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2020 (9) TMI 756 - AT - Income TaxDisallowance u/s. 36(1)(va) r.w.s.2(24)(x) - Delayed payment of employee contribution made by the assessee towards ESI - whether the sum was deposited within 21 days from the end of the month of payment of salary as contemplated under the provisions of Employees Provident Funds & Miscellaneous Provisions Act, 1952 and Employees State Insurance Act, 1948? - HELD THAT:- Payment under section 36(1)(va) would be allowed in respect to the payment of employee contribution towards ESI if such payment is made on/before due date as specified under the relevant Act (i.e. 15 days from the month for which salary is due). Thus the payment made by the assessee on account of employee contribution towards ESI after due date stands disallowed in view of the judgment in the case of M/s Checkmate Facility and Electronics Solutions Pvt. Ltd. [2018 (10) TMI 994 - GUJARAT HIGH COURT]. We uphold the order of the lower authorities. Hence the ground of appeal of the assessee is dismissed. Disallowance u/s 36(1)(iii) - interest free loan to its subsidiaries - diversion of interest bearing fund for non-commercial activities - HELD THAT:- We note that the assessee has treated the advances received from the customers as part of the capital which is not correct. It is because the advances received by the assessee from the customers represents the current liability which has to be utilized for the supply of the goods/materials to the concerned parties. As such amount represents the current working capital of the assessee which cannot be used for advancing the interests free advances as discussed above. We hold that the amount of advances received from the customers cannot form part of own fund of the assessee. Therefore, the amount of interest on the borrowed funds diverted to the non-interest bearing advances should be disallowed. Amount of capital including reserve available to the assessee, shall be presumed to have been utilized in advancing such interest free advance. In holding so we draw support from the judgment in case of CIT v. Max India Ltd. [2017 (3) TMI 1254 - PUNJAB AND HARYANA HIGH COURT] No disallowance of interest expense claimed by the assessee can be made on account of diversion of fund to the extent of own fund available with it as on 31-3-2015 - we direct the authorities below to work out the amount of disallowance towards interest expenses after considering/adjusting the own fund including reserve available to the assessee as on 31-3-2015. Hence, this ground of appeal of the assessee is party allowed.
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