Composite running account with sister concern and exempt-income disallowance require consistent account treatment and fresh scrutiny.

Where a composite running account with a sister concern showed both an outstanding liability and a corresponding receivable, the revenue could not rely on one side of the account while ignoring the other, and the net balance supported the assessee; the addition was therefore not sustainable. Disallowance for exempt income expenditure required examination of the assessee's accounts and the Assessing Officer's objective dissatisfaction with the claim, so the issue was remitted for fresh consideration.

---

---

Issues: (i) Whether the addition made in respect of the outstanding liability shown in the books against the sister concern was sustainable when the same account also showed a corresponding receivable from that concern; (ii) Whether the disallowance under section 14A read with rule 8D required fresh examination in light of the jurisdictional High Court's exposition.

Issue (i): Whether the addition made in respect of the outstanding liability shown in the books against the sister concern was sustainable when the same account also showed a corresponding receivable from that concern.

Analysis: The liability and the receivable arose from the same running account. Once the revenue accepted the assessee's liability appearing in that account, it could not ignore the corresponding amount receivable from the same party. The principle that a party cannot approbate and reprobate applied to the composite account, and the net effect showed that the sister concern owed a balance to the assessee.

Conclusion: The addition was not sustainable and the issue was decided in favour of the assessee.

Issue (ii): Whether the disallowance under section 14A read with rule 8D required fresh examination in light of the jurisdictional High Court's exposition.

Analysis: The disallowance under section 14A has to be examined on the basis of the assessee's accounts and the Assessing Officer's satisfaction regarding the correctness of the claim. In view of the governing jurisdictional precedent, the computation and applicability of the disallowance required reconsideration by the Assessing Officer.

Conclusion: The matter was remitted to the Assessing Officer for fresh consideration.

Final Conclusion: The assessee succeeded on the addition relating to the alleged liability, while the disallowance under section 14A was sent back for reconsideration, resulting in partial relief overall.

Ratio Decidendi: Where a composite account contains both a liability and a corresponding receivable with the same counterparty, the revenue cannot selectively rely on one side of the account while rejecting the other; and disallowance under section 14A must rest on the Assessing Officer's objective dissatisfaction with the assessee's claim, to be examined on the basis of the accounts.

---