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Income Tax Appellate Tribunal, RAIPUR BENCH “SMC”, RAIPUR
Before: SHRI RAVISH SOOD
आदेश / ORDER PER RAVISH SOOD, JM The present appeal filed by the assessee is directed against the order passed by the CIT(Appeals)-II, Raipur dated 23.12.2019, which in turn arises from the order passed by the A.O under Sec. 147 r.w.s 143(3) of the Income-tax Act, 1961 (in short ‘the Act’) dated 22.12.2017 for the assessment year 2010-11. The assessee has assailed the impugned order on the following grounds of appeal before me:
“1. That on the facts and circumstances of the case the first appeal order dated 23/12/2019 should be declared illegal and bad, both in law and facts because the said original first appeal order is not signed by the learned CIT(Appeals)-2, Raipur. 2. That on the facts and circumstances of the case the notice u/s.148 dated 30.03.2017 should be declared illegal and bad, both in law & facts. 3. That on the facts & circumstances of the case the Order passed u/s. 147 rw 143(3) dated 22.12.2017 served on 01.01.2018 under the Income Tax Act, 1961 should be declared illegal and bad, both in law & facts. 4. The assessment proceeding in this case should be declared null and void, both in law & facts. Note:- That without prejudice to the above grounds, the following grounds are as under:- 5. That without giving the reasonable and proper opportunity the learned CIT (Appeal) 2 has passed the first appeal order and dismissed the appeal which is quite unjustified and bad, both in law and facts.
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That on the facts & circumstances of the case the income returned of Rs.7,01,600/- should be accepted in toto. 7. That on the Facts & Circumstances of the case an Addition of Rs.15,58,000/- (Rs. Fifteen Lac Fifty Eight Thousand only) as per Para 6 of Assessment order is quite illegal unjustified and bad, both in law & facts. 8. That the disallowance of Expense u/s 14A as per Para 4 & 5 to the tune of Rs. 45861/- is quite illegal and bad, both in law & facts. 9. That on the facts and circumstances of the case the interest charged should be deleted from the income tax computation.”
Also the assessee has raised an additional ground of appeal which reads as under:
“On the facts and in the circumstances of the case, the order passed u/s.147 r.w.s. 143(3) is liable to be quashed as the order is bad-in-law/and void-ab-initio inasmuch as the sanction granted by Learned PCIT in terms of provisions of Section 151 of the Income Tax Act, 1961 for initiation of reassessment proceedings was mechanical and granted without application of mind."
Succinctly stated, the assessee had filed his return of income for A.Y.2010-11 on 14.10.2010, declaring an income of Rs. 7,01,600/-. On the basis of certain information, viz. (i) that the assessee despite absence of liquid funds had made cash deposit of Rs.8 lac in his bank account; and (ii) that though the assessee had earned exempt income of Rs.55,501/- from a partnership firm but had not offered for disallowance any part of the interest expenditure of Rs.45,861/- u/s.14A of the Act, the A.O reopened the case of the assessee u/s.147 of the Act. Notice u/s.148 dated 29.03.2017 was, thereafter, served
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upon the assessee. In compliance, the assessee requested that his original return of income filed on 14.10.2010 may be treated as a return filed in compliance to the notice u/s.148 of the Act.
During the course of the assessment proceedings, it was observed by the A.O that the assessee had over the year made cash deposits of Rs.15,58,000/- in his various bank accounts, viz. (i). IDBI Bank, A/C No.52510010001943: Rs. 8 lacs; (ii). Canara Bank, SB A/C No.3,58,000/-; and (iii). UCO Bank SB A/c. No.002032: Rs.4,00,000/- . As the assessee failed to furnish any explanation as regards the source of the cash deposits, therefore, the A.O held the same as unexplained cash credit u/s.68 of the Act. Also, the A.O observed that though the assessee was in receipt of exempt income of Rs.78,147/- from various streams but had not offered any disallowance u/s.14A of the Act. Considering the fact that the assessee had claimed to have incurred interest expenditure of Rs.45,861/- on the loans raised from two persons, viz. (i). interest paid to Smt. Lata Chandrayan: Rs.22,931/-; and (ii). interest paid to Shri. Vishnu Chandrayan : Rs.22,930/-, the A.O holding a conviction that the said interest expenditure was incurred by the assessee for earning of exempt income, thus disallowed the entire amount u/s 14A of the Act. Accordingly, the A.O on the basis of his aforesaid deliberations vide his
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order passed u/s.147 r.w.s. 143(3), dated 22.12.2017 assessed the income of the assessee at Rs.23,05,461/-.
