

5. On the facts and in the circumstances of the case, the CIT(A) has erred in deleting the disallowance of Rs.8,61,90,935/- made on account of advances given to group company written off.

by the other party under Section 133(6) of the Act. Thus, assessee has earned a profit of Rs.12,64,500/- from the transactions with Balaji Electronics Pvt. Ltd., which is more than the amount of addition made by the Assessing Officer of Rs.8,28,506/-. He further held that appellant has disclosed the profit of 11.52% on trading activity, the circular trading activity has not been held to be bogus and further the profit earned by the assessee on such circular trading is 2.8% which is more than the estimate of 1.5% estimated by the Assessing Officer. Thus, he deleted the above addition. ii. With respect to the disallowance of deduction under Section 80IB of the Act in the return of income filed in response to notice under Section 153A of the Act he held that the disallowance has been made by the Assessing Officer on account of search where the search party found that there are no manufacturing activities carried out at units located at Solan and Goa. The statements of two employees were recorded, who commented adversely on the existence of manufacturing activities and, therefore, Assessing Officer disallowed the claim. Assessing Officer further was guided by the survey team, who did not find any infrastructure activity for develop of software at the factory premises and did not come across any technical work force relating to the work of software. The Assessing Officer also disallowed the claim of deduction under Section 80IB of the Act for Fiber cable unit at Goa for which Assessing Officer did not give any reason in the assessment order. The ld. CIT (Appeals) held that appellant’s manufacturing activities were subject to excise audit. The assessee produced before him such excise records as additional evidence. The Assessing Officer was given an opportunity to examine the same vide letter dated 7.02.2013. The Assessing Officer vide letter dated 9.05.2013 objected to the admission of the additional evidence. The Assessing Officer did not comment on whether the goods have been produced or not at the place, Assessing Officer submitted a further remand report dated 8.07.2013. The assessee submitted its rejoinder on 9.05.2013. Based on these facts the ld. CIT (Appeals) held that the Assessing Officer ignoring the excise register RG23A, RG 23 C, PLA registers, copies of return filed with the Excise Department and sales records solely relied on the statement of the employees recorded during survey proceedings and ignored the submissions. He further held that the statement of employees do not have any evidentiary value unless corroborated by other evidence. He held that against the statement of the employees, the assessee has produced excise records and the details of payment of excise duty, which is also appearing in the audited accounts, and in the remand report the ld. Assessing Officer has confirmed the items of goods manufactured with the books of accounts. The addition / disallowance is not sustainable. He further held that excise records are also periodically verified by the excise authorities. The ld. CIT (Appeals) also held that there was an existence of plant and machinery and manufacturing activities were carried out consequent to which the assessee has made sales to various Public Sector Undertakings. It was further held by him that the search took place in 2007 and the manufacturing activities were closed in the year 2006. Therefore, it was not possible for the assessee to show the work force for development of software and other relevant evidences at the time of survey in May 2007. Thus, he categorically held that the survey team visited the place after one year of the closer of the unit. He further held that the case of the assessee was assessed under Section 143(3) wherein the Assessing Officer after duly examined the claim under Section 80IB of the Act was allowed. He further held that one of the employees whose statement has been used is also signatory to the excise records. He, therefore, allowed the claim of the assessee for deduction under Section 80IB of the Act. iii. With respect to the disallowance of research and development expenditure amounting to Rs. 6,30,75,938/- out of the total claim of Rs. 11,10,77,015/- he noted that the survey team did not find any infrastructure for R & D activities of the assessee. The ld. CIT (Appeals) noted that research and development center was operating from 286, Udyog Vihar–II, Gurgaon, which was not covered during survey or search. The ld. CIT (Appeals) also perused the telephone bills, bank statements, and correspondence between assessee and Department of Science & Technology. He further examined the evidence of the discussion with officials of Ministry of Science, Government of India, on projects undertaken by the appellant and the Minutes of the Meetings. He further noted that the unit was having ISO registration and recognition letter from Ministry of Science, which indicate the fact that research and development activity was carried out. It was noted that the Assessing Officer disallowed part of the expenditure only because of the reason that assessee has deducted tax deduction at source on such payment. He further noted that the Assessing Officer disallowed the research and development expenditure holding them to be non-productive and not producing positive results. He deleted the disallowance that the research and development expenditure allowability is not dependent, same being fruitful or otherwise. He further noted that in assessment proceedings under Section 143(3) of the Act after examining the complete details the R & D expenditure was allowed in full. Hence, he deleted the disallowance. iv. With respect to the disallowance of foreign travel expenditure of Rs. 5,00,000/- for the reason that some family members of the Directors had travelled abroad with the Directors and, therefore, Assessing Officer disallowed Rs. 5,00,000/- on ad-hoc basis. The ld. CIT (Appeals) deleted the above disallowance for the reason that the ld. Assessing Officer has not brought on record any specific instances of company’s fund use for the travel of the family members. Further, the disallowance was made only based on assumptions and presumptions. This disallowance was fully allowed in assessment proceedings under Section 143(3) of the Act. Therefore, he deleted the ad-hoc disallowance of Rs. 5,00,000/-. v. With respect to the disallowance of Rs. 8,61,90,935/- on account of write off of the advances to the group companies Microwave Company Limited. The Assessing Officer noted that assessee has given advance to its subsidiary, which was not recoverable and, therefore, the assessee has written off the same treated it as a business loss. The ld. Assessing Officer disallowed the same for the reason that the subsidiary company has not treated the same as cessation of liability and, therefore, such unilateral action of the assessee with no corresponding entry by the subsidiary results into an abnormal claim not allowable under Section 37(1) of the Act. The ld. CIT (Appeals) deleted the above addition stating that no incriminating material is found during the search with relating to the above disallowance and, therefore, the above addition cannot be made. On the merits of the addition, he held that giving financial support for nurturing and developing a subsidiary fall in the categories of activities carried out during the course of business. He further noted that the subsidiary company was formed for providing telecommunication services with respect to the paging services. He further held that merely because the subsidiary company has not shown it as a cessation of liability it could not become an item of disallowance in the hands of the assessee. Thereafter he examined the financial strength of the subsidiary and noted that the subsidiary company has accumulated losses many times higher than the amount of share capital, which shows that the net-worth of the subsidiary has eroded and there is no chance of its recovery. Therefore, on the merits also, he allowed the claim.

