TMI Blog2022 (12) TMI 160X X X X Extracts X X X X X X X X Extracts X X X X ..... hrough the bank Overdraft Account. This proves the fact that the assessee was having mixed funds both in form of business receipts and borrowings in the form of overdraft from the bank from time to time. It is also an admitted fact that apart from the overdraft account based on the FDR of the assesse, the assesse did not make any other borrowing or taken loan from any source as no such account appear in the balance sheet and annual statement of accounts of the assessee - all the outgoing being the investment in the mutual fund, purchases of plot, construction of building, interest free loan advances given to faculties or to some other charitable organisation (as may be noted in the next grounds of appeal), in the year before us, were made from the OD Account only or in other words, from the mixed funds being the interest free funds as also the interest bearing. The AO failed to establish the necessary nexus between the borrowings and the investment so made. We find that the controversy involved in the present case is directly covered by the case of ACIT v/s Ram Kishan Verma [ 2012 (5) TMI 417 - ITAT, JAIPUR] wherein the factual matrix is also the same. In fact, the cited c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payable under the scholarship scheme was rightly claimed and authorities below were not correct in disallowing the same. Hence, the disallowance so made is fully deleted. Therefore, this ground is allowed. Disallowances of various expenses - connection charges, electricity lines, supervision charges, CTPT set cost and meter cost - HELD THAT:- A careful perusal of the facts and the material on record shows that the claimed expenditure with, AO was on account of connection charges, electricity lines, supervision charges, CTPT set cost and meter cost as contended such expenditure did not create any new asset and the facts as stated, remaining uncontroverted by the revenue, no disallowance was called for. The authorities below were not justified in making the disallowance hence, the same is hereby is deleted. Therefore, this ground is allowed. Addition on account of Internet Networking expenses - We feel that Revenue has completely failed to establish as to how such expenditure has resulted into the creation of a new asset therefore, the authorities below were not correct in making the disallowance and hence the same is also deleted. Hence, this ground is allowed. Disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant of jurisdiction and various other reasons and hence, the same kindly be deleted. 2. Rs. 10,83,901/-:The ld. CIT(A) erred in law as well as on the facts of the case in confirming the disallowance of Rs.10,83,901/- out of interest expenses alleging not for business purpose. The disallowance so made and confirmed by the ld. CIT(A) is contrary to the provisions of law and facts, hence kindly be deleted in full. 3. Rs.7,236/-: The ld. CIT(A) erred in law as well as on the facts of the case in confirming the disallowance of Rs.7,236/- out of interest payment on account of alleged notional interest on interest free advances. The disallowance so made and confirmed by the ld. CIT(A), is contrary to the provision of law and hence, kindly be deleted in full. 4. Rs.76,60,166/-: The ld. CIT(A) erred in law as well as on the facts of the case in confirming the disallowance of Rs.76,60,166/- made out of interest expenses u/s 36(1)(iii) alleging that the borrowed funds were used on capital expenditure. The disallowance so made and confirmed by the ld. CIT(A) is contrary to the provision of law and hence, kindly be deleted in full. 5. Rs.15,60,000/-: The ld. CIT(A) erred in law as w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ils, he noticed that out of the bank OD a/c some investments were made in the mutual funds totalling to Rs. 1.5 Crores on different dates (at page 2 of the asstt. order). The assessee paid such interest at 6.25% and when asked as to why the proportionate interest relating to such investment in the mutual funds, of Rs. 10,83,901/- which, in the opinion of the AO, was the interest paid on borrowed funds for purchases of mutual units be not allowed, the assessee submitted a reply dated 23.01.2013 06.02.2013 (reproduced at page 3 onwards of the asstt. order).The assessee mainly submitted that the object behind making investment is getting tax efficient income similar to bank interest. The income from mutual fund is not tax free as explained earlier also. The firm accumulated profit for its expansion plan and not taking any loan for the expansion plan. Further the annual account shows that the assessee had declared profit of Rs.50.76 Crores and the investment in the mutual funds a/c was merely of Rs. 1.5 Crores hence, such investment was out of assessee's own fund and was not out of borrowings. In support, some decisions were cited. The AO however, felt dissatisfied. He relied upo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- is confirmed. This ground of appeal is dismissed. 3.4 Before us the ld. AR made the following submissions praying therein that the ld. CIT(A) has erred in confirming the action of the AO. 1. Firstly, we strongly rely upon the written submissions filed before the ld. CIT(A), which are reproduced at pg 2 to 6 15 to 17 of CIT(A) order. (PB 152-173). 2.1 The law is well settled that where assessee is having mixed i.e. interest free/interest bearing funds both, but the interest free funds are larger than the interest free advances than there will a presumption that the interest free advances were given out of the interest free funds (but not out of interest bearing fund/OD) and hence, no interest can be disallowed (as was not claimed). 2.2 It is submitted that the cited decisions strongly support the contentions raised by the assessee. These decisions relate to disallowance of the interest expenditure incurred on the loan amount used for payment of income tax/investment in the securities/capital expenditure etc. or for giving interest free advances to its sister concerns etc. sourced out of the loan/OD a/c. The Hon ble Courts in similar factual matrix (as availa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thing which has been brought on record to prove that the investments have been made at the relevant point in time out of the borrowed funds. In absence of establishing the necessary nexus being between the borrowings and the investments in the mutual funds, it can safely be concluded that the investments in the mutual fund units have been made out of mixed funds. 25. The funds in the FDRs accounts clearly reflect the interest free funds which are available with the assessee which is far in excess of the amount of investments which has been made in the Mutual Funds units amounting to Rs. 3 Cr. Accordingly, on appreciation of the said facts and in absence of anything to the contrary, as per the settled legal proposition, a presumption can be drawn that the investments in the mutual fund units have been made out of interest- free funds and not out of interest bearing funds 26. Lastly, coming to the contention of the learned CIT(A) that provisions of s. 14A are applicable as income from the Mutual Funds are exempt, we find that the said finding is contrary to the facts on record. The appellant has invested in the fixed maturity plans of the various Mutual Funds which a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not borrow any fresh money. The disallowance made by the AO u/s 36(i)(iii) was fully deleted by holding that 10.4 We have heard both the parties. The assessee is having sufficient capital. If there are mixed funds then non-interest-bearing funds are to be considered as utilized for non-interest-bearing advances. It is the assessee who has to take a business decision. Fees is generally received at the beginning and surpluses are used for making fixed deposits as receipts are in advances while expenses are spread out throughout the year. Since interest-free advances are less than the capital and the AO has not brought on record any nexus of interest-bearing loans used the AO could not have disallowed the interest. There is no onus on the assessee to establish that interest-free advances are out of interest-bearing advances if non-interest-bearing funds are more. Reliance is placed on the decision of the Hon ble Bombay High Court in the case of CIT vs. Reliance Utilities Power Ltd. (2009) 221 CTR (Bom) 435 : (2009) 18 DTR (Bom) 1 : (2009) 313 ITR 340 (Bom) and Hon ble Delhi High Court in the case of CIT vs. Bharti Televenture Ltd. (2011) 51 DTR (Del) 98 : 2010- TIOL-51-HC- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he partner/proprietor being more than the interest free short term advances, has in the case of CIT v/s M/s. Vijay Solvex Ltd. (2015) 274 CRT (Raj.) 384 while relying on the judgments rendered in (a) S.A. Builders Ltd. V/s CIT (2007) 288 ITR 0001 (SC); (b) Munjal Sales Corporation v/s CIT (2008) 298 ITR 298 (SC) ; (c) CIT V/s Radico Khaitan Ltd. (2005) 274 ITR 354; (d) CIT v/s Dalmia Cement (Pvt.) Ltd. (2002) 254 ITR 377; (e) CIT v/s Britannia Industries Ltd. (2006) 280 ITR 525; and (f) CIT v/s Motors Sales Ltd. (2008) 304 ITR 123 (Allahabad), held as under:- x---------------x----------------x----------------x-------------------x---------x 14. Therefore, the finding reached by the Tribunal is essentially a finding of fact based on the appreciation of the evidence, and we find no perversity or infirmity in the order impugned, and no question of law arises out of the order of ITAT. 3.4 For various other case laws, kindly refer Annexure 1 to Revised w/s to ITAT dated 1st February 2021 (The assessee in Annexure 1 has relied upon the cases of CIT v/s Radico Khaitan Ltd. (2005) 194 CTR 451/274 ITR 354 (All) (HC) , Godrej Boyce Manufacturing Co. Ltd. v/s DCIT Anr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that to the extent of his own capital the assessee could advance money without interest for business expediency or/and relatives, and none can be forced to charge interest. In DCIT v/s Gujarat Narmada Valley Fertilizers Co. Ltd. (2014) 31 ITR (Trib) 668 (Ahd) at page 671, it is held that .., the decision of the Supreme Court in the case of S.A. Builders Ltd. v. CIT(Appeals) [2007] 288 ITR 1 (SC) would not be applicable to the facts of the present case . 6.1 No Interest paid on Partners Capital on current year profits: Its factually wrong that appellant paid interest on their capital. Factually there was no interest paid w.r.t. huge net-profits of Rs.53.02 Cr. before depreciation and Rs. 50.76 Cr. after depreciation, of this year in as much as such interest was credited at the end of the year. In other words, no interest at all was paid on the partners capital at least to the extent of the current year`s profit because profit was distributed at the end of the year and such interest, of course, was paid in the subsequent year. The current year profit is otherwise much bigger than the investment made in mutual fund this year of Rs.1.50 Cr. or the total i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 57 (SC), it is held that the business of the firm is business of the partners of the firm and, hence, salary, interest and profits received by the partner from the firm is business income and, therefore, expenses incurred by the partners for the purpose of earning this income from the firm are admissible as deduction from such share income from the firm in which he is partner. Section 4 of the Indian Partnership Act 1932 also support this contention. Thus, the 'partnership firm' and partners have been collectively seen and the distinction between the two was removed in the judicial precedents even for taxation purposes. 6.2.3 On the other hand, interest paid on borrowed capital u/s 36(1)(iii) presupposes a transaction between two independent entities, which is not the case here. Capital of a partner is not a borrowing and therefore, the Act does not cover interest on capital of partner u/s 36(1)(iii) but it s limit of allowability has been prescribed u/s 40(b) only as appropriation out of profits. 6.2.4 Sec 13 of the Indian Partnership Act, 1932 contains the mutual rights and liabilities of the partners. Sec 13(c) of the Indian Partnership Act, 1932 reads as un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n was followed in M/s Syntholab Chemicals Research vs. ACIT in ITA No. 4156/Mum/2015 dated 19.04.2017 (DPB-IV 193-198). 6.4 It is also pertinent to note that in A.Y.2009-10 also, the assessee made payment of interest on partner s capital a/c yet however, the contention of the assessee of availability of the interest free funds in the shape of partner s capital of Rs. 70.65 Cr., was accepted and disallowance made u/s 36(1)(iii) was completely deleted vide para 24 of the ITAT order dated 27.09.2017 in ITA No. 10/JP/2013 (DPB-III 149-180). In the later years also similar facts prevailed but contention of the assessee was accepted by the Settlement Commission also. There being no change in the facts and circumstances, the decision taken by this Hon ble Bench Commission in the earlier/other year/s, is binding upon it and as a rule of consistency a similar view has to be adapted these years also. 7. The ld.AO completely failed to deny and disprove the facts as argued although vide last para at pg 6, he alleged that the assessee had used a part of the borrowed funds available in the OD a/c and worked out the disallowable amount of the interest yet however, he completely fail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Summary for A.Y. 2010-11 Opening Deposit Withdrawal Closing 43.12 Credit 225.93 236.83 54.01 Credit Bank FDR Summary for A.Y. 2010-11 Opening Fresh FDR Matured in the Year Closing 98.03 83.90 82.29 99.64 3.5 During the course of hearing, the ld. DR strongly relied upon the findings recorded by the authorities below and justified the additions made and confirmed by the ld. CIT(A) and prayed to uphold the addition/disallowance. 3.6 We have carefully considered the finding recorded in the impugned orders, the rival contentions raised by both the parties, material placed on record and have also gone through the judicial pronouncements cited by the parties. At the outset, it is observed that the law is well settled that where assessee is having mixed i.e. interest free/interest bearing funds both, but the interest free funds are larger than t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 17,06,26,980/- ( Ground of Appeal No.4) and the loan given to charitable organizations of Rs. 1.41 lakhs ( Ground of Appeal No.3). It is also noticed from the Balance Sheet that and the partners capital accounts that interest has been paid on the credit balance however, it is not disputed that such interest was computed and credited only with reference to the closing balance standing as on 31st March 2010 on the year end, which, therefore implies that even assuming the capital was not interest free, in any case the capital to the extent of the current year s profit of Rs. 50.76 crore (and before depreciation Rs. 53.02 crore) was completely interest free in as much as such net profit was credited in the respected capital account only at the year end and no interest could be credited in the current year at least. These facts could not be rebutted by the Ld. DR, we are also in agreement with the contention of the Ld. AR that such interest payment on the capital of partner is not an expenditure but is a case of appropriation of profits. Such payment of interest cannot be kept at par like any other interest paid. The payment of interest (on the capital), salary, bonus etc., are no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO could not disallow part of interest. It is also an admitted fact, as observed by the tribunal, that the AO was not able to pin pointedly come to a definite conclusion that how interest bearing loans has been diverted towards interest free advances and since the AO was not able to prove nexus between interest bearing loans vis- -vis interest free loans/advances, therefore, in our view as well, once the AO was not able to come to a definite conclusion as to nexus having been established about interest bearing loans having been diverted towards interest free loans/advances, and such being a finding of fact based on application of evidence, in our view no substantial question of law arise on this question as well. It can be observed that this court in similar circumstances and on identical facts, when the capital of the partner/proprietor being more than the interest free short term advances, has in the case of CIT v/s M/s. Vijay Solvex Ltd. (2015) 274 CRT (Raj.) 384 while relying on the judgments rendered in (a) S.A. Builders Ltd. V/s CIT (2007) 288 ITR 0001 (SC); (b) Munjal Sales Corporation v/s CIT (2008) 298 ITR 298 (SC) ; (c) CIT V/s Radico Khaitan Ltd. (2005) 274 ITR 354; ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties below where they have followed their findings recorded in their respective orders for AY 2009-10. It is also not denied that based on similar contentions, identical facts and the controversy, the coordinate bench has decided the issue of allowability or otherwise u/s 14A and/or 36(1)(iii) in that year vide order dated 27.09.2017 in ITA no. 10/JP/2013 [reported in 190 TTJ 823 (JP)] holding as under: 24 Regarding second issue as to whether the transactions in the bank overdraft account are limited to the borrowings and subsequent withdrawal for meeting expenditure and making the investments or it also includes other transactions in form of deposit of various business receipts including course fees as contended by the ld. AR, we find, on review of bank overdraft accounts summary details available at APB 45, that the assessee has an overdraft account with the Central Bank of India, Talwandi Branch, Kota wherein the opening credit balance is Rs. 28 Cr. and closing credit balance is Rs. 33 Cr and during the year, we find that there are deposits of Rs. 115.53 Cr and withdrawal of Rs. 120.85 Cr. The said numbers therefore supports the contention advanced by the ld. AR during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exceeding one year, the maturity proceeds are taxable @ 10 per cent with the indexation benefit and @ 20 per cent without indexation benefits. In other words, the investments in Mutual Funds schemes are not tax-free investments. In support of its contentions, the learned Authorised Representative has also submitted a copy of the computation of income for the subsequent asst. yr. 2010-11 wherein the maturity proceeds amounting to Rs. 3,32,35,500 of all these Mutual Funds units wherein the assessee has invested Rs. 3,00,00,000 during the impugned assessment year have been offered to tax as long-term capital gains. In light of the same, we do not think that the learned CIT(A) was correct in invoking provisions of s. 14A of the Act. We have also carefully gone through the various decisions cited by the AR in the cases of CIT v/s M/s. Vijay Solvex Ltd. (2015) 274 CTR 384 (Raj.), CIT v/s Radico Khaitan Ltd. (2005) 194 CTR 451/274 ITR 354 (All) (HC), East India Pharmaceutical Works Ltd. v/s CIT (1997) 139 CTR 0372 (SC), CIT vs. HDFC Bank LTD. (2016) 284 CTR 0409 (Bom), Hero Cycle P. Ltd vs. CIT (2015) 128 DTR 1/379 ITR 347 (SC). However, we find the decision cited by the ld. DR in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere apart, such amount was also utilized towards the construction work in progress in a building at Rajiv Gandhi Nagar, upto Rs.2,11,10,151/-. The AO, with reference to the proviso to Sec.36(1)(iii) asked the assessee, in reply to which, the assessee vide letter dated 23.01.2013 (AO Pg 14) stated that the assessee was having no Current a/c and it has only OD a/c based on the FDRs purchased from assessee s own money and such advances were made out of current year s profits which were to the tune of Rs.50.76 Crores (before allocation amongst partners). It was also stated that Sec..36(1)(iii) is applicable only when some capital is borrowed, whereas, in this case the assessee has not practically borrowed any money and hence, there was no occasion to claim interest nor of disallowance thereof. It was only a part of the financial management/planning adopted by the assessee. The AO feeling dissatisfied, however, concluded that the subjected interest expenditure on the funds used from the Bank OD a/c, which was a loan and hence, deduction in respect of the interest on account of purchase of plots of Rs.3,34,868/- on Plot. No.1, Rajiv Gandhi Nagar, Kota, Rs.13,38,412/- on Plot No.6, Rajiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 therefrom. 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sufficient to meet the investments. In this case this presumption is established considering the finding of fact both by the CIT(A) and Tribunal. 3.2 Principally, in the instant case also the facts are the same as were obtaining in the case of Reliance Utilities (supra) in as much as in both the cases, the investments were made in capital asset (whether in the shares of the two companies as was the case with Reliance Utilities (supra) or investment in the capital asset i.e. plot purchase, construction etc which makes no difference but at both the places, the common contentions of the assessee are that there were no borrowing made as such in as much as the assessee was already having sufficient interest free funds at its disposal therefore, such investment/outgoing on capital account should be treated to have gone out of the availability of interest free funds but not from the interest bearing funds, if any. This way, there was no occasion for the assessee to make a claim of deduction nor for the AO to have made disallowance u/s 36(1)(iii) of the Act. 4.1 it is submitted that the issue is directly covered by the decision of CIT vs Reliance Industries Ltd. (2018) 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uent year. This position can be depicted by way of a table given below. (In Crores) AY Incremental Investment (a) Construction (b) Total (a+b) Profits 2011-12 6.1 3.96 10.06 31.47 2012-13 9.84 1.23 11.07 62.14 2013-14 2.6 0.93 3.53 107.49 2014-15 50.07 45.55 95.62 143.08 2015-16 -6.99 49.68 42.69 170.16 2016-17 0 29.13 29.13 148.7 2017-18 -3 81.95 78 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... othing more than a suspicion which is not permissible for making a valid assessment as held in the case of Dhakeshwari Cotton Mills Ltd 26 ITR 26 ITR 0775 (SC). 8.3 In any case, the same is allowable u/s 57(iii) in both grounds. The impugned disallowance may kindly be deleted in full. 4.6 During the course of hearing, the ld. DR strongly relied upon the findings recorded by the authorities below and justified the additions made and confirmed by the ld. CIT(A) and prayed to uphold the addition/disallowance. 4.7 We have heard the rival contentions and pursued the material available on record. The facts and circumstances of the case are similar to the one which we have examined in detail in Ground no. 2 above. Apart from what has already been stated and held in preceding paras, it is noticed that the incremental outgoings in the shape of investment in mutual fund, investment in construction, loans and advances etc. totalling to Rs. 18.56 Crores as also the closing balances of the interest free outgoings up to 31.03.2010, were far below the current year s profit of Rs. 50.76 Crores and net profit before depreciation at Rs. 53.02 crores. A table submitted by the assesse i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cheques already given to the successful students. Therefore, the balance of Rs.15,60,000/- was shown as payable at the end of the year, which were paid in subsequent years (i.e. cheques 9 + 12 + 12 + 3 in A.Y.2011-12 to 2014-15) as when the concerned student got the cheque en-cashed. The bonafidies and allowabilities u/s 37(1) is not disputed. 3. It is submitted that the authorities below entertained factual and legal misconception by saying that the liability was not existent/ascertained or contingent for the simple reason that the liability relating to the subjected amount, was not only fully ascertained existed but was even quantified on the very day, when the result of the Scholarship Scheme, selecting the eligible candidates was announced and in the award function they were tendered 48 cheques each. In terms of the Scheme, the assessee, of course, by its own admission, was liable to make payment of the scholarship amount to the selected candidates for the period of four years as agreed. 4. Such liability was assumed and admitted by the assessee without any condition as to the selected candidate must complete the course selected that to for the entire period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in which it is credited back. Thus, the liability relating to subjected amount stood ascertained and crystallized in the subjected year itself and is fully allowable. 6B. Accounting entries are not decisive of true nature of transaction. Kindly refer Kedarnath Jute Mfg. Co. Ltd. v/s CIT (1971) 82 ITR 0363 (SC) and Sutlej Cotton Mills Ltd. v/s CIT (1979) 116 ITR 0001 (SC). 7.1 Supporting Case Law: See Annexure 2 to revised w/s to ITAT dated 1st February 2021 7.2 Cases cited by Revenue are completely distinguishable: See Annexure 2 to revised w/s to ITAT dated 1st February 2021. (The assessee in Annexure 2 has relied upon the cases of Bharat Earth Movers v/s CIT (2000) 162 CTR 325/245 ITR 428 (SC), CIT vs. Indian Transformers Ltd. (2004) 192 CTR 0216/270 ITR 0259 (KerHC), CIT vs. Vinitec Corporation (P) Ltd. (20005) 196 CTR 0369/ 278 ITR 0337 (DelHC), Calcutta Co. Ltd. v/s CIT (1959) 37 ITR 1 (SC), Metal Box Co. of India Ltd. v/s Their Workmen (1969) 73 ITR 53 (SC)). 8. No disallowance made in past: 8.1 It is pertinent to note that although the appellant has been making similar claims in the past based on the similarly floated schemes for the encouragemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.4 Although specific submissions were made before the ld. CIT(A) and his attention was drawn to this fact yet however, he completely remained silent. 9.1 Settlement Commission: The issue involved is otherwise also covered. A search was carried out in the case of assessee group and the matter reached to the Hon ble Income Tax Settlement Commission, New Delhi. The issue of disallowance u/s 36(1)(iii) and the claim of liability towards the Scholarship payable have also been a subject matter of their consideration. These issues have been decided in the favour of the assessee vide order dated 26.04.2018 (III PB176-183). Though the assessment years involved are different, however, the said order fully support the contention of the assessee, in principal. 9.2 Thereapart, w.r.t. disallowance of Scholarship Payable, we are submitting herewith an at a glance chart (PB184) showing that the liability created in the subjected years, i.e. A.Y. 2010-11 11-12 stood paid off in later years and in some cases where the cheques were not encashed by the awardee-payee, the same stood credited back to the scholarship expenses. Even in the order of the Settlement Commission, there is a ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disputed. Such liability was assumed and admitted by the assessee without any condition as the selected candidate must complete the course selected for the entire period of four years. On this aspect attention was drawn towards a copy of the prospectus placed at PB 174 wherein we find that there was no condition or stipulation imposed upon the student to complete the entire course and he was at liberty to continue or discontinue the course. Since the quantification of the liability is based on the amount of Rs 48,000/- p.a. for the total period 4 years for 43 eligible candidates, it amounted to Rs 19.20 Lakhs and as soon as the candidate was declared eligible and was awarded the scholarship fee, the assessee certainly committed itself towards such liability which is not only quantified and ascertained but was very much legally in existence on its pronouncement during the course of the functions and otherwise also, irrespective of the fact whether the entire amount so committed is paid during the year or is paid in part in the coming years. Thus, it was neither mere provision nor a contingent liability nor nonexistent or unascertained liability as wrongly alleged by the authorities. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted the order of the Tribunal in favour of the assessee and did not pursue the matter any further but in respect of some AYs the matter was taken up in appeal before the High Court but without any success. That being so, the Revenue could not be allowed to flip-flop on the issue further. We have also carefully gone through the decision cited by ld. AR in the cases of Bharat Earth Movers v/s CIT (2000) 162 CTR 325/245 ITR 428 (SC), CIT vs. Indian Transformers Ltd. (2004) 192 CTR 0216/270 ITR 0259 (KerHC), Calcutta Co. Ltd. v/s CIT (1959) 37 ITR 1 (SC) etc. copy of which have also been supplied and are placed on record. However, we find that decision cited by the ld. DR are completely distinguishable based on peculiar facts available in those cases only, which are not obtaining in the present case. They were rendered in different legal factual context and therefore are not at all applicable. Thus, considering the totality of facts circumstances and the legal position, we are of the considered opinion that the liability towards the amount payable under the scholarship scheme was rightly claimed and authorities below were not correct in disallowing the same. Hence, the disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance was called for. The authorities below were not justified in making the disallowance hence, the same is hereby is deleted. Therefore, this ground is allowed. 6.6 The Disallowance of Rs. 67,715/- claimed on account of Internet Networking expenses, is agitated by the AO. During the course of assessment proceedings the AO noted that the assessee had claimed expenditure of Rs. 79,664/- for Internet networking expenses. When asked, the assessee stated that the charges so paid for increase effectiveness of business but not for creation of any asset. The AO however feeling dissatisfied, disallowed Rs. 67,715 after allowing depreciation @ 15% vide para 2.6.3 pg. 23 mainly on the ground that it is clearly a capital expenditure, which resulted into benefit of enduring nature. He placed reliance on Assam Bengal Cement Co. Ltd. v/s CIT (1955) 27 ITR 0034 (SC). However, the CIT(A) also confirmed the same. 6.7 Before us the ld. AR made the following submissions with prayer to delete the addition confirmed by the ld. CIT(A). 1. Firstly, we strongly rely upon the detailed written submissions filed before the ld. CIT(A), which are reproduced at pg. 33 37 of the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entions and the material placed on record, clearly shows that it was the case where the property was already purchased in CP-7, Indra Vihar, Kota. However, it was only a procedural formality of transferring the name was done whereupon, this amount was paid to the concerned authority i.e. Nagar Nigam, Kota, as evident from a copy placed at APB 151. The AO has not established that such expenditure resulted into creation of a new property or the assessee got an advantage of an enduring nature and hence, such a disallowance was wrongly made. Hence impugned disallowance is hereby deleted in full. Therefore, this ground is allowed. 6.14 Disallowance of Rs.7,80,642/- claimed on account of Construction Expenses of boundary wall of a building known as CP-14:- During the course of assessment proceedings, The AO noted that the assessee had claimed Rs.7,80,642/- for expenses incurred for constructing boundary wall. When asked, the assessee stated that the various repair works got done including the extension of height of existing boundary wall. The AO however feeling dissatisfied, disallowed Rs.7,02,578/- after allowing depreciation @ 10% vide para 2.8.3 pg 25 mainly on the ground that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly rely upon the detailed written submissions filed before the ld. CIT(A), which are reproduced at pg 35 of the order of CIT(A). 2. Cases cited by Revenue are completely distinguishable: The AO relied upon certain decision in the cases of Haddi Venkataraman Co. Pvt. Ltd. v/s CIT (1998) 229 ITR 0534 (SC), Haji Aziz Abdul Shakool Bros. v/s CIT (1961) 41 ITR 0350 (SC) and Indian Aluminum Co. Ltd. v/s CIT (1971) 79 ITR 0514 (SC). However, all those cases were based on the peculiar facts available in those cases only which are not obtaining in the present case. They were rendered in different legal factual context and therefore hence are not at all applicable being completely distinguishable and hence kindly be ignored. 6.20 On the other hand, the ld. DR strongly relied upon the findings recorded by the authorities below and justified the additions made and confirmed by the ld. CIT(A) and prayed to uphold the addition/disallowance. 6.21 We have heard both the parties and perused the materials available on record. The disallowance has been made because there has been a violation of building by laws, hence, penalty was imposed by the Urban Improvement Trust, Kota, on acc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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