Aggrieved the assessee carried the matter in appeal before the CIT(Appeals) but without any success.
The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before me.
I have heard the ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions.
The Ld. Authorized Representative (for short ‘AR’) for the assessee had assailed the orders of the lower authorities on three fold grounds before me, viz. (i) validity of the jurisdiction that was assumed by the A.O for initiating proceedings u/s 147 of the Act and framing the consequential assessment; (ii) validity of the addition made by the A.O u/s 68 of the Act of the simpliciter cash deposits in the assessee’s bank accounts; and (iii) sustainability of the addition made by the A.O in the backdrop of the merits of the case. The Ld. AR had challenged the validity of the jurisdiction that was assumed by the A.O u/s.147 of
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the Act on the basis of his multi-facet contentions, viz. (i) that proceedings u/s 147 of the Act were based on misconceived facts ; (ii) that the “reasons to believe” forming the basis for initiating proceedings u/s 147 of the Act were absolutely vague, uncertain and non-specific; (iii) that the proceedings u/s.147 had been initiated on the basis of a mere “change of opinion”; (iv) the proceedings initiated u/s 147 of the Act in absence of tangible material and live nexus with the material available on record could not be sustained; (v) reassessment proceedings had been initiated merely for the purpose of making fishing and roving enquiries; and (vi) that the reopening of the assessment being based on a sanction that was mechanically granted by the appropriate authority u/s.151 of the Act would not confer valid jurisdiction upon the A.O u/s.147 of the Act.
I have given a thoughtful consideration to the aforesaid multi- facet contentions of the assessee. Before proceeding any further, I deem it fit to cull out the “reasons to believe” on the basis of which proceedings u/s.147 of the Act had been taken recourse to by the A.O, as under: “The assessee has filed his return of income for the A.Y.2010- 11 on 14.10.2010 and declared total income at Rs.701600/-. As per information available on record, the assessee had deposited an amount of Rs.800000/- in his bank account. Perusal of the return, it is noted that the assessee earned business income in forms of Remuneration and interest from his partnership firm M/s. Naveen Transport and M/s. S. Lakha
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Sing Bal & Sons, but no other business income is shown. Apart from the above business income the assessee has declared income from other sources of Rs.474880/- (interest). Since, the assessee deposited cash of Rs.800000/- into his bank account, the liquidity of the cash of Rs.800000/- in the hand of the assessee does not commensurate to the said cash in hand in lieu of nature of business . Apart from the above, the assessee earned exempt income of Rs.55501/- from the firms, but the assessee claim expenditure on account of earning from the said firms. Since, the provision 14A is applicable for claiming expenditure on account of exempted income, the claimed expenditure in the return which is Rs.45861, is not allowable. Hence, I have reason to believe that the income of Rs.845861/- (Rs.800000/- + Rs.45861/-) which is chargeable to tax, has escaped assessment within the meaning of Para (b) of Explanation 2 of Section 147 of the I.T Act, 1961. Thus, the case is fit for reassessment u/s.147 of IT Act, 1961 for a.y. 10-11.” On a careful perusal of the aforesaid “reasons to believe”, I am unable to concur with the claim of the Ld. AR that the proceedings u/s.147 of the Act had been initiated on the basis of vague, uncertain and non- specific facts. Also, the claim of the Ld. AR that the initiation of the impugned proceedings is not based on a bonafide belief but on a suspicion, does not find favor with me. As per the “reasons to believe”, the A.O had on the basis of a bonafide belief that the income of the assessee chargeable to tax had escaped assessment, as was arrived at by him as per clear, certain and specific facts that were available on his record, resorted to proceedings u/s.147 of the Act, viz. (i). the assessee despite absence of any source of liquid funds with him had made cash deposits of Rs. 8 lac in his bank account; and (ii) that the assessee despite having made exempt income yielding investments out