Therefore, she submitted that the ld. CIT (Appeals) erred in deleting the above addition. ii. With respect to the claim of the assessee for deduction u/s 80 IB of the act specific reference was made to paragraph number 6.3 of the assessment order where the statement of Mr. Rao who was posted at solan unit was recorded it was stated that in that statement Mr. Rao has confirmed that there is hardly any production activity in this unit of the company and only repair and annual maintenance work is undertaken at that unit. Further paragraph number 6.4 of the assessment order was referred stating that the only activity, which is carried out by the assessee, is to stamp the components imported into dispatch it to various units of BSNL and MTNL as per tender. Therefore there is no manufacturing activity was carried out. As specific reference was made to the outcome of survey proceedings in paragraph number 6.5 of the order. The learned DR further referred to the paragraph number 6.9 of the assessment order to show that Mr. Guleria also confirmed that there is no manufacturing activity carried out at those units. Therefore, the learned assessing officer has heavily relied upon the statement of the senior officers and physical examination of the activities of the factory during survey and held that there is no manufacturing activity carried out at Solan unit. With respect to the manufacturing activity at Goa the learned here referred paragraph number 6.12 of the assessment order wherein the learned assessing officer has specifically stated that assessee has never been engaged in the business of manufacturing of cable or development of software at Goa unit. It was further argued that the learned assessing officer has recorded a categorical finding that during the financial year 2003 – 04 assessee company purchased the software of ₹ 19 crores from various parties and similarly for financial year 2004 – 058 purchased the software of 18.23 crores and against which the sale of ₹ 40 crores was disclosed. The learned DR further referred paragraph number 6.19 of the assessment order stating that the learned assessing officer has given a categorical finding that no manufacturing activity of software development was carried out at Goa unit, which was confirmed by the officers of the company. Further, the assessee did not have any infrastructural technical work force that could have developed sophisticated software at its manufacturing unit. The assessee has also failed to furnish the details of the work force and purpose of the software development and particulars of the end-user. Therefore, the deduction u/s 80 IB of the act was denied. iii. With respect to the expenditure on research and development disallowed by the learned assessing officer, it was stated that assessee has submitted a general nature report of the activities carried out by the assessee. It was submitted that assessee has incurred a total expenditure of ₹ 11.10 crores and out of which the deduction is allowed by the learned assessing officer of ₹ 4.80 crores and the net disallowance of ₹ 6.30 crores has been made correctly by the learned assessing officer. iv. With respect to the disallowance deleted by the learned CIT – A out of the foreign travel expenditure of ₹ 5 lakhs it was stated that in many cases the family members of the directors have gone abroad for the purposes which cannot be attributed bullion exclusively for the purposes of the business and therefore the disallowance on ad hoc basis is correctly made by the learned AO. v. With respect to the disallowance of the sum written off by the assessee and claimed as deduction u/s 37 of the act it was specifically noted that this is a unilateral action of the assessee and the subsidiary company has not shown that the liability towards the assessee company has ceased to exist and therefore the learned assessing officer has correctly made the disallowance u/s 37 of the act.

