ACIT, SONEPAT vs. M/S. ATLAS CYCLES (HARYANA) LTD., SONEPAT

ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER: has been preferred by the Revenue for AY 2003-04, has been preferred by the Revenue for AY 2004-05, ITA No. 3472/Del/2011 has also been preferred by the Revenue for AY 2005-06, ITA No. 784/Del/2010 has been preferred by the assessee, whereas ITA 913/Del/2010 is the cross appeal by the Revenue for AY 2006- 08, ITA No. 3473/Del/2011 has been preferred by the Revenue for AY 2008- 09, ITA 2132 has been preferred by the Revenue for AY 2009-10 and ITA 4000/D/2011 has again been preferred by the Revenue for AY 2010-11. Since all the appeals were heard together, they are being disposed of through this common order for the sake of convenience. We now take up the appeals one by one: ITA 2490/Del/2011- AY 2003-04

of addition of Rs. 16,795,247/- made by the AO by disallowing the notional interest paid by the assessee attributable on the non interest bearing advances of Rs. 139,593,723/- to Sh. Arun Kapoor out of interest bearing funds. It was Page 3 of 70 Atlas Cycles (Haryana) Sonepat the AO’s contention that the assessee company had given an interest free loan/advance to Sh. Arun Kapoor amounting to Rs. 80,075,724/- & Rs.

59,518,000/-. The AO was of the opinion that since the assessee company had paid interest on its borrowed funds and no interest was charged from Sh.

Arun Kapoor, the interest attributable on the loan given to Mr. Kapoor was liable to be disallowed. It was the assessee’s contention that Sh. Arun

Kapoor had embezzled/misappropriated the funds of the company and a case with the police authorities (FIRs) was also lodged against Sh. Arun Kapoor.

It was also submitted that this fact has been duly verified by the Ld. CIT

(Appeals), Rohtak during the appellate proceedings for AYs 2006-07 &

2007-08, wherein the issue has already been decided in favour of the assessee. However, the AO was of the opinion that the Department had not accepted the order of the Ld. CIT (Appeals) on this issue and accordingly an addition of Rs. 16,795,247/- was made. On appeal, the Ld. CIT (Appeals) referred to the order of the Ld. CIT (Appeals) for AY 2006-07 which reads as under:

“It cannot be denied that the amount has been embezzled by Sh. Arun Kapoor and the appellant has shown the amounts fictitiously as advances in the balance sheet. The amounts have been shown because the same can be recovered at any stage subsequently. The Page 4 of 70 Atlas Cycles (Haryana) Sonepat question of charging interest or forgoing interest does not arise in the facts and circumstances of the case.”

2.1 Accordingly, following the appellate order for AY 2006-07, the addition in AY 2003-04 on this issue was deleted.

2.2 The Ld. DR submitted that the Ld. CIT (Appeals) has wrongly deleted this amount and placed reliance on the order of the AO on the issue.

2.3 The Ld. AR submitted that the amounts were not advances but pertain to amounts withdrawn through embezzlement and fraud conducted by Sh. Arun Kapoor against which FIRs have also been lodged. It was submitted that since the assessee has not given these amounts out of its own free will but the same have been taken through fraud, the AO has been wrong in concluding that such amounts have been diverted by the assessee for the non business purposes. It was submitted that the company has terminated the services of Sh. Arun Kapoor and legal recourse has been taken to resolve the issue. It was also submitted that the company had surplus funds amounting to Rs. 105.94 as on 31st March, 2002, therefore, the AO’s conclusion that interest bearing funds have been utilized is also factually incorrect.

2.4 We have heard the rival submissions and have also perused the records.

Page 5 of 70 Atlas Cycles (Haryana) Sonepat It is seen that the Ld. CIT (Appeals) has examined the issue in detail in his order for AY 2006-07 and has agreed with the aforesaid contentions of the assessee. The copies of FIRs have also been placed on record and the contention of the assessee about having surplus funds as on 31.03.2002 is also correct. Hence, we find no reason to interfere with the order of the Ld. CIT (Appeals) and uphold the same.

2.5 In the result, the appeal of the Department for AY 2003-04 is dismissed.

ITA No. 2491/D/2011 AY 2004-05

Arun Kapoor. (ii) Deletion of addition of Rs. 5,614,948/- made by the AO u/s 14A of the Act.

3.1 It is seen that the first issue is identical to the issue raised by the Department in AY 03-04. In view of our findings and adjudication on the issue in AY 03-04, we dismiss this ground of the department’s appeal.

Page 6 of 70 Atlas Cycles (Haryana) Sonepat 3.2 As far as the disallowance of Rs. 5,614,948/- u/s 14A is concerned, it was the contention of the assessee before the AO that the provisions of sec.

14A did not apply in the relevant asstt year as no exempt income had been earned on the bonds/investments. It was the assessee’s contention that the investments in mutual funds were made during AY 03-04 and these were made out of the free reserves of the company. The company was having free reserves amounting to Rs. 636,176,555/- and further there was a depreciation reserve to the tune of Rs. 493,887,685/- making a total of Rs. 1,130,064,240/- as a tax paid free reserve and further the company had not taken any specific loan for the purpose of making these investments. However, the AO not accepting the assessee’s contention calculated the interest attributable to such investment by applying the rate of 12% and accordingly added a sum of Rs. 5,614,948/- u/s 14A. The Ld. CIT (Appeals) however, deleted the entire addition by giving a specific finding that the assessee had interest free funds of Rs. 116.26 crores as on the date of investment, the secured borrowed funds of Rs. 49.88 crores consisted of Rs. 39.68 crores as cash limit having first charge on stock, debtors and immovable properties and 10.20 crores as term loan having first charge on the immovable assets of the company. Thus, the Ld. CIT (Appeals) came to the conclusion that secured loans had not been utilized for the impugned investment in the mutual fund. The ld. CIT

Page 7 of 70 Atlas Cycles (Haryana) Sonepat (Appeals) held that the AO could not establish nexus between the investments in mutual funds with the interest bearing funds nor could the AO establish that the expenditure was incurred directly in relation to the tax exempt income. The ld. CIT(Appeals) following the Hon’ble Punjab & Haryana High Court in Hero Cycles vs. CIT, 323 ITR 518 (P&H) deleted the entire addition.

3.2.1 The Department could not controvert the findings of the Ld. CIT (A) before us on both the issues.

3.2.2 It is seen that this issue is squarely covered by a judgment of The Hon’ble Bombay High Court in the case of Commissioner of Income Tax v/s Reliance Utilities and Power Ltd., reported in (2009) 313 ITR 340 (Bom). The facts of that case were that the assessee viz. M/s Reliance Utilities and Power Ltd. had invested certain amounts in Reliance Gas Ltd. and Reliance Strategic Investments Ltd. It was the case of the assessee that they themselves were in the business of generation of power and they had earned regular business income there from. The investments made by the assessee in M/s Reliance Gas Ltd. and M/s Reliance Strategic Investments Ltd. were done out of their own funds and were in the regular course of business and therefore no part of the interest could be disallowed. It was also pointed out that the assessee had borrowed Rs.43.62

Page 8 of 70 Atlas Cycles (Haryana) Sonepat crores by way of issue of debentures and the said amount was utilised as capital expenditure and inter-corporate deposit. It was the assessee’s submission that no part of the interest bearing funds (viz. Issue of debentures) had gone into making investments in the said two companies. It was pointed out that the income from the operations of the Assessee was Rs.313.53 crores and with the availability of other interest free funds with the assessee the amount available for investments out of its own funds were to the tune of Rs.398.19 crores. In view thereof, it was submitted that from the analysis of the balance-sheet, the assessee had enough interest free funds at its disposal for making the investments. The CIT (Appeals) on examining the said material, agreed with the contention of the assessee and accordingly deleted the addition made by the Assessing Officer and directed him to allow the same under the provisions of the Income Tax Act, 1961. The Revenue being aggrieved by the order preferred an Appeal before the ITAT who upheld the order of the CIT (Appeals) and dismissed the Appeal of the Revenue. From the order of the ITAT, the Revenue approached the Hon’ble High Court by way of an Appeal. After examining the entire factual matrix of the matter and the law on the subject, the Hon’ble High Court held as under:-

“If there be interest-free funds available to an assessee sufficient to meet its investments and at the same time the assessee had Page 9 of 70 Atlas Cycles (Haryana) Sonepat raised a loan it can be presumed that the investments were from the interest-free funds available. In our opinion, the Supreme Court in East India Pharmaceutical Works Ltd. v. CIT (1997) 224 ITR 627 had the occasion to consider the decision of the Calcutta High Court in Woolcombers of India Ltd. (1982) 134 ITR 219 where a similar issue had arisen. Before the Supreme Court it was argued that it should have been presumed that in essence and true character the taxes were paid out of the profits of the relevant year and not out of the overdraft account for the running of the business and in these circumstances the appellant was entitled to claim the deductions. The Supreme Court noted that the argument had considerable force, but considering the fact that the contention had not been advanced earlier it did not require to be answered. It then noted that in Woolcombers of India Ltd.’s case (1982) 134 ITR 219 the Calcutta High Court had come to the conclusion that the profits were sufficient to meet the advance tax liability and the profits were deposited in the over draft account of the assessee and in such a case it should be presumed that the taxes were paid out of the profits of the year and not out of the overdraft account for the running of the business. It noted that to raise the presumption, there was sufficient material and the assessee had urged the contention before the High Court. The principle, therefore, would be that if there were funds available both interest-free and over draft and/or loans taken, then a presumption would arise that investments would be out of the interest-free funds generated or Page 10 of 70 Atlas Cycles (Haryana) Sonepat available with the company if the interest-free funds were sufficient to meet the investment. In this case this presumption is established considering the finding of fact both by the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal.” 3.2.3 Hence, on the facts of the case and respectfully following the ratio laid down by the Hon’ble Bombay High Court in the case of Reliance Utilities (supra) we confirm the order of the Ld. CIT (A) on this issue for AY 04-05.

