TMI Blog2008 (1) TMI 898X X X X Extracts X X X X X X X X Extracts X X X X ..... 147 of the Act. It was noticed by the Assessing Officer that the assessee has claimed deduction on account of interest payment to bank at ₹ 9,20,38,913, more particularly in respect of the working capital and term loan. On examination of the auditor s report, it was further noticed by the Assessing Officer that substantial amounts were due to the assessee from certain associate companies as per the notes on account by the auditors. The Assessing Officer sought explanation of the assessee by stating why interest expenditure claimed by the assessee should not be disallowed proportionate to the fund diverted to associate concerns. The contention of the assessee was that the advances were made in the earlier year and there were repayments also. It was the further contention of the assessee that most of the advances were in the nature of business advances like advance for purchasing of raw material, etc. The assessee had also taken the plea that the said advances were made from the surplus interest-free funds available with the assessee. The Assessing Officer has noted that the assessee has diverted the following funds to the associate concerns:- Sr.No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sister concern and the same is reflected in the ledger account and it is not an advance or loan to M/s. Amalgam Foods Ltd. Which is a sister concern. The ld. CA also referred to the debit entries on 4-7-2002, 17-8-2002, 29-6-2002 and 15-10-2002 and submitted that all these transactions are in the nature of crystallization charges debited by the assessee when the bank limit of said sister concern is used by the assessee for negotiating the export bill with their bankers. 6. The ld. CA further argued that in respect of another sister concern namely International Creative Foods Ltd., the first debit is on 30-4-2002 which is the excess interest collected and pertaining to the assessee s bill routed through their associate concern. The ld. CA referred to the paper book, more particularly pages 39 to 43 and submitted that the advances are made for the purchase of raw materials for the said sister concern. It is further argued that the loan entry is only way of the journal entry and no funds have been transferred. It is further submitted that in respect of M/s. Amalgam Investments (P.) Ltd., the payment relates to the payment of service charges and employees provident: fund reimbursed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the parties. We have also carefully considered the facts of this case as per record available before us. We have also perused the documents filed by the assessee by way paper books to support its contentions. There is no dispute in this case that the assessee has borrowed loans from the bank and financial institutions. The case of the Assessing Officer is that the assessee has diverted the sum of ₹ 9,65,06,435 as per the details given hereinabove to the different companies which the Assessing Officer describes as associate concerns. The Assessing Officer has estimated the interest on the said advances which is worked out by him at ₹ 1,15,80,772 by taking the rate at 12 per cent. The contention of the assessee is that all the companies from whom amounts are due, i.e., M/s. Amalgam Foods Ltd., M/s. Amalgam Foods and Beverages Ltd., M/s. Amalgam Aquaculture Application, International Creative Foods Ltd. and M/s. Amalgam Investments (P.) Ltd. are the sister concerns of the assessee company and the funds advanced to them have direct bearing or nexus with the business of the assessee. It is the further contention of the assessee that the assessee has paid service charges a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y pains even to examine the nature of the journal entries appearing in the books of accounts of the assessee. It is seen that in the case of M/s. Amalgam Investments P. Ltd., the assessee has passed journal entry, in the book by debiting ₹ 30 lakhs with the narration that the sale consideration of 30,000 equity shares of ₹ 10 each in IMF Ltd., etc. It is further seen that the assessee has passed another journal entry on 7-2-2003 for ₹ 20 lakhs with the narration that the sale consideration of 20,000 equity shares of ₹ 10 each in IMF Ltd. Again, there are journal entries of ₹ 20 lakhs and ₹ 30 lakhs on 31-3-2003. Now, in the light of the above facts, can the assessee s contention .e accepted that there is a business nexus between these sister concerns and the assessee and hence though there is outstanding dues, it is on account of business expediency. 10. In the case of S.A. Builders Ltd. (supra), the Assessing Officer found that the assessee has transferred huge amount of ₹ 80 lakhs to its subsidiary company out of the cash credit account of the assessee in which there was a huge debit balance. The Assessing Officer therefore, made the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Delhi High Court, in CIT v. Dalmia Cement (P.) Ltd. (2002) 254 ITR 377 that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors on assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize his profit. The income-tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the mailer from their own view point but that of a prudent businessman. As already stated above, we have to see the transfer of the borrowed funds to a sister concern from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits. The Hon ble Supreme Court also approved the decision of the Hon ble Delhi High Court in the case of CIT v. Dalmia Cements (P.) Ltd. (2002) 254 ITR 377. 11. The revenue has relied on the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 2,24,28,263 as export incentive for the purpose of computing deduction under section 80HHC of the Act. The assessee has claimed DEPB receipts of ₹ 2,24,28,263 as export incentives for the purpose of the benefit of the proviso to section 80HHC(3) of the Act. The Assessing Officer rejected the claim of the assessee relying on the Board s letter dated 8-9-2004 in F.No. 1S3/93/204-TPL, addressed to Shri Rafeeque Ahmed, President, Federation of Indian Export Organizations, New Delhi and held that DEPB receipts are not export incentives within the meaning of section 28(iiia), ( iiib) and (iiic). However, in computing deduction under section 80HHC(3) the Assessing Officer reduced 90 per cent of the DEPB receipts. Before the first appellate authority the. learned representative of the assessee argued that the income from DEPB is similar to the income referred to in section 28(iiia), (iiib) and (iiic ). The CIT(Appeals) following the decision of the Hon ble High Court of Kerala in ITA No. 140 of 2001 dated 5-7-2008 directed the Assessing Officer to reduce 100 per cent of the profit on EPB receipts as against 90 per cent reduced by the Assessing Officer. Hence, the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t disallowed in the earlier year, allowed on actual payment basis under section 43B Employee s contribution to P.F. ₹ 1,85,834 Employees contribution to ESI ₹ 65,253 Total ₹ 2,51,087 According, to the Assessing Officer provisions of section 43B are not applicable to remittance of Employees contribution to PF ESI. He was of the view that any sum received by the assessee from his employees as contributions to any PF/ESI are included in the assessee s total income by virtue of the provisions of section 2(24)(x ). At the same time, such receipts will be allowed as deductions, as provided in section 36(1)(va), if such sums are credited by the assessee to the employee s account in the relevant fund or funds on or before the due date. In the instant case, the assessee;had not remitted these amounts on or before the respective due dates.1 Therefore, these amounts were not allowed as deduction under section 36(1)(va) in the earlier year. Hence, they are not allowable for this year also. In appeal, the assessee argued that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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