K.S.S. Prasad rao, J.M.: These cross-appeals, one by assessee and other by Revenue are directed against order passed by learned CIT(A)-II, Jabalpur dt. 5th Jan., 2006 relevant asst. yr. 2003-04. issue is common in ground No. 2 of Department s appeal and ground Nos. 3 to 5 of assessee s appeal. other grounds of appeal of assessee and Department also arise from same order of CIT(A) and therefore, for sake of convenience, both appeals are heard together and we disposed of same through this common order. ITA No. 94/Jab/2006: Department s appeal first ground of appeal raised by Department is in respect of deletion of addition of Rs. 6,42,000 made by AO on account of unexplained cash credits. learned Departmental Representative relied on finding recorded by AO for making said addition. Departmental Representative further submitted that CIT(A) was not justified in deleting said additions because neither confirmation letter from creditors nor bank statement nor copy of income-tax assessment order was filed in case of persons from whom loans were taken by assessee. learned Departmental Representative further submitted that addition of Rs. 6 lacs being aggregate amount of loans of Rs. 2 lacs each from Gopal Singh, Chandrapal Singh and Pahalwan Singh and further Rs. 42,000 is disallowance of interest which was claimed to have been paid to abovementioned parties. learned Departmental Representative submitted that in absence of proof of capacity, genuineness and creditworthiness of creditors, addition was rightly made by AO and should not have been deleted by CIT(A). learned counsel, Shri B.K. Nema from S.R. Nema & Co., Satna, for t h e assessee while relying on order of CIT(A) submitted that relevant documents were submitted before AO namely copy of confirmation letters of 3 creditors, copy of income-tax assessment orders, copy of statement of income and computation, copy of capital accounts and balance sheet of 3 creditors. learned counsel for assessee referred to page Nos. 78, 79 and 80 of paper book for showing proof of confirmation letters of creditors. learned counsel further referred to page Nos. 127 to 147 of paper book t o refer to income-tax assessment orders of 3 creditors. Further page Nos. 81 and 83 show certificate of bank in respect of cheques given by said creditors. learned counsel submitted that aforesaid documents which were before AO and before one CIT(A) proved genuineness, capacity and creditworthiness of 3 creditors and therefore, no addition should have been made by learned AO and addition has been rightly deleted by CIT(A). learned counsel referred to decisions of jurisdictional High Court in case of CIT vs. Metachem Industries (2000) 161 CTR (MP) 444: (2000) 245 ITR 160 (MP) and also decision in case of Sumerchand Jain vs. CIT (2007) 292 ITR 241 (MP). findings of learned CIT(A) in para 4.3 are reproduced as under: "4.3 In view of certificate issued by counsel of appellant that letters of confirmation and copy of income-tax records of creditors in whose case was disbelieved merely by alleging that letters of confirmation and other documents were not filed was actually before AO at time of his passing of assessment order, I hold that very basis of making addition has been incorrect. Since by AO has accepted loans to be genuine where loans were taken by cheque, letters of confirmation along with copies of income-tax records of creditors were filed, very same yardstick of acceptability of loans to be genuine also apply to case of creditors whose credits were disbelieved. Even otherwise, jurisdictional High Court has held in case of CIT vs. Metachem Industries (2000) 161 CTR (MP) 444: (2000) 245 ITR 160 (MP) that where loans have been taken by cheque, same confirmed by creditors and creditors themselves assessed to tax, credits have to be accepted as genuine. If source of funds from which loan has been given is not satisfactorily explained in case of creditor, action has to be taken to assess amount in hands of creditor. For this reason, sum of Rs. 6,00,000 added under s. 68, as unexplained cash credit and interest of Rs. 42,000 accruing on same stand allowed." We have carefully considered rival submissions, findings of learned CIT(A) and material on record. In our considerate opinion, AO was not justified in making said addition since capacity, genuineness and creditworthiness of 3 creditors was proved by way of confirmation letters, copy of income-tax assessment orders and certificate from bank. Moreover, as held by jurisdictional High Court in case of CIT vs. Metachem Industries (supra) and in case of Sumerchand Jain (supra), assessee is not required to prove source of source and once creditors have confirmed loans and have also filed their IT returns which show capacity of these