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D.C.I.T, CC-V, Kolkata Versus M/s. Sai Iron India Ltd and Vica-Versa

2016 (10) TMI 592 - ITAT KOLKATA

Addition u/s 43B - sales tax liability and outstanding demand of sales tax - Held that:- 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 whi .....

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liability was taxed in the earlier years. The ld. AR before us submitted that the sales tax 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 sched .....

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e 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 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 .....

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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 is enclosed as annexure 1 in this order. - Whether the disallowance of the interest shall be worked after considering the capital of the assessee? - Held that:- Considering AR submission that the amount given to M/s Super Smelters first needs to be adjusted with the owne .....

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2013, I.T.A No. 1669/Kol/2013 - Dated:- 26-8-2016 - Shri Waseem Ahmed, Accountant Member and Shri S.S. Viswanethra Ravi, Judicial Member For The Appellant : Shri Rajat Kumar Kureel, JCIT, ld.Sr.DR For The Respondent : Shri A.K. Tulsiyan, FCA, ld.AR ORDER SHRI S.S. VISWANETHRA RAVI, JM The two appeals above by the Revenue and Assessee filed against the common order dated :22-03-2013 passed by the CIT(A), Central-I, Kolkata for the assessment year 2008-09. 2. Since the impugned order is same in bo .....

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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 revis .....

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h 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 sales tax in the P & L Account. The AO noted that how much sales tax was collected from the customers and how much was paid to the sales tax authority, has not been shown in the accounts of the assessee. Further, as per the AO, the assessee did not claim the payment in t .....

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ee contested the decision made by the Government and the payment of sales tax was withheld. The sales tax authorities started mounting pressure on the Assessee for payment of tax and the Assessee started paying during the F.Y. 2007-08 and paid during the year under consideration. It is further submitted by the Assessee that the demand of sales tax of ₹ 39,57,921/- and the penalty thereon of ₹ 1,97,896/- totaling of ₹ 41,55,817/- and the entire demand was paid during the year un .....

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ce but the tax was paid by the Asseessee vide sales tax challans. 8. The CIT-A after considering the submissions of the Assessee, the CIT-A found that the Assessee is entitled to claim deduction u/sec 43B of the Act taking into account that the AO accepted the 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 consideratio .....

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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 the order of CIT-A by way of abovementioned grounds of .....

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. 10. Heard rival submissions and perused the material on record regarding the plea of violation of Rule 46A, the revenue was unable to show any material evidence produced by the assessee before the CIT-A for the first time as additional evidence which resulted the CIT-A to pass the impugned order. We find that the CIT-A considered the only material which was available before the AO. We could not see any material evidence as relied on by the CIT-A in giving relief to assessee. Thus, we are of th .....

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payment of sales tax to the respective Government was paid during the year under consideration. In this regard, we may refer to the relevant provision Section 43B relevant to the A.Y 08-09 under which the Assessee claimed deduction and it is reproduced for ready reference as under: Section - 43B, Income-tax Act, 1961-2008 Certain deductions to be only on actual payment. 43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in .....

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e 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 wa .....

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ing 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 of such payment is furnis .....

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ed 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 fina .....

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ITA No.1669/Kol/2013 AY 2008-09 (by the assessee) 14. The only ground in Assessee s appeal is against the action of the AO in making the disallowance of interest amounting to ₹ 38,63,307/- which paid to the bank against the O.D. account. The observation of the AO is as under: The assessee has made advance of ₹ 10.7 crores to its Group Company, M/S Super Smelters Ltd. The assessee run its business on borrowed capital and has incurred interest expenses on O.D Account at ₹ 38,63, .....

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elters 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 .....

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aimed by the assessee amounting to ₹ 38,63,307/- is, therefore, disallowed in terms of section 36 of the Act being incurred not for the purpose of business. 15. Before the AO the assessee submitted that it had business transactions with M/s. Super Smelters Ltd in respect of sale as well as purchase. But, however, the AO on examination of the account of Super Smelters Ltd and found that Purchase of raw materials at ₹ 93.2 lakhs and sales and others were at ₹ 48,12,869/- and ther .....

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ransactions with the company namely as Super Smelters Ltd. During the FY 2007-08, the appellant has purchased iron and steel products for trading and has also purchased raw materials from the said party. The appellant company has also sold finished goods to said party. The advances given during the year are in the normal course of the business as the appellant has purchase as well as sale transactions with the said party. It is submitted by the appellant that it was having a running account with .....

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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 th .....

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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 02.0 .....

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d sale. The claim of the appellant that it had given as well as taken the advances from Super Smelters Ltd is not correct because there was never a credit balance in the account. The appellant kept on advancing the money to the said company and out of that, repayments were made to the appellant. Thus, the contention of the appellant that the advances were given in the course of normal business activities is not correct. The appellant has failed to prove that the borrowed fund was not utilized fo .....

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and referred to pages 3-4 of the paper book to support the contentions of the assessee as reflected in the ledger account of sales account of M/s. Super Smelters. The ld.AR also further argued that the entire interest cannot be disallowed and disallowance, if any, may be restricted to ₹ 1.23 lacs. He drew our attention to the statement showing calculation of interest as available at pages 15-17 of the paper book. The Ld. AR explained that on 03-04-2007 an amount of ₹ 45,00,000/- was .....

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ayed 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 o .....

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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 is enclosed as annexure 1 in this order. 21. Now the issue arises whether the disallowance of the interest shall be worked after .....

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