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of interest bearing funds had not offered any part of the interest expenditure for disallowance u/s.14A of the Act. Considering the aforesaid facts, I am unable to persuade myself to subscribe to the claim of the Ld. AR that the proceedings u/s.147 of the Act were initiated by the A.O merely on the basis of a pretence. On the same footing, the claim of the Ld. AR that the A.O had taken recourse to proceedings u/s 147 of the Act in the absence of any tangible material, being devoid and bereft of any merit fails and is accordingly rejected. As regards the claim of the Ld. AR that the A.O had initiated proceedings u/s.147 of the Act for making fishing and roving enquiries, I am unable to comprehend the very basis for raising of such claim. As observed by me hereinabove, the A.O had taken recourse to the proceedings u/s.147 of the Act for two fold reasons, viz. (i). the assessee despite absence of any source of liquid funds with him had made cash deposits of Rs. 8 lac in his bank account; and (ii) that the assessee despite having made exempt income yielding investments out of interest bearing funds had not offered any part of the interest expenditure for disallowance u/s.14A of the Act. Accordingly, the claim of the Ld. AR that the proceedings u/s.147 had been initiated by the A.O for making fishing and roving enquiries being devoid and bereft of any force is accordingly rejected.
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Adverting to the claim of the Ld. AR that the Pr. CIT had granted his approval u/s.151 of the Act in a mechanical manner i.e., without any application of mind, I am unable to find favor with the same. On a perusal of the approval/sanction granted by the Pr. CIT, Raipur, I find that the latter after duly recording his satisfaction had granted the sanction to the A.O for issuing notice u/s.148 of the Act to the assessee, Page 11 of APB.
On the basis of my aforesaid observations, I am of the considered view that the challenge thrown by the Ld. AR to the validity of jurisdiction assumed by the A.O on the basis of his multi-facet contentions being grossly misconceived and misplaced cannot be accepted and are accordingly rejected.
I shall now deal with the claim of the Ld. AR that the A.O had grossly erred in law and facts of the case in making addition of simplicitor cash deposits of Rs.15.58 lac (supra) in his bank accounts as unexplained cash credit u/s.68 of the Act, which, thereafter, had been principally upheld by the CIT(Appeals). It is the claim of the Ld. AR that as the simplicitor cash deposits in the assessee’s bank accounts did not form part of its books of accounts, therefore, the same could not have been assessed in its hands as unexplained cash credit u/s.68 of the Act. In sum and substance, it is the claim of the Ld. AR
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that as the simplicitor cash deposits in the bank accounts cannot be construed as credits in the books of account of the assessee, therefore, no addition could have validly been made by triggering the provisions of Section 68 of the Act. The ld. A.R in support of his aforesaid contention had relied on the judgment of the Hon’ble High Court of Bombay in the case of CIT Vs. Bhaichand H. Gandhi (1983) 141 ITR 67 (Mum.) and order of the ITAT, Amritsar in the case of Satish Kumar Vs. ITO (2019) 198 TTJ 114 (Asr). On the basis of his aforesaid contention, it was averred by the Ld. AR that the addition of Rs.15.58 lac (supra) made by the A.O by treating the simplicitor cash deposits in the assessee’s bank accounts as unexplained cash credit u/s.68 of the Act could not be sustained and was liable to be struck down on the said count itself.
Per contra, the Ld. Departmental Representative (for short ‘DR’) had relied on the orders of the lower authorities. It was submitted by the Ld. DR that as the A.O had validly assumed jurisdiction u/s.147 of the Act and had brought to tax the cash deposits made by the assessee from its unexplained sources, therefore, no infirmity did emerge from the orders of the lower authorities who had rightly made/sustained the said addition.
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Having given a thoughtful consideration to the issue in hand i.e., sustainability of the addition of the simplicitor cash deposits made in the assessee’s bank accounts u/s.68 of the Act, I find substance in the contentions advanced by the Ld. AR. As stated by the Ld. AR, and, rightly so, as the bank account statement/bank passbook cannot be treated as books of accounts of the assessee, hence, no addition in respect of the cash deposits could be validly made u/s.68 of the Act. The aforesaid view is fortified by the order of a division bench of the ITAT, Jalandhar in the case of Satish Kumar Vs. ITO (2019) 198 TTJ 114 (Asr), wherein, after drawing support from the judgment of the Hon’ble High Court of Bombay in the case of CIT Vs. Bhaichand H. Gandhi (1983) 141 ITR 67 (Bom) and referring to an earlier order of the ITAT, Mumbai in the case of Mehul V. Vyas Vs. ITO (2017) 764 ITD 296 (Mum), the tribunal had held as under:
"8. We have heard the ld. Authorized representatives of both the parties, perused the orders of the lower authorities as well as the material produced before us. We will first deal with the objection raised by the ld. A.R as regards the addition of Rs.10,53,000/- which was made by the A.O under Section 68 of the 'Act', in respect of the cash deposit in the bank account of the assessee. We find substantial force in the contention of the Id. A.R that an addition under Section 68 can only be made where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee either offers no explanation about the nature and source as regards the same, or the explanation offered by him in the opinion of the assessing officer is not found to be satisfactory. That before adverting further, we herein reproduce the relevant extract of the aforesaid statutory provision, viz. Section 68, which reads as under: "Cash Credits. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and
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source thereof or the explanation offered by him is not, in the opinion of the [Assessing] officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year..........." That a bare perusal of the aforesaid deeming section therein reveals that an addition under the said statutory provision can only be made where any sum is found credited in the books of an assessee maintained for any previous year. Thus, the very sine qua non for making of an addition under Section 68 presupposes a credit of the aforesaid amount in the 'books of an assessee' maintained for the previous year. We not being oblivious of the settled position of law that a statutory provision has to be strictly construed and interpreted as per its plain literal interpretation, and no word howsoever meaningful it may so appear can be allowed to be read into a statutory provision in the garb of giving effect to the underlying intent of the legislature, thus confining ourselves within the realm of our jurisdiction, therein construe the scope and gamut of the aforesaid statutory provision by according a plain meaning to the language used in Sec. 68. We are of the considered view that a credit in the 'bank account' of an assessee cannot be construed as a credit in the 'books of the assessee', for the very reason that the bank account cannot be held to be the 'books' of the assessee. Though it remains as a matter of fact that the 'bank account' of an assessee is the account of the assessee with the bank, or in other words the account of the assessee in the books of the bank, but the same in no way can be held to be the 'books' of the assessee. We have given a thoughtful consideration to the scope and gamut of the aforesaid statutory provision, viz. Sec. 68, and are of the considered view that an addition made in respect of a cash deposit in the 'bank account' of an assessee, in the absence of the same found credited in the 'books of the assessee' maintained for the previous year, cannot be brought to tax by invoking the provisions of Section 68. That our aforesaid view is fortified by the judgment of the Hon'ble High Court of Bombay in the case of CIT Vs. Bhaichand' N. Gandhi (1983) 141 ITR 67 (Bombay) wherein the Hon'ble High Court has held as under: - "As the Tribunal has pointed out, it is fairly well settled that when moneys are deposited in a bank, the relationship that is constituted between the banker and the customer is one of debtor and creditor and not of trustee and beneficiary. Applying this principle, the pass book supplied by the bank to its constituent is only a copy of the constituent's account in the books maintained by the bank. It is not as if the pass book is maintained by the bank as the agent of the constituent, nor can it be said that the pass book is maintained by the bank under the instructions of the constituent. In view of this, the Tribunal was, with respect, justified in holding that the pass book supplied by the bank to the assessee in the present case could not be regarded as a book of the assessee, that is, a book maintained by the assessee or under his instructions. In our view, the Tribunal was justified in the conclusions at which it arrived." We find that the aforesaid view of the Hon'ble jurisdictional High Court had thereafter been followed by a 'SMC' of the ITAT Mumbai bench in the case of Smt. Manshi Mahendra Pitkar Vs. ITO 1(2), Thane (2016) 73 taxmann.com 68 (Mumbai Trib.) wherein it was held as under: -