3.3 In the final result, the Departmental appeal for AY 04-05 is dismissed.

ITA No. 3472/D/2011 AY 2005-06

(i) deletion of disallowance of Rs. 19,384,066/- made by the AO u/s 14A of the Act on account of interest attributable to investments in mutual funds out of borrowed funds; (ii) deletion of addition of Rs. 16,143,877/- on account of interest attributable to alleged interest free advance of Rs. 134,532,307/- made to Sh. Arun Kapoor and (iii) deletion of additions made under various expenses.

4.1 It is seen that ground no. 2 pertaining to addition on account of notional interest has been decided in favour of the assessee in Departmental

Page 11 of 70 Atlas Cycles (Haryana) Sonepat Appeal no. 2490/Del/2011 for AY 2003-04 and following the same we dismiss this ground of the Departmental appeal.

4.2 As far as the disallowance of Rs. 19,384,066/- u/s 14A is concerned, it is seen that the ld. CIT (Appeals) has given a categorical finding in Para 4.6 of the impugned order that the assessee had interest free funds at its disposal and no loans could be said to have been utilized for the purpose of investment in mutual funds. The ld. CIT (Appeals) has also relied on the statement of the statutory auditors attached to the accounts of the assessee for this purpose.

The ld. CIT (Appeals) has also held that the AO could not establish the nexus between the investment in mutual funds and the secured loans raised during the year. The ld. CIT (A) also held that the AO could not establish that any expenditure was incurred directly in relation to earning of tax exempt income.

Hence, relying on the ratio laid down by the Hon’ble High Court of P&H in the case of CIT vs. Hero Cycles (supra), the disallowance was deleted. The Ld. DR could not bring any fact on record to negate the findings and observations of the Ld. CIT (A) on this issue. We have also adjudicated the identical issue in favour of the assessee in AY 04-05, wherein we have also relied on the ratio laid down by the Hon’ble Bombay High Court in the case of Reliance Utilities (supra). Since the facts in this year are similar as in AY

Page 12 of 70 Atlas Cycles (Haryana) Sonepat 04-05 and the ld. CIT (Appeals) has also recorded a similar finding on facts, we see no reason to interfere with the same and we uphold the findings of the ld. CIT (A) on this issue and dismiss this ground of appeal of the Department.

4.3 As far as the third ground is considered, it is seen that AO has made the following disallowances on the ground that these were incurred in cash and remained un-vouched:

(i) Refreshment – Rs. 30,269/- (ii) Business presents – Rs. 28,400/- (iii) Wine & Beer and Miscellaneous expenses – Rs. 24,061/- (iv) Club expenses – Rs. 33,400/- (v) Travelling expenses – Rs. 148,277/- (vi) Advertisement/Sales Promotion – Rs. 76,408/- (vii) Foreign tours – Rs. 222,230/-

(viii) Other repairs – Rs. 45,154/- 4.3.1 The Ld. DR supported the findings of the AO and submitted that these additions were rightly made. The Ld. AR supported the impugned order on the issue. A perusal of the impugned order reveals that the ld. CIT(Appeals) has categorically dealt with this issue in Para 6.3 of his order, wherein he has Page 13 of 70 Atlas Cycles (Haryana) Sonepat opined that the turnover of the assessee is about Rs. 500 crores and its manufacturing/assembling facilities are spread across many places. It is the Ld. CIT (A)’s observation that considering the turnover of the assessee and the claim of the expenses, the disallowances made by the AO are very meager. The ld. CIT (Appeals) has opined that he agrees with the submission of the assessee that maintenance of proper vouchers for petty expenses is not possible and that producing all the vouchers procured from various locations before the AO after a long period is in onerous task. The ld. CIT (A) also held that no comments have been made in the tax audit report regarding the genuineness of the expenditure claims. Having perused the records and also the reasoning adopted by the Ld. CIT (A) on this issue as well as the fact that the Ld. DR could not successfully controvert the observations of the Ld. CIT (A), we find no reason to differ from the conclusion arrived at by the ld. CIT (Appeals) and while upholding his finding on the issue, we dismiss ground no. 3 of the Department’s appeal.

4.4 In the final result, the Department’s appeal for AY 05-06 is dismissed.

ITA No. 784/Del/2010 & AY 2006-07

Page 14 of 70 Atlas Cycles (Haryana) Sonepat from contesting the disallowance u/s 14A in Ground No. 1, (which will be dealt along with the similar ground in the department’s appeal) the assessee in his appeal has contested the upholding of the disallowance of Rs. 2 lakhs out of consultancy charges in Ground No. 2. A perusal of the assessment order reveals that the AO has given a finding that the AR of the assessee was asked to justify the consultancy charges debited in consultancy account and give details of consultancy services obtained from the persons to whom the consultancy charges were paid. The assessee contended before the AO that the consultancy charges were paid to the employees who had retired from the company and were reemployed on part- time basis. However, no details of the services obtained from these employees have been furnished before the AO and it was informed that these persons performed the job which they had earlier performed during their regular employment. Hence, in the absence of evidence, an amount of Rs. 2 lakhs was disallowed on an adhoc basis. The ld. CIT (A) also confirmed this disallowance by holding that although the assessee had submitted the copies of agreements with the ex-employees during the course of appellate proceedings, the assessee has not submitted any application under Rule 46A of the Income Tax Rules for admission of additional evidence and hence, the same is not admitted and the addition is confirmed. Having given a thoughtful consideration to the factual matrix on Page 15 of 70 Atlas Cycles (Haryana) Sonepat this issue, we find that although the assessee could not provide the necessary evidences during the assessment proceedings, it did submit the evidences before the first appellate authority. However, the same was not accepted.

Hence, in the interest of justice, we restore this issue to the file of the AO for fresh adjudication after due verification of the evidences to be submitted by the assessee. The AO shall afford a proper opportunity to the assessee for furnishing these evidences. In the result, ground no. 2 of the assessee’s appeal is allowed for statistical purposes.

5.1 Ground no. 3 of the assessee’s appeal pertains to disallowance of Rs. 433,403/- of export commission and ground no. 4 pertains to disallowance of Rs. 231,227/- under the head “advertisement and sales promotion expenses”.

The ld. AR submitted that ground nos. 3 & 4 were not being pressed before the Tribunal. Hence, ground nos. 3 & 4 are dismissed as not pressed.

5.2 Ground no. 5 of the assessee’s appeal assails the action of the ld. CIT (Appeals) in upholding the disallowance of Rs. 8,000/- under the sub-head “sales promotion dealer expenses” under the head “advertisement and sales promotion expenses”. The Ld. AR disputed the findings of the Ld. CIT (A) whereas the Ld. DR supported the impugned action of the Ld. CIT (A). A Page 16 of 70 Atlas Cycles (Haryana) Sonepat perusal of the assessment order reveals that the AO has opined that on 21/12/2005 the assessee company had incurred cash expenses of Rs. 40,000/-.

The AO held that this was a violation of the provisions of sec. 40A (3) and Rule 6DD and accordingly, disallowed Rs. 8,000/- being 20% of the cash expenses. The ld. CIT (Appeals) also upheld this disallowance. It is seen that section 40A(3) provides that where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds Rs. 20,000/- a disallowance shall be made.

However, it is apparent from the assessment order that this disallowance has been made without bringing out the fact on record as to whether these cash expenses of Rs. 40,000/- pertained to one single payment or comprised of a bundle of small payments made for different purposes. Hence, in absence of any specific recording of fact by the AO, we are unable to uphold this disallowance and set aside the order of the ld. CIT (Appeals) on this issue and direct the AO to delete this addition. Accordingly, ground no. 5 of the assessee’s appeal is allowed.

5.3 Ground no. 6 of the assessee’s appeal pertains to disallowance of Rs. 59,792/- out of commission export account and ground no. 6 pertains to Page 17 of 70 Atlas Cycles (Haryana) Sonepat disallowance of Rs. 7,000/- on account of fine paid. The ld. AR submitted that ground nos. 6 & 7 were not being pressed. Accordingly, ground nos. 6 & 7 are dismissed as not pressed.

5.4 Ground no. 8 of the assessee’s appeal contest the disallowance of Rs. 1 lakh out of consultancy fees, ground no. 9 contests disallowance of Rs. 1,50,000/- out of commission and ground no. 10 contests disallowance of Rs. 1 lakh from consultancy charges. The ld. AR submitted that these three disallowances are excessive, subjective as well as adhoc. It was submitted that the AO did not comment on the merits of the additional evidences filed by the assessee and, therefore, the ld. CIT (A) should have accepted the evidence and allowed the deduction. It was further submitted that the necessary bills and vouchers were filed before the ld. CIT (Appeals) and the ld. CIT (Appeals) had called for a remand report from the AO to which the AO did not respond. The ld. AR further submitted that once the expenditure has been incurred for business purposes, properly backed by vouchers and evidences, no disallowance can legally be sustained by the ld. CIT (Appeals).

It was further submitted that the ld. CIT(A) did not care to look at the details filed and the nature of expenses incurred and simply upheld the disallowance without going into the necessary investigation. The Ld. DR supported the action of the Ld. CIT (A) on this issue. Having considered all the facts as Page 18 of 70 Atlas Cycles (Haryana) Sonepat well as the submissions of the ld. AR and the findings of the ld. CIT (Appeals) on this issue, we are of the opinion that these three disallowances/additions need re-adjudication and reconsideration afresh. The ld. CIT (Appeals) has dismissed the grounds pertaining to these three disallowances in a most cryptic and summary manner without recording any finding or giving any reasoning for upholding these disallowances. Hence, we deem it a fit matter for restoration to the file of the AO for fresh adjudication after allowing the assessee due opportunity to present the relevant documents and evidences/explanations. In the result, ground nos.