creditors to give loan to assessee therefore, in our considerate opinion judgment of jurisdictional High Court applies in full force to given facts and circumstances of case and therefore, CIT(A) was justified in deleting said addition of Rs. 6,42,000. As result, this ground of appeal of Department is dismissed. second ground of appeal of Department is in respect of deletion of addition of Rs. 1,08,88,400 made by AO on account of payment of hire charges by assessee. This ground of appeal of Department is similar to ground Nos. 3, 4 and 5 of appeal of assessee wherein assessee has also challenged confirmation of addition of Rs. 10,03,500 by CIT(A) in respect of payment of hire charges by assessee. Since both these grounds arise out of similar facts therefore, for sake of convenience, these are disposed of analogously. learned Departmental Representative relied on assessment order and submitted that assessee is paying hire charges to close relatives in order to reduce his own income and at same time persons to whom hire charges have been paid are showing their incomes on presumpted basis under s. 44AE of IT Act and therefore, this method is used by assessee to avoid legitimate taxation. learned Departmental Representative submitted that assessee is receiving hire charges at rates bearing from Rs. 1,025 per hour to Rs. 700 per hour, he is paying hire charges @ Rs. 1,750 per hour. Departmental Representative also relied on fact that payments were made to relatives as hire charges at fag end of accounting year and therefore, this appears to be after thought and simply method to reduce income. learned Departmental Representative therefore, submitted that income. learned Departmental Representative therefore, submitted that addition made by AO should be confirmed. learned counsel for assessee submitted that at first instance, AO was wrong in applying provisions of s. 40A(2)(b) because none of persons to whom payment of hire charges have been made are relatives of assessee as defined in s. 2(41). learned counsel for assessee submitted that since persons were not relatives, therefore, s. 40A(2)(b) has no application to facts of case and therefore, AO is not justified in making said disallowance. learned counsel further submitted that insofar as necessary evidence for payment of hire charges was concerned, assessee had filed following evidences before AO as well as before learned appellate authority. (i) Name of parties from whom machineries were hired. (ii) Copies of agreements with parties. (iii) Details of machines owned by assessee, copies of bills and its photographs. (iv) Appearance of two parties with books of accounts and vouchers. learned counsel further submitted that payees were produced before CIT(A) and they have admitted having received hire charges as claimed by assessee. Affidavits of payees were also filed in support of same. Insofar as observation of CIT(A) in respect of payment made to Vijay Kumar Singh over compressor rent @ Rs. 1,750 per hour it was submitted by learned counsel for assessee that said payment was made to Vijay Kumar Singh at higher rate because Vijay Kumar Singh was doing prospective drilling work as well as regular drilling in respect of mineral and this work was spread over area of more than 1,000 hectares and moreover, work involved use of machinery in areas which had no regular roads and conditions were harsh and involved high wear and tear of machines. On other hand work of assessee was confined to one particular area where mining operations were going on and therefore, machines of assessee were not prone to high wear and tear or travel. counsel for assessee submitted that assessee was having only one set of compressor and drilling machine as his own asset and one set of compressor and drilling machine can be used at most for 16 hours day therefore, assessee could have operated only for 5,840 hours in one year by using his own asset. However, assessee in order to secure mere work obtained drilling and compressor set of Vijay Kumar Singh on hire and was able to work for 9,829 hours meaning thereby that business was able to flourish. Thus, in period of one year, assessee was able to secure payment from Maihar Cement for 614 days thereby clearly securing greater business which would not have been possible had assessee not hired drilling set and compressor set of Vijay Kumar Singh. Moreover, by paying slightly higher rates to Vijay Kumar Singh, assessee almost doubled his business and obtained total receipt of Rs. 1,27,77,601 from Maihar Cement while making only small payment of Rs. 35,12,250 to Vijay Kumar Singh. Thereby, making profit of Rs. 92,65,351 on account of such hire of one drilling machine set and one compressor set. counsel for assessee submitted that