11.

The learned authorised representative also submitted a written note and a paper book on all the issues involved in the appeal. The main crux of the issue argued by the learned authorised representative are as Under:- i. With respect to the issue of profit on circular trading transaction, it was submitted that there is no legal bar on making both purchase and sales from the same party. It was further stated that the sale transaction and the purchase transaction with the Balaji Electronics private limited duly confirmed u/s 133 (6) of the income tax act. Further in the assessment year 98 – 99 the assessee has accepted the profit at the rate of 1.09% because in that particular case the resultant profit arriving from those parties with whom the circular trading transactions were entered into was only 0.53%. However, in the present case the gross profit shown by the assessee is higher than the normal gross profit determined by the learned assessing officer. It was further stated that the profit of 2.28% is earned on sales made to Balaji Electronics and the learned assessing officer is determined profit of only 1.5%, which is less than the profit already disclosed by the assessee therefore the addition deserves to be deleted. He further referred to the order of the learned CIT – A and stated that it is categorically held that the circular trading was not considered to be a bogus transaction by the assessing officer. ii. With respect to the claim of deduction u/s 80 IB of the act it was stated that the issue has already been examined by the learned assessing officer while making an original assessment u/s 143 (3) of the income tax act wherein the assessing officer after detailed examination is allowed the claim of the assessee Under that Section. Further, the excise records, copies of the returns were also verified wherein existence of plant and machinery at the factory premises at Solan and Goa are clearly depicted. Further, it was stated that the sales have been made to the public sector undertaking such as BSNL and MTNL and Gail. It was therefore stated that it cannot be said that there is no money featuring activity carried on by the assessee. With respect to the software manufactured/developed it was stated that the software development was close from the year 2006 eight was not possible for the assessee to show any work force for the development of software at the time of survey in 2007. Therefore, the statements used by the AO are not correct. He

further stated that where in the excise records the proper production has been shown by the assessee and same has also been demonstrated by the existence of the machinery and the location of the factories along with the various approvals from the State authorities for the operation of the units, consumption of labour and sale and purchase of the material is also shown to the learned assessing officer there is no reason that such deduction is to be disallowed to the assessee. iii. With respect to the disallowance of expenditure on research and development it was submitted that this issue has been examined by the learned assessing officer u/s 143 (3) of the income tax act wherein the AO has allowed the claim of the research and development expenditure as per the income tax act to the assessee. It was further stated that the research and development centre was operating from Gurgaon, which was not covered during the course of survey or search operation in 2007. The assessee has also produced before the learned assessing officer the details of the various minutes of the meeting of the assessee with respect to the Ministry of science and technology, which shows that the research and development unit exist. It was further stated that the learned assessing officer has merely brushed aside the reports of the research and development by the assessee stating that these are merely general reports. He submitted that if no research and development activities are carried out the learned assessing officer should not have allowed the substantial portion of the research and development expenditure. iv. With respect to the travelling expenditure disallowed by the learned assessing officer it was submitted that this disallowance has been made by the learned assessing officer merely on conjectures and surmises. There is nothing like personal expenditure incurred by the company, as it is a case of the limited company. The assessee placed reliance on the case of Friends Clearing Agency Private Limited 332 ITR 269 and Widex India Private Limited versus DCIT 66 DTR. It was further stated that there is no instances available with the assessing officer that any expenditure is incurred by the assessee, which is not wholly and exclusively incurred for the purposes of the business. He therefore submitted that the disallowance made by the learned assessing officer deserves to be deleted and the learned CIT – capital has correctly deleted the same. v. With respect to the advance to a subsidiary company which has been written off by the assessee he placed reliance on the decision of the honourable Supreme Court in case of S A Builders versus CIT 208 ITR 1 and stated that assessee has infused funds into the subsidiary company and Simon tenuously arranged term loan from IDBI for that company by giving its corporate guarantee. It was therefore stated that there was a drastic change in the mobile industry when the tariffs were reduced which became a disaster for the paging industry and therefore the subsidiary company could not prosper as a business and was in no position to pay back the assessee as well as the guarantee obligation and therefore the assessee has incurred this loss which was required to be return of on prudential basis. He further referred to the memorandum of articles of the assessee company and stated that the above subsidiary company was formed for the purpose of providing telecommunication services i.e. paging services and the longs for extended due to commercial expediency. When such loans have gone bad the same should be treated as a business loss. It was further stated that the merely because the subsidiary company has not written back such an amount it cannot be disallowed in the hence of the assessee company. Thus, the ld. AR supported the order of the ld. CIT (Appeals).