8, 9 & 10 of the assessee’s appeal are allowed for statistical purposes. 5.5 Ground no. 11 being consequential is not being adjudicated upon. 5.6 In the final result the appeal of the assessee is partly allowed.

5.7 In AY 06-07, the Department has contested the action of the ld. CIT (Appeals) on as many as 18 counts. They are being taken up one by one as under:

5.7.1 Deletion of disallowance of Rs. 9,948,023/- u/s 14A by restricting the disallowance from Rs. 13,565,438/- to Rs. 3,617,415/-. This ground is common both to the assessee’s appeal as well as the departmental appeal. The assessee has challenged the upholding of disallowance of Rs. 3,617,415/- in its appeal, whereas the department has challenged the deletion of Rs.

Page 19 of 70 Atlas Cycles (Haryana) Sonepat 9,948,023/-. The AO made disallowance u/s 14A of the Income Tax Act in respect of Sahibabad Unit only amounting to Rs. 13,565,438/- which was restricted to Rs. 3,617,415/- under Rule 8D by the ld. CIT (Appeals). The Department has objected to restriction of this disallowance and is ground no. 1 of the Departmental appeal. It was the assessee’s contention before the AO that investments of Rs. 113,045,323/- were made out of free resources of the company amounting to Rs. 673,570,626/- and that there were no borrowings by the company for investments and that the funds were borrowed only for working capital and fixed assets. It was further submitted that dividend of Rs. 5,597,167/- was received by the assessee company on which tax had already been borne by the payee company and hence nothing was taxable in the hands of the assessee company. However, the AO was of the opinion that if the company would not have invested Rs. 113,045,323/- in purchase of shares etc., the unit would not have borrowed funds to the extent of Rs. 113,045,323/- and hence the borrowings of the Sahibabad Unit amounting to Rs. 179,614,213/- would have been reduced by that amount. Accordingly interest rate of 12% was applied on Rs. 113,045,323/- and Rs. 13,565,438/- was disallowed. Before the ld. CIT(Appeals), it was the assessee’s submission that investment in dividend yielding mutual funds was made in FY 2003-04 i.e. AY 2004-05 and authorized by the Board of Directors which Page 20 of 70 Atlas Cycles (Haryana) Sonepat clearly shows that surplus funds were available. It was submitted that the company had interest free funds amounting to Rs. 116.26 crores available with it and an investment of Rs. 12.99 crores only was made in mutual funds.

It was also submitted before the ld. CIT (Appeals) that the carry forward balances of these investments is Rs. 113,045,323/-. It was also submitted before the ld. CIT (Appeals) that the purpose of keeping such investments was to keep liquid money for huge Government orders and that no interest expenditure could be assumed for the purpose of disallowance u/s 14A.

However, the ld. CIT (Appeals) required the assessee to provide a working of disallowance u/s 14A read with Rule 8D on which the comments of the AO were called for and on which the AO did not offer any comments.

Accordingly, the working of the assessee was accepted and disallowance u/s 14A read with Rule 8D was restricted to Rs. 3,617,415/- being based on the the working provided by the assessee to the ld. CIT(Appeals). The ld. DR placed reliance on the AO’s order in respect of this issue and submitted that the disallowance had been correctly made. In response the ld. AR submitted that the investment in the dividend yielding mutual funds was made in FY 2003-04 duly authorized by the resolution of the Board of Directors and that the company had surplus funds available with it to the tune of Rs. 116.26 crores out of which only 12.99 crores were invested in mutual funds and fresh

Page 21 of 70 Atlas Cycles (Haryana) Sonepat investment was made out of the sale proceeds of prior year investments and out of dividend earned during the year. The ld. AR submitted that when the investment is made out of own funds and surplus funds, then no disallowance can be made u/s 14A of the Act and for this proposition he placed reliance on the following case laws: 1. CIT vs. Winsome Textile Industries Ltd. 319 ITR 204 (P&H); 2. CIT vs. Metal Man Auto Pvt. Ltd. 336 ITR 434 (P&H); 3. CIT vs. Hero Cycles Ltd. 323 ITR 518 (P&H); 4. CIT vs. Abhishek Industries Ltd. 231 Taxman 85 (P&H); 5. CIT vs. Gujarat Narmada Valley Fertilizers Company, 42 Taxman.com 270 (Guj.); 6. CIT vs. UTI Bank Ltd. 32 taxman.com 370 (Guj.); 7. TNT Motors Ltd. vs. ACIT 154 ITD 306 (ITAT)(Del.); 8. CIT vs. Reliance Utilities 313 ITR 340 (Mum.). 5.7.2 The ld. AR also submitted that the purpose of keeping such investment was to keep liquid money for huge Govt. orders and that no interest expenditure can be assumed for disallowance u/s 14A if such investments were made for business purposes. Reliance was placed on the judgment of the Hon’ble Delhi High Court in the case of CIT vs. Oriental Structural Engineers Ltd. in for this proposition. The ld. AR further submitted that the ld. CIT(Appeals) had erred in applying Rule 8D to AY 2006-07 as Rule 8D was retrospective in nature and applicable only from AY

Page 22 of 70 Atlas Cycles (Haryana) Sonepat 2008-09 and hence the disallowance under Rule 8D was unjustified. For this proposition reliance was placed on the following case laws: 1. Godrej & Boyce Manufacturing Co. Ltd. vs. DCIT 328 ITR 81 (Bom.); 2. Maxopp Investment Ltd. vs. CIT, 247 CTR 162 (Del.). 5.7.3 It was further submitted that the AO had failed to prove any nexus with investments and interest bearing funds and further no objective satisfaction has been recorded by the AO as to how the claim of the assessee regarding no disallowance u/s 14A is not correct because satisfaction of the AO is a pre-requisite for disallowance u/s 14A. Reliance was placed on the following judgments: 1. Maxopp Investment Ltd. vs. CIT 247 CTR 162 (Del.); 2. CIT vs. Jindal Photo Ltd., (Del.) (HC); 3. CIT vs. Taikisha Engineering Ltd. 370 ITR 338 (Del.).

5.7.4 It was further submitted that no addition was made on this account in assessment u/s 143(3) for AY 2003-04 and in AY 2004-05 the disallowances made u/s 14A were deleted by the ld. CIT(Appeals) and, therefore, following the principles of consistency also, no disallowance should have been made in this year under appeal.

5.7.5 Having considered the rival submissions and documents on record and having perused the impugned order of the ld. CIT (A), it is seen that it is Page 23 of 70 Atlas Cycles (Haryana) Sonepat the assessee’s contention that the assessee company had interest free funds available to it for investing in mutual funds. It is also the assessee’s contention that the purpose of keeping such investments was to keep liquid money for huge Govt. orders and thus, no interest expenditure could be disallowed u/s 14A as the investments were made for business purposes. It is also the assessee’s contention that the AO has failed to prove any nexus between the investments and the loans taken. The assessee has also disputed the recording of satisfaction by the AO for the purpose of disallowance u/s 14A. However, the ld. CIT(A) has referred to and reproduced the calculation of disallowance u/s 14A purporting to have been submitted by the assessee itself in the impugned order in which it is alleged that the assessee has itself accepted an amount of Rs. 3,617,415/- for the purpose of disallowance u/s 14A. However, the assessee has contested this finding of the ld. CIT (A) and has specifically raised ground no. 1 in its appeal on the issue. We find that there is an apparent contradiction in facts as stated by the assessee and as stated by the ld. CIT (A) on this issue. Hence, we deem it appropriate to restore the matter to the file of the AO for fresh adjudication after giving the assessee due opportunity to present its case.

5.7.6 In the result, the ground no. 1 of the Department’s appeal is allowed for statistical purposes.

Page 24 of 70 Atlas Cycles (Haryana) Sonepat 5.8 Ground No. 2 of the appeal contests the deletion of disallowance of Rs. 65,103/- from club expenses. The Ld. DR supported the order of the AO whereas the Ld. AR strongly supported the findings of the Ld. CIT (A) on the issue. It is seen that the AO has stated that the assessee had debited a sum of Rs. 190,914/- in the Sahibabad Unit Account on a/c of subscription fees which were examined on test check basis and gave a finding that Rs. 65,103/- were not incurred in connection with the business activity of the assessee but rather were personal expenses of Sh. Jai Dev Kapoor. The ld. CIT(A) deleted this disallowance by holding that the assessee has paid fringe benefit tax (FBT) on the entire amount of Rs. 65,103/- and on the principle of equity, no amount can be taxed twice. Co-ordinate Bench of the Delhi ITAT has followed the decision rendered by the ITAT Mumbai Bench in Shri Hansraj Mathuradas vs. ITO (ITA No. 2397/Mum/2010) in the case of ACIT vs Micro Turners in and has reproduced the finding of the ITAT Mumbai Bench as under:

“17. We have heard the arguments of both the sides and also perused the relevant material on record. The learned counsel for the assessee has taken us through the CBDT Circular No. 8/2005 dated 29-08-2005 giving explanatory notes on the Page 25 of 70 Atlas Cycles (Haryana) Sonepat provisions relating to fringe benefit tax as introduced by the Finance Act, 2005 and invited our attention to the relevant portion thereof to explain the object behind levying fringe benefit tax. As indicated in the said circular, the fringe benefit tax has been introduced as a surrogate tax on employer with the objects of resolving the problems in taxing some perquisites/fringe benefits in the hands of the employees in terms of section 17. Further, as explained in para No. 3.2 of the Circular, the scope of the term "fringe benefits provided" is defined in section 115WB(1) to mean any consideration for employment provided by way of any privilege, service facility or amenity, directly or indirectly, provided by an employer, whether by way of reimbursement or otherwise, to his employees. Moreover, as clarified in the said circular while answering frequently asked question No. 15, fringe benefit is deemed to have been provided if the employer has incurred expenses for any of the purposes referred to in the relevant provisions and there is no requirement to segregate such expenses between those incurred for official purposes and personal purposes. It was further clarified while answering question No. 81 that when expenditure on running and maintenance of motor cars is liable to fringe benefit tax, the employees will not be liable to income tax on the perquisite value of motor car provided by the employer. As rightly contended by the learned counsel for the assessee, circular No 8/2005 dated 29-08-2005 issued by the Board explaining the Page 26 of 70 Atlas Cycles (Haryana) Sonepat provisions relating to fringe benefit tax thus makes it clear that fringe benefit tax is levied on the expenses incurred by the employer irrespective of whether the same are incurred for official or personal purposes. In our opinion, once fringe benefit tax is levied on such expenses as has been done in the present case, it follows that the same are treated as fringe benefits provided by the assessee as employer to its employees and the same have to be appropriately allowed as expenses incurred wholly and exclusively incurred by the assessee for the purpose of its business. In that view of the matter, we delete the disallowance made by the Assessing Officer and confirmed by the learned Commissioner of Income Tax(A) out of conveyance and telephone expenses and allow ground No. 4 and 5 of the assessee’s appeal.”

