9911796707
TMI Blog2008 (1) TMI 898X X X X Extracts X X X X X X X X Extracts X X X X ..... on 143(3) read with section 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 ..... ssessee 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 against the debit note raised by the said sister concern periodically. The major entries are pertaining to the sale of shares and consideration. It is further argued that in respect of M/s. Amalgam Foods and Beverages Ltd., the major debits start on 10-4-2002 and the said entry is in respect of the sale of DEPB license at premium and no cash transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer 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 and payments also made on account of purchase of raw materials and also using the factory for carrying out the processing of the assessee's business. 9. Now, let us examine the assessee's contention in respect of these four companies . In the case of M/s. Amalgam Foods Ltd., the Assessing Officer states that the assessee has diverted ₹ 2,43,22,35 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntries 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 proportionate disallowance of interest of ₹ 5,66,729. The matter reached by way of appeal before the Hon'ble Supreme Court. After referring to the decision of the House of Lords in the case of Atherton v. British Insulated and Helsby Cables Ltd. 10 TC 155 which has been approved by the Apex Court in Eastern Investments Ltd. v. CIT 1 20 ITR 1 and CIT v. Chandulal Keshavlal & Co. (1960) (1951) 38 ITR 601 , the Hon'ble Supreme Court has held as under:- "In our opinion, the High Court as well as the Tribunal and other income-tax authorities should have approached the question of al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 decision of the jurisdictional High Court in the case of V.I. Baby & Co. (supra). In the said case, the assessee was a partnership firm. The said assessee firm had paid : bank interest for business purposes. It was found by the Assessing Officer that the said assessee firm had transferred sizable amounts to the personal accounts of the partners and also advanced to relatives of 'he partners and also to sister concern. The Assessing Officer disallowed the proportionate interest payment to the bank in respect of the amount .so advanced to the partners or their relatives and sister concern. When the matter rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever, 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 is on second appeal before the Tribunal. 14. At the time of hearing the learned representative of the assessee submitted that the Taxation Laws (Amendment) Act 2005 was not available before the Assessing Officer and the CIT(Appeals). In view of the said amendment to section 80HHC, there is a change in the position of law. Therefore, the learned representative of the assessee submission that this issue may be restored to the file of the CIT(Appeals) for fresh adjudication. Per contra, the learned departmental representative supported the order of the CIT(Appeals) conceded that the Amendment brought in by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 payments were made within the due, dates, without adducing any evidence. Therefore, the first appellate authority upheld thee findings of the Assessing Officer on this issue. Now, the assessee is on second appeal before the Tribunal. 18. We have heard the rival submissions. We have also gone through the orders of the revenue authorities. There is no dispute about the fact that the claim pertains to the employees' contribution, as is evident from the orders of the lower authorities. In other words the amount of ₹ 2,51,087 had. been deducted from the salaries of the employees being their contribution towards Provident Fund and Employees State Insurance. It is not the case of the assessee that the same pertains to the employer's contribution. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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