13.

The first ground of appeal is with respect to the profits of Rs. 8,28,506/- added by the ld. Assessing Officer on account of circular transaction. The Assessing Officer noted that assessee has made purchases and sales from one M/s. Balaji Electronics Pvt. Ltd. and at the end of the year the amounts of purchases and the amounts of sales made from this party is almost equal. Therefore, the Assessing Officer noted that assessee has not paid any sum to Balaji Electronics Pvt. Ltd. for purchase of material, but has squared of outstanding of purchases by showing sales to this party. Therefore, naturally there is neither receipt of sale consideration from the above party and nor payment of purchase consideration to that party. Therefore, the Assessing Officer issued notice under Section 133(6) of the Act to the above party, who confirmed the transactions. Assessing Officer was of the view that in the sale and purchase bill shown the description of the material only as electronic goods and the manner of the creation of the circular activity is also doubtful. He also rejected the claim of the assessee that it has earned the profits. Assessing Officer was also guided by the fact that in assessment years 1998-99 and 1999-2000, assessee has created such a circular trading and has an accepted profit rate of 1.09% on the same. The ld. CIT (Appeals) deleted the above addition that assessee has disclosed profit of 11.52% on the trading activity and further the purchase and sale from Balaji Enterprises has also not held to be bogus. He further noted that assessee itself has shown a profit of 2.28% on total sales to Balaji Enterprises, which is more than 1.5% estimated by the Assessing Officer. We find that as such the Assessing Officer could not show any legal bar of making purchases and sales from the same party. Further Balaji Electronics Pvt. Ltd. in response to notice under Section 133(6) of the Act has confirmed the transactions. Further, for assessment year 1998-99 it is shown that the assessee accepted the GP ratio of 1.09% only for the reason that in that case the transaction with the circular trading parties resulted into profit of just 0.53%. In the present case, the Assessing Officer has made a profit of 1.5% whereas the assessee has itself shown the profit of 2.28%. Therefore, the estimate of the profit made by the Assessing Officer is far less than the income of such circular income disclosed by the assessee. In view of this, we do not find any reason to disturb the order of the ld. CIT (Appeals). Accordingly, the order of the ld. CIT (Appeals) deleting the addition of Rs. 8,28,506/- is confirmed and ground No. 1 of the appeal is dismissed.