5.8.1 In the present appeal, the Ld. DR has not disputed the fact that FBT has been paid on the impugned additions and the Ld. CIT (A) has also given a concrete finding on the issue. Hence, drawing strength from the decision of the co-ordinate Bench of ITAT Delhi in ACIT vs Micro Turners (supra) we find no reason to interfere with the finding of the ld. CIT (A) on this issue and accordingly, uphold the adjudication by the ld. CIT (A). Hence, ground no. 2 of the Department’s appeal is dismissed.

5.9 Ground No. 3 pertains to the deletion of addition of Rs. 469,274/- on Page 27 of 70 Atlas Cycles (Haryana) Sonepat account of alleged penal expenditure. The Ld. DR relied on the AO’s order while the Ld. AR supported the First Appellate Order. It is seen that the AO had noticed that the assessee had debited sales tax penalty amounting to Rs. 419,942/- and sales tax penalty fees amounting to Rs. 49,465/- to the P&L A/c and considering the nature of these expenses being penal in nature, these expenses were disallowed. On appeal the ld. CIT (Appeals) gave a categorical finding that out of the total amounts disallowed, only Rs. 533/- pertained to late fee penalty and the balance pertained to tax and interest on late deposit which had wrongly been shown under the head “miscellaneous expenses”. In view of the specific finding of the ld. CIT (A), we find no reason to interfere with the adjudication of the ld. CIT (A) on this issue.

Ground no. 3 of the Department’s appeal is accordingly dismissed.

5.10 Ground No. 4 pertains to the deletion of addition of Rs. 143,425/- and Rs. 14,281/- alleged to be personal marriage gift expenses of the Directors of the assessee. The Ld. DR placed reliance on the assessment order whereas the Ld. AR supported the CIT (A)’s order. It is seen that the AO has given a finding that under the sub head “marriage gift under miscellaneous expenses” expenses amounting to Rs. 143,425/- have been made by Sh. M.R. Agrawal, Sh. Jaidev Kapoor, Sh. Gautam Kapoor & many other persons of the management. The AO held that the marriage gifts were made by the Page 28 of 70 Atlas Cycles (Haryana) Sonepat individuals and as such they were personal expenses not related to the business of the company and they were accordingly disallowed. The ld. CIT (A) held that since the assessee has already declared the amount and paid tax under FBT, the disallowance merited deletion. Considering the factual matrix as well as drawing strength from the decision of the co-ordinate Bench of ITAT Delhi in ACIT vs Micro Turners (supra), we find no reason to disturb this finding of the ld. CIT (A) on this issue. In the result, ground no. 4 of the Department’s appeal is dismissed.

5.11 Ground No. 5 challenges the deletion of addition of Rs. 53,403/- alleged to be personal advertisement expenses. The ld. AR has submitted that this ground does not originate either from the order of the AO or from the order of the Ld. CIT (A). On looking into the contention of the assessee, we find that the submission of the assessee is correct and we accordingly dismiss this ground as being in fructuous. Ground no. 5 of the department’s appeal is accordingly dismissed.

5.12 Ground No. 6 assails the deletion of additions of Rs. 300,006/- as allegedly being personal expenses of the Directors and Officers of the assessee under ‘staff and workers welfare expenses’. The Ld. DR supported the Assessment Order while the Ld. AR supported the order of the Ld. CIT (A). It is seen that the AO had initially disallowed these amounts for non

Page 29 of 70 Atlas Cycles (Haryana) Sonepat production of bills and vouchers related to this expenditure. In appeal, the assessee submitted the relevant bills/vouchers. The ld. CIT (A) called for a remand report of the AO but the AO failed to do so. The ld. CIT (A) held that since FBT had already been paid these amounts, the addition merited deletion. We are of the considered opinion that once the expenditure has been incurred for business purposes and for the welfare of its employees and the expenditure is properly evidenced by vouchers/documents, no disallowance could have been made. It is also a matter of record that the AO did not offer his comments when a remand report on the issue was requisition from him. It is also a matter of record that the assessee has paid FBT on the said amount. Drawing our strength from the decision of the co-ordinate Bench of ITAT Delhi in ACIT vs Micro Turners (supra), we uphold the findings of the ld. CIT (A) on this issue. Ground no. 6 of the department’s appeal is dismissed.

5.13 Ground No. 7 challenges the deletion of additions of Rs. 2727020/- as allegedly being personal expenses of the Directors and their family members, Officers and their family members under the head “travelling expenses”. The Ld. DR supported the Assessment Order while the Ld. AR supported the order of the Ld. CIT (A). A perusal of the assessment order shows that these additions were made on a purely adhoc basis. It was submitted that FBT has Page 30 of 70 Atlas Cycles (Haryana) Sonepat been paid on these expenses and all these expenses were for the purposes of business. It is seen that the AO did not comment on the additional evidences filed by the assessee before the ld. CIT (A) and hence, it could be assumed that the AO accepted the assessee’s contention. The ld. CIT (A) deleted the addition on the ground that since FBT had already been paid no further disallowance could be made. Drawing our strength from the decision of the co-ordinate Bench of ITAT Delhi in ACIT vs Micro Turners (supra), we find no reason to interfere with the reasoning adopted by the ld. CIT (A) and uphold the same. Ground no. 7 of the department’s appeal is dismissed.

5.14 Ground No. 8 challenges the deletion of additions of Rs. 260912/- alleged to be non-business expenditure. The Ld. DR supported the AO’s order. It is seen that these expenditures were incurred for advertisements during the football match for the purpose of welfare of widows of the deceased employees of the assessee company. The ld. AR submitted that the ITAT had allowed a similar expenditure in assessee’s own case for AY 1999- 2000, copy of which has been placed on record. It was also submitted that FBT had also been paid on these expenses and the contention of the AO that the expenses were incurred for non business purposes is incorrect. It was also submitted that the AO has not submitted the remand report sought by the ld. CIT (A) on this issue. The ld. CIT (A) held that since FBT had already been Page 31 of 70 Atlas Cycles (Haryana) Sonepat paid, no disallowance was called for. Having heard the rival submissions and perused the material on record and also the decision rendered by the coordinate bench of the ITAT in we are of the opinion that the matter stands covered by the said decision of the Tribunal in favour of the assessee. We accordingly, find no reason to interfere on this issue and uphold the view taken by the ld. CIT (A). Ground no. 8 of the department’s appeal is dismissed.

5.15 Ground No. 9 contests the deletion of additions of Rs. 429,312/- as allegedly being non-business expenditure. The AO disallowed a sum of Rs. 429,312/- under the sub head “entertainment, wine and beer” under the head “miscellaneous expenses” on the ground that no bills/vouchers were produced and that the assessee had not been able to substantiate its claim. The Ld. DR supported the AO’s order. It was submitted by the ld. AR that this issue is covered by the decision of the coordinate Bench of the ITAT in assessee’s own case for AY 2000-01. It was further submitted that the copies of bills and vouchers were submitted during the first appellate proceedings on which the ld. CIT (A) had called for comments from the AO. However, the AO chose not to comment on the additional evidences. It was also submitted that since FBT was paid on these expenses, no further disallowance could be made. The ld. CIT (A) deleted the entire addition on the ground that since

Page 32 of 70 Atlas Cycles (Haryana) Sonepat FBT had been paid on these expenses; the disallowance could not be made.

We have heard the rival submissions as well as perused the decision of the coordinate Bench in for AY 2000-01 in assessee’s own case. We find that the issue is squarely covered by the said decision of the coordinate Bench and following the principles of consistency, we hold that identical disallowance on identical set of facts cannot be upheld. Ground no. 9 of the department’s appeal is dismissed.

5.16 Ground No. 10 pertains to the deletion of additions of Rs. 16,088,065/- being notional interest attributable to alleged loan/advance made to Sh. Arun Kapoor and other parties. This issue has already been dealt at length by us in for AY 2003-04 and on the principle of consistency we hold that the ld. CIT (A) has correctly deleted the addition.

Ground no. 10 of the department’s appeal is dismissed.

