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TMI Blog2016 (10) TMI 592X X X X Extracts X X X X X X X X Extracts X X X X ..... tunity to the revenue in the circumstances of the case. 5. Brief facts of the case are that the assessee is a company having engaged in manufacturing and trading of steel products. The assessee filed its return of income declaring a total income of Rs. 17,34,087/- on 30-09-2008. Under scrutiny notices u/s. 143(2)/142(1) of the act were issued, in response to which, the AR appeared and furnished the particulars. 6. During the course of scrutiny proceedings the assessee furnished a revised computation of income showing its total income at loss of Rs. 22,98,680/- wherein the assessee claimed payment of sales tax of Rs. 40,32,762/- pertaining to A.Y 1999-2000 and filed a copy of sales tax order dt. 26-7-1999 as proof of the same. The AO observed that the Assessee did not explain the circumstances which lead to pay the sales tax in the year under consideration which is relevant to A.Y 1999- 2000 and disallowed the claim u/sec 43B of the Act and the relevant portion of which is reproduced herein below: "... ... ... According to the AO, the assessee could not explain the reason for such delay in making the payment. It is also observed by the AO that the assessee do not account for sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sales tax. The AO has not disputed the payment of sales tax made by the appellant in the year under appeal. Hence, the deduction is allowable to the appellant u/s.43B on payment basis. However, it is observed that the appellant is entitled for deduction of Rs. 39,57,921/- only which was paid toward sales tax liability. The amount of Rs. 1,97,896/- paid towards penalty is not allowable as deduction. As per the own submission of the appellant, it has already claimed deduction of Rs. 1,23,055/- in the original return of income, and therefore, the appellant is now entitled for deduction of balance amount of Rs. 38,34,866/- i.e. (Rs.39,57,921 minus Rs. 38,34,866/- u/s. 43B of the Act. Ground no. 2 is partly allowed. " 9. Before us, the Revenue is challenging the order of CIT-A by way of abovementioned grounds of Appeal. The Ld. DR submits that the Assessee produced bills relating to Sales tax before the CIT-A and without giving an opportunity to the AO, the CIT-A gave relief basing on the submissions of the Assessee and without seeking remand report urged to remand the issue to the AO. In reply, the Ld.AR submits that no new evidence was produced before the CIT-A and Section 43B is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the income referred to in section 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1983, or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him. Explanation 2.-For the purposes of clause (a), as in force at all material times, "any sum payable" means a sum for which the assessee incurred liability in the previous year even though such sum might not have been payable within that year under the relevant law. 12. A plain reading of the proviso suggests that the deductions is allowable otherwise that in respect of any sum payable towards any tax, duty, cess or fee, but, however, aforesaid section does not apply to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und had not been paid to M/S. Super Smelters Ltd. Hence, no interest should be disallowed. The account of Super Smelters Ltd. have been furnished. Purchase of raw materials was made during the year only at Rs. 93.2 lakhs and sales and others were made only amounting to Rs. 48,12,869/-. Therefore, it is not true that the advances made on different times for the purpose of business. The assessee however explained that this advance does not attract provisions of Deemed Dividend because there was no holding of shares. The argument of the assessee that borrowed capital was not utilized for the purpose of advancing fund to M/S Super Smelters Ltd. is also not acceptable. Had it not made the advance, it could have saved the interest payment to C.C. Account. On verification, it has been found that in almost every month, it has paid interest-free advance to M/S Super Smelters Ltd. On the other hand, it is stated that had the assessee not paid the advance to Super Smelters, its business fund would have increased so much to liquidate the debit of the C.C. Account. The deduction for interest expense claimed by the assessee amounting to Rs. 38,63,307/- is, therefore, disallowed in terms of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Reliance Utilities and Power Ltd 313 ITR 340 (Bom.) and CIT vs Britannia Industries Ltd 280 ITR 525 (Cal). In view of the above, the appellant pleaded that the AO be directed to delete the disallowance made by him on account of payment of interest. 17. The CIT-A considering the submissions of the Assessee and disposed of the appeal by stating as under:- I have considered the submissions of the appellant and perused the assessment order. I have also gone through the balance sheet for the year under consideration as well as the ledger account of Super Smelters Ltd. On careful consideration of the facts and perusal of the ledger account of Super Smelters Ltd. I am not inclined to agree with the submission of the appellant that no borrowed fund was utilized for making advances to the group concern on various dates of the financial year. It is observed that as on 1.4.2007, the opening balance in the account of the said party was nil. From 03.04.2007 to 02.05.2007, the appellant company made advances of Rs. 1.90 crore, out of which advance of Rs. 60 lakhs was refunded by the said party. Thus as on 02.05.2007, there was debit balance of Rs. 1.30 crore. For the first time, the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e occasional sales. However, he relied on the order of the AO. 20. Heard rival submissions and perused the material on record. Primarily we find that the transactions with regard to the sale & purchase with the M/s Super Smelters were minimal considering the flow of money between the two. Therefore the issue of the diversion of the interest bearing fund cannot ignored/ diverted. However from the submission of the assessee we find that there is regular outflow and inflow of funds in the account of M/s Super Smelters. The fund is going to the account of M/s Super Smelters from the bank of the assessee and after some days the amount is also coming back to the account of the assessee from M/s Super Smelters. This regular activity of the fund transfer shows that the borrowed money has not been utilized solely by M/s Super Smelters for the entire year. For part of the year the assessee has utilized the fund and for part of the year M/s Super Smelters has utilized the fund. Therefore in our considered view the interest on borrowed money needs to be allocated on proportionate basis depending on the utilization of funds. In support of this the ld. AR has allocated the interest amount which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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