14. The second ground is with respect to disallowance of deduction under Section 80IB of the Act of Rs. 4,97,18,139/-. We find that assessee has claimed the above deduction with respect to its software unit at Goa. Though the total deduction available during the year 2001-02 was Rs. 8,89,258/-, but it was restricted it to the gross total income. The fact shows that the survey took place on 10 May 2007 along with the search and seizure operation and the income tax department found that there are no activities carried out by the assessee at units at Solan and Goa, which are entitled for deduction u/s 80 IB of the act. There were also statements recorded of the persons were employed at the time survey took place who could not explain the existence of the manufacturing activities at the factory when the deduction was claimed. The survey team also did not find any infrastructure in the form of work force that was capable of producing the software and therefore the deduction was denied. It is the claim of the assessee that manufacturing activities at Solan is being carried out since 1990 and a company is one of the leading manufacturers and suppliers of telecommunication equipments in India supplying to the public sector undertaking such as BSNL and MTNL. The deduction u/s 80 IB/80 IA is being claimed since assessment year 2000 – 01. However, the deduction was not claimed in one of the year for the negative income. The assessment in the case of the assessee was all completed and subsequently the deductions are allowed under this Section by the learned assessing officer. The Goa unit was set up in 1995-96 for manufacturing of optical fiber cable. It was stated that wherever the manufacturing activities are carried out the relevant excise records of the appellant, which were duly checked by the act authorities regularly and therefore there cannot be any doubt about the existence of the manufacturing activities. So far as the work force is concerned it was stated by the assessee that it has of course of 511 employees therefore there cannot be a question that assessee did not have the enough work force to manufacture the goods. Further during the course of survey on 10 May 2007 the inventory of stock of the cable unit was also taken along with the various type of raw materials for manufacturing of the cable therefore the existence of manufacturing activity could not have been denied. With respect to the statement of employees, the claim of the assessee was that such statement could not be relied upon in view of overwhelming evidence regarding the operations of the unit and the products manufactured which were supplied to the public sector undertaking. It was further stated that orders of the public sector undertaking force various supply of goods or the manufactured goods of the assessee and therefore it cannot be the case as suggested by the learned assessing officer that these are merely stamped after importing it from the various countries. During the course of remand proceedings before the learned CIT appeal the Excise register 23A and Excise register 23C, the challan for payment of excise duty and acknowledgement of Excise return filed with the Excise authorities were also verified and no adverse comment was made these records contain the details of the production of the goods and the dispatches from factory premises. It has resulted into sales the assessee has also submitted the party was details of the sales to womb goods manufactured at those units were also sold. The learned assessing officer in remand proceedings is also accepted that these are sold to the public sector undertakings and two other reputed customers. In the remand report assessing officer has categorically held that the assessee has also filed the unit -wise profit and loss account, the details of the items on which excise duty has been charged, the entries in the Excise registers have been checked with the sales registers of the assessee which were found in agreement with each other. The learned CIT – A has with respect to the statement of the employees has categorically held that the learned assessing officer has conveniently ignored the other evidentiary material placed before him. It was further fact that the survey team took the action one year after the operations stopped at those units where the software was manufactured/developed. The signatory to the Excise record of the assessee was the same employee whose statement was used by the assessing officer. It is also a fact that the deduction under those sections were already allowed to the assessee u/s 143 (3) of the income tax act by the learned assessing officer after completely examining all these details. In view of this, we do not find any reason to interfere with the order of the learned CIT – A deleting disallowance made by ld AO u/s 80IB of the act. No evidences were produced before us that there was no manufacturing facility available at those plants, the details submitted by the assessee with respect to the manpower available at those units was also not denied, the learned assessing officer has also categorically accepted after verification of the excise records that it matched with the books of accounts of the assessee and there is a production according to those records. In view of these overwhelming evidences, we confirm the order of the learned CIT appeal and dismiss ground number 2 of the appeal of the AO.

15. Coming to the ground number 3 with respect to the deletion of the disallowance of ₹ 63,075,938 made on account of expenditure on research and element expenditure, the learned assessing officer has made the disallowance for the reason that according to him there was no research and development facility existing at Solan. In fact the assessee has claimed deduction of expenditure with respect to research and development unit at Gurgaon. The ld. Assessing Officer examined the research and development activity of the assessee where the Revenue and capital expenditure both have been claimed as deduction under Section 35(i) and 35(iv) of the Act. The fact shows that assessee has incurred the total research and development expenditure of ₹ 111,077,050/– out of which the capital expenditure of Rs 497,81,944 and revenue expenditure of ₹ 61,295,106 was claimed. The learned AO out of the above expenditure allowed the claim of the assessee to the extent of ₹ 48,001,112/– and disallowed 6,30,75,938. The learned CIT appeal deleted the same. The facts show that the research and development Centre was operating from Gurgaon and which was not covered either under survey or in search. Therefore, it cannot be said that there was evidence available with the revenue that no activities were carried out at that particular place. Whereas the assessee has shown the correspondence exchanged between the appellant and Department of science and technology government of India and further there is an evidence in the form of meeting with the Ministry of science on the projects undertaken by the appellant in the minutes of the meetings cannot be said to be merely a paperwork and general research. In fact the assessee is also having recognition letter from the Ministry of science with respect to the research and development activity of the assessee. In fact himself has allowed part of the expenditure therefore it cannot be said that there is no research and activities carried out by the assessee it may not be fruitful. However, for this reason disallowance of expenditure cannot be made. Further in the original assessment proceedings u/s 143 (3) of the act the learned assessing officer after proper examination has allowed the complete claim of these expenditure. It is not also the claim of the AO that these expenditure are found to be bogus and have not been at all incurred by the assessee. In view of this, we confirm the order of the learned CIT appeal in deleting the above disallowance. Accordingly, ground number 3 of the appeal of the AO is dismissed.