5.17 Ground No. 11 challenges the deletion of addition of Rs. 661,100/- as allegedly being non business expenditure. The Ld. DR supported the AO’s order while the Ld. AR supported the order of the Ld. CIT (A). It is seen that the AO has disallowed this amount because the assessee did not produce any vouchers/bills. The assessee contended that the record of these expenses was maintained at Malanpur Unit. However, the assessee submitted the details of the expenditure before the ld. CIT (A) and also submitted copies of the Page 33 of 70 Atlas Cycles (Haryana) Sonepat vouchers. These bills pertained to gifts given to the dealers of the assessee company. The ld. CIT (A) called for a remand report but the AO did not comment on these additional evidences. The ld. CIT (A) held that since FBT has been paid on these expenses, no disallowance was called for. Having considered the rival submissions we are of the opinion that since FBT has been paid on these amounts, the ld. CIT (A) was correct in deleting the disallowances. Drawing our strength from the decision of the co-ordinate Bench of ITAT Delhi in ACIT vs Micro Turners (supra), we find no reason to interfere with the reasoning adopted by the ld. CIT (A) and uphold the same.

Ground no. 11 of the department’s appeal is dismissed.

5.18 Ground No. 12 assails the deletion of addition of Rs. 4 lakhs as allegedly being non business expenditure out of dealers account. The Ld. DR supported the AO’s order while the Ld. AR supported the order of the Ld. CIT (A). These expenses again pertain to Malanpur Unit and the details/evidences thereof could not be produced before the AO during the assessment proceedings. The AO made an adhoc disallowance of Rs. 4 lakhs out of total expenses of Rs. 1,423,353/-as being for non business purposes.

Copies of the bills were however, submitted before the ld. CIT(A) and the AO did not offer his comments on these additional evidences when so called upon to do so by the ld. CIT(A). The ld. CIT (A) held that since FBT had Page 34 of 70 Atlas Cycles (Haryana) Sonepat already been paid on these expenses, the disallowance was uncalled for. Having considered the factual matrix and the findings of the ld. CIT(A), we are of the concerned opinion that the ld. CIT(A) has correctly held that if FBT had been paid then the expenditure could not be disallowed a second time. Drawing our strength from the decision of the co-ordinate Bench of ITAT Delhi in ACIT vs Micro Turners (supra), we find no reason to interfere with the reasoning adopted by the ld. CIT (A) and uphold the same. Ground no. 12 of the department’s appeal is accordingly dismissed. 5.19 Ground nos. 13 to 16 and18 challenge the following deletions: - addition of Rs. 50,000/- alleged to be non business expenditure out of taxes, fees and subscriptions. - addition of Rs. 50,000/- alleged to be non business expenditure out of entertainment account. - addition of Rs. 123,000/- being un-vouched expenditure out of advertisement expenses. - addition of Rs. 110,051/- out of business promotion expenses; - addition of Rs. 5 lakhs being un-vouched expenditure out of miscellaneous account.

5.19.1 The Ld. DR supported the AO’s order while the Ld. AR supported the order of the Ld. CIT (A). It is seen that all these additions have been deleted by the ld. CIT (A) on the ground that FBT has duly been paid on Page 35 of 70 Atlas Cycles (Haryana) Sonepat these expenses. The assessee has also submitted copies of relevant bills and vouchers before the ld. CIT (A) in all these cases and it is also a fact on record that the AO did not offer his comments on these additional evidences when he was so required by the ld. CIT (A). Drawing our strength from the decision of the co-ordinate Bench of ITAT Delhi in ACIT vs Micro Turners (supra), we find no reason to interfere with the reasoning adopted by the ld. CIT (A) and uphold the same. Ground nos. 13 to 16 and 18 of the department’s appeal are dismissed.

5.20 Ground no. 17 of the department’s appeal challenges the addition of Rs. 150,000/- as allegedly being excessive expenditure on horticulture. The Ld. DR supported the AO’s order while the Ld. AR supported the order of the Ld. CIT (A). It is seen that the AO has stated that out of the total expenses of Rs. 459,182/- under the sub head “horticulture expenses”, most of the expenses have been incurred in cash and are shown as paid to one Sh. K.B.

Sharma for bird treatment. The AO has stated that no vouchers and bills have been furnished and accordingly, a sum of Rs. 1,50,000/- was disallowed. The ld. CIT (A) has held that these expenses are to be allowed as the AR has submitted that evidences along with photograph were duly furnished before the AO. The ld. CIT (A) has also recorded that the AO has in his remand

Page 36 of 70 Atlas Cycles (Haryana) Sonepat report stated that the same was additional evidence. Having considered the rival submissions and the findings in the impugned order, we are of the considered opinion that the ld. CIT (A) has not dealt with this issue in an appropriate manner. On one hand, he has accepted the contention of the assessee that the evidences were furnished before the AO and on the other hand, he also mentions the fact that the AO has mentioned in his remand report that these were fresh evidences. Hence, in the interest of justice, we restore the issue to the file of the AO for fresh adjudication after giving assessee due opportunity to present its case. Ground no. 17 is allowed for statistical purposes.

5.21 In the final result, Department for AY 06-07 is partly allowed.

ITA No. 10/Del/2011 AY 2007-08

6.1 We have heard the rival submissions and have also perused the material on record and we find that the department has not been able to controvert the specific finding given by the ld. CIT (A) that the assessee had surplus fund available with it and that if there was any nexus between the investments and the loans taken, the same could not be established. The Hon’ble P&H High Court in the case of CIT vs. Hero Cycles (supra) has opined in para 2 of the judgment as under:

“Merely because the assessee has incurred interest expenditure on funds borrowed in the main unit, Ludhiana,

Page 38 of 70 Atlas Cycles (Haryana) Sonepat it would not ipso-facto invite the disallowance u/s 14A, unless there is evidence to show that such interest bearing funds have been invested in the investments which have generated the ‘tax exempt dividend income’. As noted earlier, there is no nexus established by the revenue in this regard and, therefore, on a mere presumption, the provisions of sec. 14A cannot be applied.”

Their Lordships have further held as under in para 4 of the judgment:

“Whether, in a given situation, any expenditure was incurred which was to be disallowed, is a question of fact. The contention of the revenue that directly or indirectly some expenditure is always incurred which must be disallowed u/s 14A and the impact of expenditure so incurred cannot be allowed to be set off against the business income which may nullify the mandate of sec. 14A, cannot be accepted. Disallowance u/s 14A requires finding of incurring of expenditure where it is found that for earning exempted income no expenditure has been incurred, disallowance u/s 14A cannot stand. In the present case finding on this aspect, against the revenue, is not shown to be perverse. Consequently, disallowance is not permissible.”

6.1.1 Respectfully following the ratio laid down by the Hon’ble P&H High Court in CIT vs Hero Cycles (supra), which is also the jurisdictional Page 39 of 70 Atlas Cycles (Haryana) Sonepat

High Court for the assessee and also keeping in view the factual finding recorded by the ld. CIT (A) which could not be successfully contested by the Department, we uphold the action of the ld. CIT (A) on this issue. Ground no.

1 is accordingly dismissed.

6.2 Ground no. 2 pertains to deletion of addition of Rs. 16,088,065/- as notional interest attributable to non interest bearing loan advanced to Sh.

Arun Kapoor by the assessee. This issue has already been decided in favour of the assessee by us in for AY 03-04 following which we uphold the action of the ld. CIT(A) on this issue. Ground no. 2 is accordingly dismissed.

6.3 Ground no. 3 pertains to deletion of addition of Rs. 300,543/- under the marriage gift expenses, Rs. 281,253/- out of subscription expenses and Rs. 316,723/- out of workers and staff welfare expenses. The Ld. DR supported the AO’s order while the Ld. AR supported the order of the Ld.

CIT (A). It is seen that while deleting these additions, the Ld. CIT (A) has given a finding that FBT had been paid on these expenses and for that reason, the additions were held as liable for deletion. He also mentioned that he has given a similar relief to the assessee in AY 06-07 and hence the disallowance was deleted. We note that identical issue had come up in the departmental

Page 40 of 70 Atlas Cycles (Haryana) Sonepat appeal bearing AY 06-07 which we have decided in favour of the assessee and against the Department wherein we have relied on the decision of the co-ordinate Bench of ITAT Delhi in ACIT vs Micro

Turners (supra). Following the same, we uphold the impugned action of the ld. CIT (A) on this issue. Ground no. 3 is accordingly dismissed.

6.4 Ground no. 4 pertains to deletion of addition of Rs. 5 lacs out of consultancy expenses. The Ld. DR supported the AO’s order while the Ld.

AR supported the order of the Ld. CIT (A). It is seen that the assessee had debited Rs. 1,671,580/- under consultancy expenses. During the assessment proceedings it was stated that most of the persons to whom the payments were made were ex-employees of the company having specialization in their fields and that their services were engaged after their retirement. However, the AO was of the opinion that the assessee had failed to establish the details of services obtained from them and an adhoc disallowance of Rs. 5 lacs was made. The ld.CIT(A) held that adhoc disallowance by the AO without proper verification and investigation was uncalled for and that disallowance of a portion of the expenditure without investigation and bringing facts on record was not to be approved. The addition was accordingly deleted. It is seen that similar issue was also before us in for AY 06-

Page 41 of 70 Atlas Cycles (Haryana) Sonepat

07(which was preferred by the assessee), wherein we have restored the issue to the file of the AO for fresh adjudication after proper verification. On similar lines we restore this issue also to the file of the AO for fresh adjudication after giving the assessee due opportunity of being heard.

Ground no. 4 of the Department’s appeal is allowed for statistical purposes.

6.5 Ground no. 5 challenges the action of the ld. CIT (A) in deleting the addition of Rs. 211,898/- incurred by the assessee on account of publishing the photo of its founder Sh. Jankidas Kapoor on his death anniversary. The Ld. DR supported the AO’s order while the Ld. AR supported the order of the Ld. CIT (A). It is seen that the AO held that this was a purely personal expense and was hence not allowable as a business expenditure. However, the ld. CIT (A) held that the issue was squarely covered in favour of the assessee by the decision of the coordinate Bench of the ITAT in assessee’s own case for AY 2000-01 and the addition was accordingly deleted. It is seen that this issue/identical issue of advertisement was not before the coordinate Bench of the Tribunal in AY 2000-01 and hence the Ld. CIT (A) has allowed the assessee’s ground on a wrong appreciation of facts. Hence we have no option but to restore the issue to the file of the Ld. CIT (A) for de novo adjudication after giving due opportunity of being heard to the assessee.

