TMI Blog2017 (4) TMI 252X X X X Extracts X X X X X X X X Extracts X X X X ..... acts had emerged during the year under consideration, we are constrained to conclude that as stand covered from the findings of the lower authorities in the case of the assessee for the preceding years, as o nexus had been proved by the AO in respect of the current amount outstanding in respect of the aforesaid company, viz. VCCL Ltd. and the borrowed funds, therefore no disallowance as regards any part of the said amount is called for under Sec. 36(1)(iii) of the Act, in the hands of the assessee company. We thus in light of our aforesaid observations are of the considered view that the CIT(A) by way of a reasoned order had rightly deleted the addition/disallowance of ₹ 1,81,81,940/-.- Decided in favour of assessee Disallowance of interest pertaining to debts which were due to the assessee company - Held that:- We are of the considered view that as the issue pertaining to the disallowance of interest of ₹ 1,13,40,000/- as regards the debts due to the assessee company from M/s. ESSLON Synthetics Ltd. as conceded by the Ld. DR is covered in favour of the assessee in the backdrop of the earlier orders passed in the case of the assessee company, we therefore uphold the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufacturing and sale of two wheelers had e-filed its return of income on 30.09.2009 declaring loss of ₹ 39,49,11,854/- which was processed as such under Sec. 143(1) of the Act. The case of the assessee was thereafter taken up for scrutiny proceedings under Sec. 143(2) of the Act . 3. That during the course of the assessment proceedings the A.O carried out the following additions/disallowance of in the hands of the assessee company- Sr. No. Particulars Amount 1. Addition for late payment of PF and ESIC under Sec. 36(1)(va) r.w.s. 2(24)(x). Rs.1,09,46,590/- 2. Disallowance of interest under Sec. 36(1)(iii) on amounts advanced to VCCL Ltd. Rs.1,81,81,920/- 3. Disallowance of interest under Sec. 36(1)(iii) of amount advanced to ESSLON Synthetic Ltd. Rs.1,13,40,000/- The AO thereafter deliberating on certain other issues assessed the loss of the assessee company at ₹ 35,43,25,366/-. 4. The assessee being aggrieved with the assessment order th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antially borrowings on which interest expenses are being allowed. In this year also the advance to subsidiary company cannot be construed to be for the purpose of business and hence proportionate interest allocable to loan of ₹ 1515.16 lakhs calculated at 12% disallowed. Hence an amount of ₹ 1,81,81,940/- is disallowed. Unquote The first attempt to disallow the interest in respect of amount given to VCCL Ltd. arose in the year I997-98 when the said VCCL Ltd. s One Time Settlement obligation with banks and financial institution. For A. Y 1997-98, 1998-99 and 1999-00 the AO worked out the disallowance by linking The OTS payment with the source of the Fund. The source for funding such payment was cash credit account maintained by the company with its Banker. The company disputed the working since the same did not considered subsequent internal accruals by which the Debit Balance in cash credit account was converted into credit balance in cash credit account On Appeal filed by your Appellant, the CIT(A) has accepted company s stand. The disallowance of interest in respect of OTS funding for earlier years was as follows: Assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Smt. Tara Devi Vs. ITO 68 TTJ (Jod, Trib.) 361 Dy. CIT Vs. Ganesh Chhababhai Valabhai Patel Family Trust, 108 Taxman 78 (Ahd. Trib.) It is respectfully submitted that the notional interest disallowed by the Ld. AO ought to be deleted for the following reasons. The disallowance is purely made on conjecture and surmise. No disallowance was made for earlier years i.e. A. Y. 1992-93 to 1996-97 on amount of loan/advances given to VCCL Ltd. in course of its ordinary business. For A. V. 1997-98 to 1999-2000 the disallowance was made only in respect of payments made during those years out of cash credit account for funding One Time Settlement of ₹ 11,41,81,000/- to VCCL Ltd, and no other amounts which were receivable from the said VCCL Ltd, During the relevant years the relevant material was placed on record and proved that the relevant cash credit account subsequently were converted into a credit account out of internal accruals realized during the year. The above referred issue has been decided by CIT(A) in favour of assessee. We rely on the order for 2000-01 and 2006-07 (Copy enclosed) Without prejudice to the above, we also place reliance on fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porated in the year 1972 as a private Limited company. Upon its incorporation the company engaged itself into an engineering business of manufacturing textile machinery. In the year 1978-79 the company further diversified its activity by engaging itself into the business of processing synthetics yarn. The company farther diversified its activity by manufacturing of nylon 6 chips during the calendar year 1983 and also promoted a company for setting up the spinning unit. The aforesaid activity of the company as a vertical integration in the manmade fiber industry. Simultaneously, the company also persuade its scooter project in technical collaboration with M/s Piaggio C.S.P.A., