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TMI Blog2019 (10) TMI 1077X X X X Extracts X X X X X X X X Extracts X X X X ..... ence, we hold that the withdrawal of recognition u/s 35(1)(ii) of the Act in the hands of the payee organizations would not affect the rights and interests of the assessee herein for claim of weighted deduction u/s 35(1)(ii) - CIT-A had wrongly confirmed the disallowance as made by the AO u/s 35(1)(ii) Addition of proportionate interest expenditure - assessee had given interest free advance - HELD THAT:- Since the assessee has own funds of 148.27 cr. plus 28 cr. this year in its possession and the interest free advance amount is only to the tune of 4.51 cr. which is less than 3% of its own funds means, the presumption that has to be drawn in such a scenario is that the interest free advance has been made by the assessee from its own fund and, therefore, no disallowance was warranted and, therefore, we direct deletion of the disallowance confirmed by the Ld. CIT(A) to the tune of 40,65,156/-. This ground of appeal of assessee is allowed. Ad-hoc disallowance on the expenditure claimed - HELD THAT:- AO is at liberty to disallow the expenditure if there is any deficiency in the vouchers or bills supporting the incurrence of an expenditure on the reason that expenditure are non-genuine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch has to be granted in light of Explanation appended to sec. 35(1)(ii) of the Act. However, the Ld. CIT(A) has confirmed the action of the AO. Aggrieved, the assessee is before us. 6. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the assessee had claimed exemption u/s. 35(1)(ii) of the Act for making donation of ₹ 1,55,00,000/- to M/s. Herbicure Healthcare Bio-Herbal Research Foundation which enjoyed registration u/s. 35(1)(ii) of the Act granted on 14.03.2008 and renewed vide dated 13.08.2012 which fact has not been disputed. The only ground on which the AO has denied the claim of weighted deduction was that it has come to his knowledge that the founder of M/s. HHBHRF has admitted before the department that it was indulging in the nefarious practice of giving accommodation entry to the entities like assessee and a whistleblower has also supported this allegation. However, when the AO issued notice u/s. 133(6) to M/s. HHBHRF, it did not support the allegation of AO and on the other hand, corroborated the fact of assessee giving donation of ₹ 2,71,25,000/- to it. And it was brought to our notice that the founder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted under Section 12A of the Act. Second, the order passed under Section 12A by the CIT is a quasi judicial order and being quasi judicial in nature, it could be withdrawn/recalled by the CIT only when there was express power vested in him under the Act to do so. In this case there was no such express power. 22. Indeed, the functions exercisable by the CIT under Section 12A are neither legislative and nor executive but as mentioned above they are essentially quasi judicial in nature. 23. Third, an order of the CIT passed under Section 12A does not fall in the category of "orders" mentioned in Section 21 of the General Clauses Act. The expression "order" employed in Section 21 would show that such "order" must be in the nature of a "notification", "rules" and "bye laws" etc. (see - Indian National Congress(I) v. Institute of Social Welfare [2002] 5 SCC 685. 24. In other words, the order, which can be modified or rescinded by applying Section 21, has to be either executive or legislative in nature whereas the order, which the CIT is required to pass under Section 12A of the Act, is neither legislative nor an executive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce granted by him under Section 12A till the power was expressly conferred on the CIT by Section 12AA(3) of the Act w.e.f. 01.10.2004. 8. We hold that the ratio decidendi of the aforesaid judgement of the Hon'ble Apex Court would squarely be applicable to the facts of the instant case. Infact the assessee's case herein falls on a much better footing than the facts before the Hon'ble Apex Court. In the case before Hon'ble Apex Court, the power of cancellation of registration us 12A of the Act was conferred by the Act on the ld CIT w.e.f. 1.10.2004 and the Hon'ble Apex Court held that prior to that date , no cancellation of registration could happen. But in the instant case, there is absolutely no provision for withdrawal of recognition u/s 35(1)(ii) of the Act . Hence, we hold that the withdrawal of recognition u/s 35(1)(ii) of the Act in the hands of the payee organizations would not affect the rights and interests of the assessee herein for claim of weighted deduction u/s 35(1)(ii) of the Act. 9. We also find that the co-ordinate bench of this tribunal in exactly similar facts had decided the issue in favour of the assessee in the following cases:- a) Rajda Polymers vs DCIT i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st free advances/loans has to be drawn. This principle has been laid by the Hon'ble Bombay High Court in Reliance Utility & Powers Ltd. Vs. CIT 313 ITR 343 (Bom) and Hon'ble Madras High Court in CIT Vs. Hotel Savera 239 ITR 795 (Mad) and Tin Box Company Vs. CIT (2001) 249 ITR 216 (SC), Hon'ble Calcutta High Court in CIT Vs. Britannia Industries Ltd. 280 ITR 525. Therefore, since the assessee has own funds of ₹ 148.27 cr. plus ₹ 28 cr. this year in its possession and the interest free advance amount is only to the tune of ₹ 4.51 cr. which is less than 3% of its own funds means, the presumption that has to be drawn in such a scenario is that the interest free advance has been made by the assessee from its own fund and, therefore, no disallowance was warranted and, therefore, we direct deletion of the disallowance confirmed by the Ld. CIT(A) to the tune of ₹ 40,65,156/-. This ground of appeal of assessee is allowed. 14. Coming to ground nos. 6 to 10, we note that all the ad-hoc disallowances have been made as under: (a) disallowance of ₹ 84,825/- made on account of Business Promotion Expenses being 20% of the total expenditure of ₹ 4,24,123/-; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of travelling and business promotion and on other counts he has not made any disallowance. 16. After having heard the rival submissions, we note that the assessee is into coal business. We also note that there are only two partners aged about 82 and 80 years and the AO for AY 2014-15 only made disallowance for two counts i.e. for travelling as well as for business promotion and has not made any disallowance for the other counts which is enumerated above. We also note that the assessee firm had a turnover of ₹ 56 cr. and the assessee has reflected net profit of ₹ 31 cr. which is more than 50% of its turnover over. Taking this fact into consideration, we are of the considered opinion that AO is at liberty to disallow the expenditure if there is any deficiency in the vouchers or bills supporting the incurrence of an expenditure on the reason that expenditure are non-genuine and can be disallowed item wise. However, the action of the AO to disallow the expenditure on ad-hoc basis without rejecting the books of account cannot be accepted, since the action of AO smacks of arbitrariness and cannot be allowed to sustain, therefore, all the ad-hoc disallowances made ..... X X X X Extracts X X X X X X X X Extracts X X X X
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