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“I have carefully considered the rival submissions. In the present case the addition has been I made by the income tax authorities by treating the cash deposits in the bank account as an unexplained cash credit within the meaning of section 68 of the Act. The legal point raised by the assessee is to the effect that the bank Pass book is not an account book maintained by the assessee so as to fall Within the ambit of section 68 of the Act. Under section 68 of the Act, it is only when an amount is found credited in the account books of the assessee for any previous year that the deeming provisions of section 68 of the Act......... circumstances mentioned therein. Notably, section 68 of the Act in a situation "Where any sum is found credited in the books of an assessee............The Hon'ble Bombay High Court in the case of Shri Bhaichand Gandhi (supra) has approved the proposition that a bank Pass Book maintained by the bank cannot be regarded as a book of the assessee for the purposes of section 68 of the Act. Factually speaking, in the present case, assessee is not maintaining any books of account and section 68 of the Act has been invoked by the Assessing Officer only on the basis of the bank Pass Book. The invoking of section 68 of the Act has to fail P a g e |6 ITA No.105/Asr./2017 A.Y. 2008-09 Shri Satish Kumar Vs. Income Tax Officer because as per the judgment of the Hon'ble Bombay High Court in the case of Shri Bhaichand N. Gandhi (supra), the bank Pass Book or bank statement cannot be construed to be a book maintained by the assessee for any previous year as understood for the purposes of section 68 of the Act. Therefore, on this account itself the impugned addition deserves to be deleted. I hold so." We further find that a similar view had also been arrived at in a 'third member' decision of the Tribunal in the case of Smt. Madhu Raitani Vs. ACIT (2011) 10 taxmann.com 206 (Gauhati) (TM), as well as by a coordinate bench of the Tribunal in the case of ITO, Barabanki Vs. Kamal Kumar Mishra (2013) 33 taxamann.com 610 (Lucknow Trib.). Thus in the backdrop of the aforesaid facts of the case read in light of the settled position of law, we are of the considered view that the addition made by the A.O in respect of the cash deposit of Rs.l0,53,000/-(supra) in the bank account of the assessee by invoking Section 68 has to fail for the very reason that as per the judgment of the Hon'ble Bombay High Court in the case of Shri Bhaichand N. Gandhi (supra), a bank pass book or bank statement cannot be considered to be a 'book' maintained by the assessee for any previous year, as understood for the purpose of Section 68 of the Act. Therefore, on this count itself the impugned addition Rs.10,53,000/- deserves to be deleted." We are of the considered view that as the bank account of an assessee cannot be held to be the 'books' of an assessee maintained for any previous year, thus no addition under Sec. 68 of the I.T Act can be made in respect of a simpliciter deposit in the bank account. We thus respectfully following the judgment of the Hon'ble High Court of Bombay in the case of CIT Vs. Bhaichand H. Gandhi (1983) 143 ITR 67 (Bom.) and being in agreement with the view taken by the coordinate bench of the Tribunal i.e. ITAT, Mumbai in
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case of Mehul V. Vyas Vs. ITO (2017) 764 ITD 296 (Mum), thus are of the considered view that the addition of Rs.11,47,660/- made by the A.O under Sec.68 cannot be sustained, and as such is liable to be vacated. We thus set aside the order of the CIT(A) and delete the addition of Rs.11,47,660/- made by the A.O under Sec.68 of the Act.”
On the basis of my aforesaid observations, I am of the considered view that as the bank accounts of the assessee could not have been held to be the “books of account” of the assessee maintained for any business or profession, therefore, no addition u/s.68 of the Act could have been made in respect of the simplictor cash deposits made in the said bank accounts. I, thus, respectfully following the judgment of the Hon’ble High Court of Bombay in the case of CIT Vs. Bhaichand H. Gandhi (1983) 141 ITR 67 (Bom), as well as being in agreement with the order of the division bench of the Tribunal in the case of Mehul V. Vyas Vs. ITO (2017) 764 ITD 296 (Mum) and that of order of the ITAT, Amritsar in the case of Satish Kumar Vs. ITO (2019) 198 TTJ 114 (Asr), is of the view that the addition of Rs.15.58 lac (supra) made by the A.O u/s.68 of the Act cannot not be sustained. Resultantly, the order of the CIT(Appeals) who had upheld the addition made by the A.O u/s.68 of the Act is set-aside and addition of Rs.15.58 lacs (supra) made by the A.O u/s.68 of the Act is vacated.