Page 42 of 70 Atlas Cycles (Haryana) Sonepat

Ground no. 5 of the department’s appeal is allowed for statistical purposes.

6.6 Ground no. 6 of the appeal challenges the deletion of disallowance made by capitalizing 2/3rd of the expenses on Glow Sign Boards. The Ld. DR supported the AO’s order while the Ld. AR supported the order of the Ld. CIT (A). It is seen that the ld. CIT (A) has held that the issue is covered in favour of the assessee by ITAT in assessee’s own case for AY 1978-79 and accordingly, deleted the disallowance. Although, the decision of the co- ordinate Bench of the ITAT relied upon by the Ld. CIT (A) is not on record, we do find that the issue is covered in favour of the assessee by the decision of the Hon’ble Punjab & Haryana High Court in the case of CIT vs. Liberty Group Marketing Division 315 ITR 125 (P&H) wherein the Hon’ble High Court has opined as under:

“After considering the rival submissions made by learned counsel for the parties, we are of the opinion that the Tribunal was right in confirming the order of the CIT(A) and treating the expenditure incurred on glow sign boards as of revenue nature. Sec. 37(1) of the Act provides that "any expenditure (not being expenditure of the nature described in ss. 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in Page 43 of 70 Atlas Cycles (Haryana) Sonepat computing the income chargeable under the head ‘Profits and gains of business or profession.’" For claiming deduction under this section, one of the conditions is that the expenditure should not be in the nature of capital expenditure. The question whether a particular expenditure incurred by the assessee is of capital or revenue nature is always a complex and intricate issue. Such a question has to be considered and answered in the facts and circumstances of each case. In Assam Bengal Cement Co. Ltd. vs. CIT (1955) 27 ITR 34 (SC), it was held that if the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business, it is properly attributable to capital and is of the nature of capital expenditure. If on the other hand it is made not for bringing into existence an asset or advantage but for running the business or working it with a view to produce the profits it is a revenue expenditure. If any such asset or advantage for the enduring benefit of the business is thus acquired or brought into existence it would be immaterial whether the source of the payment was the capital or the income of the concern or whether the payment was made once and for all or was made periodically. The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure. It was further held that the expressions ‘enduring benefit’ or ‘of a permanent character’ were introduced to make it clear that the asset or the right acquired must have enough durability to justify its being treated as a capital asset. In Page 44 of 70 Atlas Cycles (Haryana) Sonepat

Bombay Steam Navigation Co. (1953) (P) Ltd. vs. CIT (1965) 56 ITR 52 (SC), it was observed that if the expenditure is so related to the carrying on or conduct of the business that it may be regarded as an integral part of the profit-earning process, then such expenditure is to be taken as revenue expenses. In Lakshmiji Sugar Mills Co. (P) Ltd. vs. CIT (1971) 82 ITR 376 (SC), it was held that if the expenditure is made not for the purpose of bringing into existence any asset or advantage but for running the business or working it with a view to produce the profit, it is a revenue expenditure. It was held that the criteria has to be applied from the business point of view and on a fair appreciation of the whole situation. In CIT vs. Madras Auto Service (P) Ltd. (1998) 148 CTR (SC) 398 : (1998) 233 ITR 468 (SC), it was held as under : "the general principles applicable in determining whether a particular expenditure is capital or revenue are as follows : (1) Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment; (2) Expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade. If what is got rid of by a lump sum payment is an annual business expense chargeable against revenue, the lump sum payment should equally be regarded as a business expense, but if the lump sum payment brings in a capital asset, then that puts the business on another footing

Page 45 of 70 Atlas Cycles (Haryana) Sonepat altogether; (3) Whether for the purpose of the expenditure, any capital was withdrawn, or, in other words, whether the object of incurring the expenditure was to employ what was taken in as capital of the business. Again, it is to be seen whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital." Considering the above principle of law, in the present case, it is to be seen as to whether the expenditure incurred by the assessee on glow sign boards was with a view to bringing into existence an asset or an advantage for the enduring benefit of the business. In our opinion, the expenditure incurred by the assessee on glow sign boards does not bring into existence an asset or advantage for the enduring benefit of the business, which is attributable to the capital. The glow sign board is not an asset of permanent nature. It has a short life. The materials used in the glow sign boards decay with the effect of weather. Therefore, it requires frequent replacement. The Tribunal has also recorded a finding that the assessee has to incur expenditure on glow sign boards regularly in almost each year. This fact itself shows that the advantage accrued from the use of the glow sign boards is not of enduring nature. Thus, the expenditure by the assessee on these glow sign boards did not bring into existence any asset or advantage for the enduring benefit of the business. The assessee has spent the expenditure on the glow sign boards with an object to facilitate the business operation and not with an object to acquire asset of enduring nature. Therefore, the said expenditure was of revenue

Page 46 of 70 Atlas Cycles (Haryana) Sonepat nature and the Tribunal has rightly treated the same as of revenue nature.”

6.6.1 Considering the factual matrix of the case and respectfully applying the ratio of judgment of the Hon’ble Punjab & Haryana High Court in the case of CIT vs Liberty Group marketing Division (supra), find no reason to interfere with the findings of the ld. CIT (A). Ground no. 6 is accordingly dismissed.

6.7 Ground no. 7 challenges the impugned action of the ld. CIT (A) in deleting addition of Rs. 10 lacs alleged to be purely personal expenses of the Directors, Officers and their family members under the head “travelling expenses”. The Ld. DR supported the AO’s order while the Ld. AR supported the order of the Ld. CIT (A). It is seen that the AO has observed that the expenses on account of foreign travel of the President, Vice President and Joint President of the assessee company amounted to Rs. 3,078,432/-. It was the assessee’s contention that foreign visits were undertaken to promote exports and to import raw materials and components. However, the AO was of the opinion that the entire foreign travel expenses cannot be said to be wholly and exclusively for business purposes and, therefore, disallowed an adhoc amount of Rs. 10 lacs. The ld. CIT (A) held that the AO has made an Page 47 of 70 Atlas Cycles (Haryana) Sonepat adhoc disallowance purely on guess work and on surmises. The ld. CIT (A) also noted that FBT has been duly paid on the expenses and the disallowance merited deletion. Considering the factual matrix of the case as well as the fact that FBT has been duly paid by the assessee on these travel expenses and drawing support from the decision of the co-ordinate Bench of ITAT Delhi in ACIT vs Micro Turners (supra), we find no reason to interfere with the findings of the ld. CIT (A). Ground no. 7 is accordingly dismissed.

6.8 Ground no. 8 challenges the action of the ld. CIT (A) in deleting the addition of Rs. 110,351/- alleged to be of non business in nature. The Ld. DR supported the AO’s order while the Ld. AR supported the order of the Ld.

CIT (A). It is seen that the AO has made this disallowance out of entertainment, wine and beer expenses on the ground that the assessee could not substantiate its claim. The ld. CIT (A) held that since the issue was settled in favour of the assessee by the order of the ITAT for AY 2000-01 and also because FBT had duly been paid on these expenses, the disallowance merited deletion. On an overall view of the facts and also the decision of the coordinate bench of the ITAT in the assessee’s own case for AY 2000-01, we find no reason to interfere with the impugned order on this issue. Ground no.

8 is accordingly dismissed. Page 48 of 70 Atlas Cycles (Haryana) Sonepat 6.9 In the final result, for AY 07-08 is partly allowed. ITA No. 3473/Del/2011 AY 08-09

The Ld. DR supported the AO’s order while the Ld. AR supported the order of the Ld. CIT (A). This issue has already been decided in favour of the assessee in for AY 03-04 and also followed in AY

04-05, 06-07 and 07-08. Hence, ground no. 1 is dismissed.

7.1 Ground no. 2 pertains to deletion of addition of Rs. 137,180/- on a/c of marriage gift expenses and Rs. 139,518/- under subscription expenses. The Ld. DR supported the AO’s order while the Ld. AR supported the order of the Ld. CIT (A). It is seen that it was the contention of the assessee that these amounts were paid as “shagun” on the marriage ceremonies of employees, dealers and suppliers of the company and the company had to necessarily incur these expenses because of its business necessities. It was submitted that the company has over 2000 employees and more than 4000 dealers and as such these expenses were in the nature of business expediency. The ld. CIT

Page 49 of 70 Atlas Cycles (Haryana) Sonepat

(A) deleted the disallowance. Similarly, a sum of Rs.139,518/- was disallowed out of total expense of Rs. 256,401/- under subscription expenses on the ground that they were personal in nature. The ld. CIT (A) deleted this addition also by taking note of the fact that FBT was paid on these expenses and also that out of the disallowed expenses Rs. 50,000/- was towards subscription to Cycle Manufacturers Association which took care of the collective interest of cycle manufacturers. The balance expenditure pertaining to reimbursement of club membership fee to the top executives of the company was also allowed by the ld. CIT (A) as being wholly and exclusively for business purposes. Having considered the factual matrix on both these issues, we note that identical issue had come up in the departmental appeal bearing AY 06-07 which we have decided in favour of the assessee and against the Department wherein we have relied on the decision of the co-ordinate Bench of ITAT Delhi in ACIT vs Micro Turners (supra). Following the same, we uphold the impugned action of the ld. CIT (A) on this issue. Similarly, as far as the issue of subscription expenses is concerned the department could not controvert the fact that FBT has been paid on these expenses and nor could counter the finding of the ld. CIT (A) that these expenses were wholly and exclusively for business purposes. Hence, we find no reason to interfere on this issue as Page 50 of 70 Atlas Cycles (Haryana) Sonepat well. Ground no. 2 of the department’s appeal is dismissed.

