TMI Blog2016 (10) TMI 592X X X X Extracts X X X X X X X X Extracts X X X X ..... ax was exempted by the West Bengal Government. Therefore there was no collection of sales tax during the period of the exemption on the sales of the goods. The entire sale price has been offered to tax in the year 1998-99. It is well settled law that the sales tax liability is allowed in the year of the payment by virtue of the provisions of section 43B of the Act. The ld. AR drew our attention to the schedule 10 of the balance sheet to demonstrate that no sales tax liability is appearing in the audited financial statements as on 31.3.1998. Our attention was also drawn to paper book where the order of the Sales Tax Department was also placed demanding the outstanding amount of sales tax pertaining to the year 1998-99. In view above we conclude that the payment of the sales tax demand is very much covered under the provisions of section 43B of the Act. Accordingly we do not find reasons to interfere in the order of ld. CIT(A). Hence this ground of Revenue’s appeal is dismissed. Disallowance of interest which paid to the bank against the O.D. account - Held that:- The transactions with regard to the sale & purchase with the M/s Super Smelters were minimal considering the flow of m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence. 3. First, we take up the appeal in ITA No.1087/Kol/2013 filed by the Revenue for the A.Y 2008-09. 4. The 1st ground regarding violation of Rule 46A and 2nd ground relating to allowability of ₹ 40,32,762/- u/s 43B of the Act is to be decided is as to whether CIT-A justified in allowing the claim of assessee without affording an opportunity 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 ₹ 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 ₹ 22,98,680/- wherein the assessee claimed payment of sales tax of ₹ 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 sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he payment of Sales tax and gave relief to an extent of ₹ 38,34,866/- and relevant portion of which is reproduced hereunder: 8. I have considered the submissions of the appellant and perused the assessment order. On careful consideration of the facts and in law, I am of the opinion that the AO was not justified in denying the claim made by the appellant u/s 43B of the Act on account of payment 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 ₹ 39,57,921/- only which was paid toward sales tax liability. The amount of ₹ 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 ₹ 1,23,055/- in the original return of income, and therefore, the appellant is now entitled for deduction of balance amount of ₹ 38,34,866/- i.e. (Rs.39,57,921 minus ₹ 38,34,866/- u/s. 43B of the Act. Ground no. 2 is partly allowed. 9. Before us, the Revenue is challenging t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cable 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 of such payment is furnished by the assessee along with such return. Explanation [ 1].-For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (a) or clause (b) of this section is allowed in computing 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. The assessee run its business on borrowed capital and has incurred interest expenses on O.D Account at ₹ 38,63,307/-. The A/R has explained that the assessee had business transaction sale as well as purchase with M/s. Super Smelters Ltd. And had a closing debit balance of ₹ 6,32,541/- only due to sale on 31.03.2008. It was argued that C.C. Account balance had been reduced during the year in comparison to earlier years. No unsecured loan-was taken. It is, therefore, clear that borrowed fund 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 ₹ 93.2 lakhs and sales and others were made only amounting to ₹ 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 36.79 lakh. Further, the company was having its own fund of ₹ 2.05 crore. Thus, it indicates that the appellant has not taken any loan to give advance and only own fund and internal accrual has been used for giving advances. As such , no part of the interest is disallowable. It is also contended by the appellant that it has not paid ₹ 10.7 crore at a time to the said party which is evident from the ledger account. The appellant had given as well as taken the advance from the said patty. The reliance is placed on the decisions in the case of CIT vs 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an amount of ₹ 27,00.000/- was credited to the account of assessee and such amount was available with M/s. Super Smelters for four days and at the same time the ld.AR explained that the assessee had own funds of ₹ 2,05,05,4334/-. Further, he has drawn our attention the page 16 referring to a transaction from 29-8-2007 onwards. Whereas its own fund was paid being interest to bank upto 31-03-2008 totaling to ₹ 1,23,476/- and prayed before us to disallow the same. 19. In reply, the ld.DR submits that the assessee primarily indulged in diversification of funds and further submits that there were 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 fr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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