aforesaid fact coupled with fact that work of Vijay Kumar Singh was spread over greater area where soil was very hard and involved very heavy wear and tear of machine. Therefore, assessee was justified in making payment of higher rates to Vijay Kumar Singh. Moreover, said payee has confirmed fact that he has received said payment and agreement was on record therefore, there can be no justification whatsoever for making any disallowance. counsel relied on decisions of Voltamp Transformers (P) Ltd. vs. CIT (1981) 23 CTR (Guj) 312: (1981) 129 ITR 105 (Guj) to buttress fact that expenditure has to be judged from view point of businessman and not from view point of Revenue Officer. assessee further relied on decision of Delhi Tribunal in case of Smt. Nenal Lal vs. Dy. CIT (2000) 68 TTJ (Del) 52 (Delhi Tribunal) to support contention that simply because amount was paid to concern in which assessee had interest it did not mean that any payment made to said concern is excessive or unreasonable and falls within ambit of s. 40A(2)(b). counsel further relied on case of Geetanjali Woollens (P) Ltd. vs. Asstt. CIT (1994) 50 TTJ (Ahd) 19: (1994) 50 ITD 558 (Ahd). Insofar as observation of AO that payments have been made to persons at fag end of accounting year, learned counsel submitted that assessee had in fact built up his own capital by delaying payment of hire charges and has saved considerable amount on account of interest. assessee was able to build assets to tune of Rs. 70,70,380 by delaying such payments of hire charges. counsel submitted that this aspect should also be taken into consideration to consider payment of hire charges at higher rates to Vijay Kumar Singh. Insofar as payment of hire charges to Suresh Kumar Singh, Shiv Traders, Singh Roadlines, Smt. Vimlesh Kumari Singh, Vijay Pal Singh and Govind Singh learned counsel relied on findings given by CIT(A) whereby learned CIT(A) has taken into consideration all facts like cost of machine, agreement between assessee and lessors, video presentation of operations of machines and photographic evidence on record, audited statements of lessors etc. It was submitted that said additions were rightly deleted by CIT(A). We have considered rival submissions and material available on record. facts that emerge from orders of AO and that of CIT(A) which are undisputed are that parties to whom hire charges were paid were owners of machines which were leased out to assessee, copies of agreements with lessors were on record, details of machines, photographs and video presentation of operations of machines were taken into consideration by CIT(A) and payees have appeared and have confirmed receipt of hire charges and have also given affidavits in respect of receipt. audited accounts of 2 of payees namely Singh Roadlines and Swastic Transporters were also taken consideration by 1st appellate authority. fact that is not in dispute is that none of payees are relatives of assessee and therefore, s. 40A(2)(b) clearly have no application. only aspect that is to be considered is whether payment is allowable under s. 37(1) of IT Act, which provides that any expenditure (not being expenditure of nature described in ss. 30 to 36 and not being in nature of capital expenditure or personal expenses of assessee), laid out or expended wholly and exclusively for purposes of business or profession shall be allowed in computing income chargeable under head profits and gains of business or provisions. or provisions. It is undisputed that expenditure is not capital expenditure and not personal expense and therefore, only aspect that is to be seen is whether expenditure was laid out or expended wholly and exclusively for purposes of business or profession. From facts and material on record it is clear that payment has in fact been made, machines have been hired, machines have been used, and agreements were executed and expenditure has been incurred. only question is whether expenditure was wholly and exclusively for purpose of business. submission of learned counsel for assessee that expenditure has to be looked into from view point of businessman is to be accepted. Moreover, facts which are on record clearly establish one genuinety of transactions as they have been confirmed by payee. payment of hire charges if appear to be excessive could only lead to enquiry but that by itself cannot be ground to disallow any expenditure. This enquiry conducted by AO and CIT(A) has culminated into assessee proving by way of substantial evidence that by paying higher charges assessee had in fact earned substantially which could not have been possible had such higher charges not been paid. receipt of charges from Maihar Cement for 9,829 hours for one year translate into working of 614 days if average