7.2 Ground no. 3 challenges the action of the ld. CIT (A) in deleting the addition of Rs. 3 lacs under consultancy expenses and Rs. 245,180/- incurred on advertisement on the anniversary of late Sh. Jankidas Kapoor the founder of the Company. The Ld. DR supported the AO’s order while the Ld. AR supported the order of the Ld. CIT (A). It is seen that the AO had disallowed an adhoc sum of Rs. 3 lacs out of total consultancy expenses of Rs.

1,372,027/- on the basis that the assessee had failed to establish the nature and details of services obtained from these ex-employees of the company.

The ld. CIT (A) has stated that he relies on the decision of the ITAT in the assessee’s own case for AY 2000-01 in on an identical issue while deleting this addition. Further, the issue of advertisement on the anniversary of the founder of the company was also decided in assessee’s favour by the Ld. CIT (A) by relying on the decision of the ITAT for AY 2000-01. However, we find that the Ld. CIT (A) has adjudicated the issues at hand without going through the order of the ITAT for AY 2000-01 as these issues were not in appeal before the ITAT in AY

2000-01 at all. Hence, we have no option but to restore both these additions to the file of the Ld. CIT (A) for fresh adjudication after affording due

Page 51 of 70 Atlas Cycles (Haryana) Sonepat opportunity to the assessee of being heard. Ground no. 3 is allowed for statistical purposes.

7.3 Ground no. 4 pertains to deletion of addition of Rs. 177,478/- on a/c of capitalization of Glow Sign Board expenses. This issue has already been decided by us in for AY 07-08 in favour of the assessee and following the same we uphold the findings of the ld. CIT (A) in this year as well. Ground no. 4 of the Department’s appeal is accordingly dismissed.

7.4 Ground no. 5 pertains to deletion of Rs. 5 lacs out of foreign travel expenses of the top management of the company. This ground also challenges deletion of addition of Rs. 54,534/- under the head “entertainment, wine and beer expenses” and Rs. 53,000/- under prize and rewards. The Ld.

DR supported the AO’s order while the Ld. AR supported the order of the Ld.

CIT (A). It is seen that the ld. CIT (A) has given a categorical finding that an adhoc disallowance of Rs. 5 lacs was made on a/c of foreign travel expenses without pointing out the particular tours which have not been undertaken for business purposes. The ld. CIT (A) has also noted that the exports and imports of the assessee company have increased over the years and that the AO resorted to the adhoc disallowance without any basis. Similarly, the disallowance from entertainment, wine and beer expenses was incurred to Page 52 of 70 Atlas Cycles (Haryana) Sonepat entertain the clients, dealers and business associates. It is seen that both the issues of foreign travel expenses as well as entertainment, wine and beer expenses are covered in favour of the assessee by the decision of the ITAT an assessee’s own case for earlier assessment years. The case of the assessee gains a stronger footing also from the fact that FBT has been duly paid on these expenses. Drawing support from the decision of the co-ordinate Bench of ITAT Delhi in ACIT vs Micro Turners (supra), we find no reason to interfere with the findings of the ld. CIT (A) on these two issues. As far as the disallowance of Rs. 53,000/- under prize and rewards is concerned, the ld.

CIT (A) has stated in the impugned order that the AO has not given any factual finding regarding the genuineness of the payments. The ld. CIT (A) has noted that giving prizes and rewards is a policy of the Company and the prize money is included in the salary of the employee on which TDS is also duly deducted. Considering the finding of fact recorded by the ld. CIT (A) which could not be controverted by the Department, we find no reason to interfere on this issue as well. Ground no. 5 of the department’s appeal is accordingly dismissed.

7.5 Ground no. 6 pertains to deletion of addition of Rs. 114,210/- under sales promotion and Rs. 568,445/- under the head “repairs and maintenance”.

Page 53 of 70 Atlas Cycles (Haryana) Sonepat

The Ld. DR supported the AO’s order while the Ld. AR supported the order of the Ld. CIT (A). It is seen that the ld. CIT (A) has stated that the voucher wise details of the expenses on sales promotion were submitted before him.

It is also stated that FBT had also been paid on these expenses. Similarly, the assessee has furnished voucher wise details for the repairs and maintenance expenses before the ld. CIT (A). Considering the details submitted, the ld.

CIT (A) has allowed these expenses by deleting the additions. However, we find that the ld. CIT (A) has not mentioned in the impugned order as to whether the comments of the AO were invited on the additional evidences filed before him. Hence, in the interest of justice, we deem it appropriate to restore these two issues to the file of the AO for fresh adjudication after verifying the evidences furnished by the assessee and after giving the assessee a due opportunity of being heard. Ground no. 6 is accordingly allowed for statistical purposes.

7.6 In the final result, for AY 08-09 is partly allowed.

ITA No. 2132/Del/2012 for AY 2009-10

8. Ground no. 1 pertains to deletion of addition of Rs. 16,088,065/-

Page 54 of 70 Atlas Cycles (Haryana) Sonepat being notional interest attributable to advance made to Sh. Arun Kapoor.

This issue has already been settled in favour of the assessee and against the department in for AY 03-04 and also for subsequent assessment years. Hence, this ground is dismissed.

8.1 Ground no. 2 pertains to deletion of addition of Rs. 236,618/- under marriage gift expenses and Rs. 213,700/- under subscription expenses. It is seen that these two additions are identical to ground no. 2 of the department’s appeal in for AY 08-09 and which have been held against the department. Since, these two issues are identical as aforementioned, following our adjudication on these two issues in ITA No.

3473/Del/2011 for AY 08-09, we dismiss this ground also.

8.2 Ground no. 3 challenges the action of the ld. CIT (A) in deleting the addition of Rs. 5 lacs under consultancy expenses and Rs. 256,610/- under advertisement expenses incurred on the anniversary of the late founder of the assessee company. The Ld. DR supported the AO’s order while the Ld. AR supported the order of the Ld. CIT (A). It is seen that these two issues are also identical to ground no. 3 of the department’s appeal in ITA No.

3473/Del/2011 for AY 2008-09 and which have been restored to the file of the Ld. CIT (A) for fresh adjudication. The Ld. CIT (A) has decided the issue

Page 55 of 70 Atlas Cycles (Haryana) Sonepat in favour of the assessee relying on the his decision for AY 08-09 by relying on wrong set of facts and hence we have no option but to restore these two issues to the file of the Ld. CIT (A) for fresh adjudication after giving the assessee due opportunity of being heard. Ground No. 3 is accordingly allowed for statistical purposes.

8.3 Ground no. 4 pertains to deletion of disallowance of Rs. 70,275/- on account of capitalization of Glow Sign Board expenses. This issue has been decided against the department in for AY 08-09 and also in for AY 2007-08 and since no new facts have been added to the factual matrix, we dismiss this ground in this year as well.

8.4 Ground no. 5 pertains to deletion of addition of Rs. 7 lacs out of the foreign travel expenses of the top management of the assessee company. The ground also challenges the deletion of addition of Rs. 58,382/- under the head

“entertainment, wine and beer expenses”. The ground also challenges the deletion of addition of Rs. 72,350/- under prize and rewards expenses. The Ld. DR supported the AO’s order while the Ld. AR supported the order of the Ld. CIT (A). It is seen that this ground is identical to ground no. 5 in the department’s appeal in for AY 08-09 in which we have dismissed the department’s ground. As the factual matrix is identical in Page 56 of 70 Atlas Cycles (Haryana) Sonepat this year as well and the department could not bring any new fact on record, we dismiss ground no. 5 on the same reasoning as adopted by us in AY 08-

09.

8.5 Ground no. 6 challenges the deletion of addition of Rs. 544,893/- under the head “sales promotion expenses”. The Ld. DR supported the AO’s order while the Ld. AR supported the order of the Ld. CIT (A). It is seen that the ld. CIT (A) has recorded a finding that the assessee has submitted voucher wise details of these expenses before him in respect of four items totaling Rs.

135,515/-. Apart from this it is seen that the AO has disallowed an amount of Rs. 409,378/- incurred on purchase of silver items as the assessee could not explain as to how the expenditure in this regard was incurred wholly and exclusively for business purposes. A perusal of the finding of the ld. CIT(A) on this issue shows that the issue has been dealt by him in a very casual manner without discussing the specifics of the disallowance and also without bringing on record as to whether the procedure as laid down under Rule 46A was followed or not. Hence, in the interest of justice, we deem it a matter fit to be restored to the file of the CIT (A) for fresh adjudication after giving the assessee a due opportunity of being heard and furnishing the relevant documents after duly calling for a remand report from the AO. Ground No. 6

Page 57 of 70 Atlas Cycles (Haryana) Sonepat is allowed for statistical purposes.

8.6 In the final result filed by the department is partly allowed.

ITA No. 4000/Del/2013 for AY 2010-11

9. Ground no. 1 pertains to deletion of addition of Rs. 16,088,065/- being

notional interest attributable to advance made to Sh. Arun Kapoor. This issue has already been settled in favour of the assessee and against the department in for AY 03-04 and followed in subsequent assessment years. Hence, this ground is dismissed.

9.1 Ground no. 2 pertains to deletion of addition of Rs. 13,707/- under marriage gift expenses and Rs. 2,64,550/- under subscription expenses. It is seen that these two additions are identical to ground no. 2 of the department’s appeal in for AY 08-09 and which have been held against the department. Identical issues in AY 09-10 were also held in favour of the assessee by us. Since, these two issues are identical as aforementioned, following the decision rendered in for AY 08-09 and followed in AY 09-10 on these issues, we dismiss this ground also.