Adverting to the disallowance made by the A.O u/s.14A of the Act of Rs.45,861/-, I find that the same was made for the reason that as per him the interest expenditure of Rs.45,861/- claimed by the
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assessee as a deduction was incurred for earning of exempt income. As observed by me hereinabove, the assessee had incurred interest expenditure of Rs.45,861/-, viz. (i) interest paid on loan raised from Smt. Lata Chandrayan: Rs.22,931/-; and (ii) interest paid on loan raised from Shri Vishnu Chandrayan: Rs.22,930/-. Although the assessee had not offered any part of the interest expenditure for disallowance u/s.14A of the Act, but I find that the A.O holding a conviction that the said expenditure was incurred for earning of the exempt income had disallowed the entire amount u/s.14A of the Act.
I have given a thoughtful consideration to the issue in hand, and is unable to persuade myself to subscribe to the disallowance made by the A.O u/s.14A of the Act. As is discernible from the assessment order, the A.O had not given any reason as to how any part of the interest expenditure of Rs.45,861/- was to be related to the earning of the exempt income by the assessee. In sum and substance, the A.O had failed to record any satisfaction as to how the claim of the assessee that no part of the interest expenditure was incurred for earning of the exempt income was not to be accepted. Although, the CIT(Appeals) had tried to plug the lapse on the part of the A.O and justify the disallowance u/s.14A of the Act, by observing, that as the assessee had not shown as to from where the investment in the exempt income yielding assets were sourced from, therefore, the same could safely be
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held to have been made out of the interest bearing funds, and thus, the corresponding interest expenditure was rightly disallowed by the A.O u/s.14A of the Act.
In my considered view, both the lower authorities had grossly erred in law and the facts of the case in disallowing/sustaining the disallowance of the interest expenditure u/s.14A of the Act. I, say so, for the reason that as held by the Hon’ble High Court of Bombay in the case of CIT Vs. Sociedade De Fomento Industrial (P). Ltd. (2020) 429 ITR 358 (Bom), the A.O before rejecting the disallowance offered by the assessee remains under a statutory obligation to give a clear finding with reference to the accounts of the assessee that the other expenditure which were being claimed to have been incurred in respect of the non-exempt income, were in fact related to its exempt income. For the sake of clarity the relevant observations of the Hon’ble High Court are culled out as under:
“20. We may further reiterate that before rejecting the disallowance computed by the assessee, the Assessing Officer must give a clear finding with reference to the assessee’s accounts as to how the other expenditure claimed by the assessee out of the non-exempt income is related to the exempt income.”
As in the case of the present assessee neither of the lower authorities had demonstrated that as to how any part of the interest expenditure of Rs.45,861/-, as was claimed by the assessee as a deduction, was
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not relatable to any part of its taxable income, therefore, respectfully following the judgment of the Hon’ble Bombay High Court CIT Vs. Sociedade De Fomento Industrial (P). Ltd. (supra) the disallowance made by the A.O u/s.14A of the Act of Rs.45,861/- cannot be sustained and is accordingly vacated.
Thus, the appeal of the assessee is partly allowed in terms of the aforesaid observations.
Order pronounced in open court on 26th day of December, 2022. Sd/- (रवीश सूद /RAVISH SOOD) �या�यक सद�य/JUDICIAL MEMBER रायपुर / Raipur; �दनांक / Dated : 26th December, 2022 #***SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(Appeals)-II, Raipur (C.G.) 4. The Pr. CIT-II, Raipur (C.G.) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “एक-सद�य” ब�च, रायपुर / DR, ITAT, “SMC” Bench, Raipur. गाड� फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER, // True Copy // �नजी स�चव /Private Secretary आयकर अपील�य अ�धकरण, रायपुर / ITAT, Raipur