working day of 16 hours day is taken into consideration and this fact clearly demonstrated business prudence of assessee in making payment of higher charges. assessee has also demonstrated built up of capital assets to tune of Rs. 70,70,380 by delaying payments of hire charges. aforesaid facts coupled with documentary evidences on record in form of agreements with lessors, affidavits of lessors, confirmation from lessors, photographs etc. are material evidence on record by which assessee has been able to demonstrate that payment was made wholly and exclusively for business and thereby, said payment was neither hit by s. 40A(2)(b) nor by s. 37(1). CIT(A) observed that hire charges paid to Shri Vijay Kumar Singh involve kickback based on payment of Rs. 1 lac to assessee as shown in bank statement of Shri Vijay Kumar Singh. But at same time CIT(A) has not taken into consideration that Shri Vijay Kumar Singh is shown as creditor in books of assessee as narrated in p. 23 of audit report in paper book which is written submission filed before CIT(A) as well p. 23 of paper book Vol. 1 before us. CIT(A) at para 4.1 of his order accepted fact that assessee furnished information regarding cheque number and copy of bank account of Shri Vijay Kumar Singh accepting him as creditor to assessee. In view of this undisputed factual aspect observation of CIT(A) that those payments made by Shri Vijay Kumar Singh to assessee is kickback is not sustainable in legal scrutiny. In view of matter estimation of hire charges to Shri Vijay Kumar Singh is nothing but erroneous as it has been made de hors material brought on records. CIT(A) has also not taken into consideration cost of compressor as well as drilling rig in estimating hire charges paid to said Shri Vijay Kumar Singh which is also on record in balance sheet as asset as certified by qualified chartered accountant. In this view of matter also conclusion of CIT(A) on this aspect is incorrect. Bills raised to M/s Maihar Cement only for hire charges of compressor and drilling rig are of value of Rs. 21,99,801 apart from regular monthly bill for hire charges of same machines totalling to Rs. 1,27,28,601. These separate bills of Rs. 21,99,801 only for compressor and drilling rig proves submission of assessee that Shri Vijay Kumar Singn s machine was deputed for prospective drilling job being costly and difficult process and is also billed separately to M/s Maihar Cement apart from regular monthly bills and offered for taxation. Recently, apex Court, in S.A. Builders Ltd. vs. CIT (2006) 206 CTR (SC) 631: (2007) 288 ITR 1 (SC): (2007) 158 TAXMAN 74 (SC), interpreting words for purpose of business used in s. 37(1) while computing income chargeable under head Profits and gains of business or profession , held that such expenditure is to be tested in light of commercial expediency, which is one of wide import and includes such expenditure as prudent businessman incurs for purpose of business. expenditure may not have been incurred under any legal obligation, but yet it is allowable as business expenditure if it was incurred on grounds of commercial expediency. It was further held that expenditure incurred for purpose of business meant in s. 37(1) includes expenditure voluntarily incurred for commercial expediency and it is immaterial if third party also benefits thereby. It is not for authorities or Court to examine purpose for which assessee incurred expenses for its commercial expediency. What is relevant is whether amount was spent as measure of commercial expediency and not from point of view whether amount was spent for earning profit. Once it is established that there was nexus between expenditure and purpose of business (which need not necessarily be business of assessee itself), Revenue cannot justifiably claim to put itself in armchair of businessman or in position of board of directors and assume role to decide how much is reasonable expenditure having regard to circumstances of case and no businessman can be compelled to maximize his profits. In view of aforesaid Supreme Court judgment and in view of facts of case we are of considered view that payment of hire charges paid by assessee was allowable expenditure. As result this ground of appeal of Department is dismissed while ground Nos. 3, 4, and 5 of assessee s appeal are allowed and addition of Rs. 10,03,500 sustained by CIT(A) is deleted. Next ground of appeal of Department is in respect of addition of Rs. 3,26,000 made by AO on account of interest on bonds. learned Departmental Representative relied on order of AO and submitted that interest of Rs. 3,26,090 accruing to assessee on account of interest on REC Bonds was not reflected in total income of assessee. learned Departmental Representative