17. Ground number 5 is with respect to the deletion of the disallowance of ₹ 86,190,935/– made on account of advances given to the subsidiary company, which has been written off by the assessee during the year. The fact shows that assessee has given certain advances to a group company microwave communication Ltd which have been written off by the assessee. This deduction was already allowed to the assessee in assessment proceedings u/s 143 (3) of the act. No incriminating evidences were found during the course of search with respect to the above issue. The learned assessing officer on appraisal of the annual accounts of the assessee made this disallowance. Assessee has claimed the same as a business loss. The learned assessing officer disallowed for the reason that since the subsidiary company has not treated the same as assessee shall of liability and therefore such a unilateral action by the assessee company with no corresponding entry in the subsidiary company of writing it back this becomes an abnormal claim and cannot be allowed u/s 37 (1) of the act. The learned CIT – A deleted the about disallowance for two reasons. Firstly, there is no incriminating evidence found during the course of search with respect to the above issue and therefore it could not have been disallowed in framing assessment order u/s 153A of the act. Secondly, it was noted by the learned CIT – A that assessee has four different sources of the business income such as manufacturing, turnkey activities, trading businesses and finance businesses. The assessee has granted financial support to its subsidiary, which falls into the business of the finance business segment of the assessee. The fact also shows that the subsidiary company was engaged in the business of paging services and the loan and advances given to that company become not recoverable because of the usual losses suffered by that particular company. The fact was also noted that the entire capital of that particular subsidiary company was eroded by the accumulated losses by more than 2.5 times of itself capital. Thus, it was a bona fide decision of the assessee company to write of the above amount under the head of its finance business and claim it as a business loss. Merely because the subsidiary company has not shown the cessation of the liability, the claim of the assessee cannot be disallowed. The learned CIT – A after considering the various judicial pronouncements has allowed the claim of the assessee on both the above account. Before us, the revenue could not show that there were an incriminating evidences available with the revenue during the course of search with respect to the above claim of the assessee or the loss incurred by the assessee has not arise and during the course of the finance business of the assessee. In view of this, we do not find any reason to disturb the order of the learned CIT – A on this count and so we confirm it and dismiss ground number 5 of the appeal of the AO.

49. Ground number 5 is with respect to the disallowance of Rs 1. 50 crores made because of unverified expenditure deleted by the learned CIT – A. The learned assessing officer has made the above disallowances out of expenses on ad hoc basis due to the nonproduction of the books of accounts. The learned CIT – A is also noted that for assessment year 2002 – 03 and 2003 – 04 the learned assessing officer has not made any such disallowance on the similar set of facts and circumstances. The learned CIT – A also noted that no such disallowances were made in the assessment proceedings u/s 143 (3) of the act. It was also found that there is no incriminating evidence found during the course of search with respect to the expenditure incurred by the assessee. The learned CIT – capital has also noted that the books of accounts are duly audited and there is no qualification by the auditor with respect to non-availability of any vouchers or the details of the expenses. As the learned assessing officer has made the above disallowances on ad hoc basis without pointing out any defect in the details submitted before him which was also verified by him during the course of original assessment proceedings u/s 143 (3) of the act, the learned CIT – A deleted the about disallowance. Before us, the learned DR could not produce any material to show that the disallowance made by the learned assessing officer was based on any particular incident of or instances of expenditure debited by the assessee that are not incurred wholly and exclusively for the purposes of the business. Appeal of the learned assessing officer for assessment year 2004 – 05 wherein similar disallowances were made out of the total expenditure incurred by the assessee is deleted by us confirming the order of the learned CIT – A. There is no change in the facts and circumstances of the facts in this year also. In view of this we do not find any infirmity in the order of the learned CIT – A – the above disallowance. The order of the learned CIT – capital is confirmed and ground number 5 of the appeal of the learned assessing officer is dismissed.