Page 58 of 70 Atlas Cycles (Haryana) Sonepat

9.2 Ground no. 3 challenges the action of the ld. CIT (A) in deleting the addition of Rs. 3 lacs under consultancy expenses and Rs. 2,25,600/- under advertisement expenses incurred on the anniversary of the late founder of the assessee company. The Ld. DR supported the AO’s order while the Ld. AR supported the order of the Ld. CIT (A). It is seen that these two issues are also identical to ground no. 3 of the department’s appeal in ITA No.

3473/Del/2011 for AY 2008-09 and which have been restored to the file of the Ld. CIT (A) for fresh adjudication. The Ld. CIT (A) has decided the issue in favour of the assessee relying on the his earlier decisions for AY 08-09 and AY 09-10 by relying on wrong set of facts and hence we have no option but to restore these two issues to the file of the Ld. CIT (A) for fresh adjudication after giving the assessee due opportunity of being heard. Ground No. 3 is accordingly allowed for statistical purposes.

9.3 Ground no. 4 pertains to deletion of disallowance of Rs. 1,49,606/- on account of capitalization of Glow Sign Board expenses. This issue has also been decided against the department in for AY 08-09 and also followed in AY 09-10 and on the principle of consistency we dismiss this ground in this year as well.

9.4 Ground no. 5 pertains to deletion of addition of Rs. 5 lacs out of the Page 59 of 70 Atlas Cycles (Haryana) Sonepat foreign travel expenses of the top management of the assessee company. The ground also challenges the deletion of addition of Rs. 53,167/- under the head

“entertainment, wine and beer expenses”. The ground also challenges the deletion of addition of Rs. 2,46,685/- under prize and rewards expenses. This ground is again identical to ground no. 5 in the department’s appeal in ITA

No. 3473/Del/2011 for AY 08-09 in which we have dismissed the department’s ground. Identical grounds were also in appeal before us for AY

2009-10 which we have decided against the department. As the factual matrix is identical in this year as well and the department could not bring any new fact on record, we dismiss ground no. 5 on the same reasoning as adopted by us in AY 08-09.

9.5 Ground no. 6 challenges the deletion of addition of Rs. 2,00,000/- under the head “sales promotion expenses”. The Ld. DR supported the AO’s order while the Ld. AR supported the order of the Ld. CIT (A). The ld. CIT

(A) has recorded a finding that the assessee has submitted voucher wise details of these expenses before him. A perusal of the finding of the ld.

CIT(A) on this issue shows that the issue has been dealt by him in a very casual manner without discussing the specifics of the disallowance and also without bringing on record as to whether the procedure as laid down under Page 60 of 70 Atlas Cycles (Haryana) Sonepat

Rule 46A was followed or not. Hence, in the interest of justice, we deem it a matter fit to be restored to the file of the CIT (A) for fresh adjudication after giving the assessee a due opportunity of being heard and furnishing the relevant documents after duly calling for a remand report from the AO.

Ground No. 6 is allowed for statistical purposes. 9.6 In the final result is partly allowed. AY 2006-07 and 4049/Del/2013 AY 2008-09

10. Both these appeals have been preferred by the Department against deletion of penalties imposed u/s 271(1)(c)of the Act. For AY 2006-07, the penalty imposed was Rs. 15,45,612/- on the sole issue of confirmation of addition of Rs. 36,17,415/- u/s 14A read with rule 8D by the Ld. CIT (A). In AY 08-09, the penalty imposed was Rs. 18,27,443/- and was imposed subsequent to the confirmation of disallowance of Rs. 53,76,418/- u/s 14A read with rule 8D by the Ld. CIT (A). For AY 2006-07, the assessee as well as the department was in appeal before us on the issue of quantum of disallowance u/s 14A where in AY 2008-09, the assessee has accepted the quantum of disallowance.

10.1 The Ld. AR submitted that section 271 (1) (c) applies where the Page 61 of 70 Atlas Cycles (Haryana) Sonepat assessee “has concealed the particulars of his income or furnished inaccurate particulars of such income”. The present appeals were not a case of concealment of the income. The Ld. AR further submitted that as regards the furnishing of inaccurate particulars, no information given in the return was found to be incorrect or inaccurate. The words “inaccurate particulars” mean that the details supplied in the return are not accurate, not exact or correct, not according to truth or erroneous. In the absence of a finding by the AO that any details supplied by the assessee in its return were found to be incorrect or erroneous or false, there would be no question of inviting penalty u/s 271 (1)

(c). The Ld. AR relied on the decision of Hon'ble Supreme Court in the case of CIT vs Reliance Petro Products Pvt. Ltd. (SC) 322 ITR 158 [2010] wherein also the penalty was fallout of disallowance u/s 14A.

10.2 The Ld. DR supported the penalty orders passed by the AO.

10.3 We have heard the rival submissions and perused the material on record. The AO levied the impugned penalties on the ground that it has furnished wrong particulars of income. The Hon'ble Supreme Court in the case of CIT vs Reliance Petro Products Pvt. Ltd. (supra) has held that a mere making of claim which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such Page 62 of 70 Atlas Cycles (Haryana) Sonepat claim made in the return cannot amount to inaccurate particulars. The relevant portions of the judgment of the Hon'ble Supreme Court are reproduced hereunder:-

"7. As against this, learned Counsel appearing on behalf of the respondent pointed out that the language of section 271(l)(c) had to be strictly construed, this being a taxing statute and more particularly the one providing for penalty. It was pointed out that unless the wording directly covered the assessee and the fact situation herein, there could not be any penalty under the Act. It was pointed out that there was no concealment or any inaccurate particulars regarding the income were submitted in the Return. Section 271(l)(c) is as under :—

”271. (1) If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person— (c) has concealed the particulars of his income or furnished inaccurate particulars of such income." A glance at this provision would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. Present is not the case of concealment of the income. That is not the case of the Revenue either. However, the learned Counsel for revenue

Page 63 of 70 Atlas Cycles (Haryana) Sonepat suggested that by making incorrect claim for the expenditure on interest, the assessee has furnished inaccurate particulars of the income. As per Law Lexicon, the meaning of the word "particular" is a detail or details (in plural sense); the details of a claim, or the separate items of an account. Therefore, the word particulars" used in the section 271(l)(c) would embrace the meaning of the details of the claim made. It is an admitted position in the present case that no information given in the Return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. The learned Counsel argued that "submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income". We do not think that such can be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. In CIT v. Atul Mohan Bindal [2009] 9 SCC 589, where this Court was considering the same provision, the Court observed that the Assessing Officer has to be satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income. This Court referred to another decision of this Court in Union of India v.

Page 64 of 70 Atlas Cycles (Haryana) Sonepat Dharamendra Textile Processors [2008] 13 SCC 369, as also, the decision in Union of India v. Rajasthan Spg. & Wvg. Mills [2009] 13 SCC 448 and reiterated in para 13 that:— "13. It goes without saying that for applicability of section 271 (1)( c), conditions stated therein must exist."

Page 65 of 70 Atlas Cycles (Haryana) Sonepat inaccurate particulars. It was further held that the assessee must be found to have failed to prove that his explanation is not only not bona fide but all the facts relating to the same and material to the computation of his income were not disclosed by him. It was then held that the explanation must be preceded by a finding as to how and in what manner, the assessee had furnished the particulars of his income. The Court ultimately went on to hold that the element of mens rea was essential. It was only on the point of mens rea that the judgment in Dilip N. Shroffs case (supra) was upset. In Dharamendra Textile Processors’ case (supra), after quoting from section 271 extensively and also considering section 271(l)(c), the Court came to the conclusion that since section 271(l)(c) indicated the element of strict liability on the assessee for the concealment or for giving inaccurate particulars while filing Return, there was no necessity of mens rea. The Court went on to hold that the objective behind enactment of section 271(l)(c) read with Explanations indicated with the said section was for providing remedy for loss of revenue and such a penalty was a civil liability and, therefore, willful concealment is not an essential ingredient for attracting civil liability as was the case in the matter of prosecution under section 276C of the Act. The basic reason why decision in Dilip N. Shroff’s case (supra) was overruled by this Court in Dharamendra Textile Processors’ case (supra), was that according to this Court the effect and difference between section 271(l)(c) and section 276C of the Page 66 of 70 Atlas Cycles (Haryana) Sonepat

Act was lost sight of in case of Dilip N. Shroff (supra). However, it must be pointed out that in Dharamendra Textile Processors.’ case (supra), no fault was found with the reasoning in the decision in Dilip N. Shroff ’s case (supra), where the Court explained the meaning of the terms "conceal" and "inaccurate". It was only the ultimate inference in Dilip N. Shroff’s case (supra) to the effect that mens rea was an essential ingredient for the penalty under section 271(l)(c) that the decision in Dilip N. Shroff’s case (supra) was overruled.

"not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript." We have already seen the meaning of the word "particulars" in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the Return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that, any details supplied by the assessee in its Return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under section 271(l)(c) of the Act. A mere making of the claim,

Page 67 of 70 Atlas Cycles (Haryana) Sonepat which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars.

Page 68 of 70 Atlas Cycles (Haryana) Sonepat to the revenue, that by itself would not, in our opinion, attract the penalty under section 271(l)(c). If we accept the contention of the revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under section 271(l)(c). That is clearly not the intendment of the Legislature.

Page 69 of 70 Atlas Cycles (Haryana) Sonepat 10.4 On the facts of the case for both the years, it is our considered opinion that no case can be made out for furnishing inaccurate particulars for both the years under appeal. Respectfully following the dicta of the Hon’ble Apex Court in the case of CIT vs Reliance Petro Products Pvt. Ltd. (supra), we find no reason to disturb the findings of the Ld. CIT (A) for both the years under appeal and we uphold the same. 10.5 In the result and 4049/Del/2013 preferred by the department are dismissed.

Order is pronounced in the open court on 29.07.2016