therefore, submitted that addition was rightly made by AO and should have not been deleted by CIT(A). learned counsel for assessee relied on fact that assessee has accounted for interest income on receipt basis and interest of REC Bond was received in month of April, 2003 and same has been offered for tax in next asst. yr. 2004-05. learned counsel submitted that therefore, interest is not taxable in present asst. yr. 2003-04. He relied on findings of learned CIT(A) in para 9.3 reproduced hereunder "9.3. Merely because assessee is following mercantile system of accounting with regard to his income under head Profits and gains of business or profession , it does not mean that assessee has to follow mercantile system of account with respect to other heads of income, it is perfectly acceptable in law to have mercantile system of accounting with regard to income under head Other sources . Since assessee has already reflected interest income on receipt basis in return filed for asst. yr. 2004-05, I hold that there was no justification on part of AO to have insisted upon assessee to follow mercantile system of accounting even with regard to h i s interest income. For this reason, addition made by AO of Rs. 3,26,090 stands deleted." We have carefully considered rival submission and we are of opinion that assessee has already shown interest in asst. yr. 2004-05 on basis of actual receipt and we are inclined to agree with findings of learned CIT(A) and therefore, this ground of appeal of Department is dismissed. next ground of appeal of Department is in respect of deletion of addition of Rs. 40,000 by CIT(A) in respect of unexplained money given for purchase of shares. learned Departmental Representative submitted that as per books of accounts of assessee, purchased shares worth Rs. 2,40,000 were purchased on 15th April, 2001 while only amount of Rs. 2,00,000 was withdrawn on 9th April, 2001. learned Departmental Representative submitted that this is clear case of payment of excess amount of Rs. 40,000 and same has been rightly added by AO. learned counsel for assessee submitted that assessee had withdrawn Rs. 2,00,000 on 9th April, 2001 from his account. Further sum of R s . 1,00,000 was withdrawn on 18th April, 2001 and shares which were purchased on 15th April, 2001 of Rs. 2,40,000 were paid by virtue of aforesaid two amounts withdrawn and assessee got refund of Rs. 60,000 later on. learned counsel relied on para No. 10.3 of CIT(A) order to substantiate aforesaid submission. We have considered rival submissions and findings of learned CIT(A). facts which are on record in respect of withdrawal of sum of Rs. 2 lacs and further sum of Rs. 1 lac has been accepted by learned CIT(A) and Department has not been able to disprove same. In our opinion there is n o material on record to disagree with findings of learned CIT(A) and therefore, this ground of appeal of Department is dismissed. As result Department s appeal is dismissed. ITA No. 39/Jab/2006 assessee s appeal relates to addition of Rs. 61,513 confirmed by learned CIT(A). learned counsel for assessee submitted that addition of Rs. 61,513 has been made by AO by disapproving contention of assessee that receipt is on account of maturity of US-64 Bonds. learned counsel for assessee submitted that learned CIT(A) has also disbelieved said explanation for want of proof. learned counsel for assessee submitted before us bank account in respect of said receipt to show that it clearly contains narration of US-64. counsel further submitted that cheque number has also been mentioned in bank detail and said cheque numbers tally with bank details. As proof of same, learned counsel showed copy of bank account and counter foil of receipt from UTI. learned Authorised Representative controverted said evidence by submitting that since these were not filed with AO therefore, same should not be accepted. We have heard rival submissions and evidence on record. We find that in interest of justice, it would be appropriate to set aside addition of Rs. 61,513 to file of AO for proper inquiry and also for purpose of giving opportunity to assessee to substantiate said receipt with proper evidence which has now been produced before this Tribunal. As result that this ground of appeal is allowed for statistical purposes. Ground Nos. 3, 4 and 5 of assessee s appeal have already been adjudicated along with ground No. 2 of Departmental appeal and therefore, in view of findings contained in Department s appeal in respect of ground No. 2 where ground Nos. 3, 4 and 5 of assessee s appeal have been dealt with, we delete addition of Rs. 10,03,500. In view of aforesaid, Department s appeal is dismissed while assessee s appeal is allowed. *** RAMMANOHAR SINGH v. ASSISTANT COMMISSIONER OF INCOME TAX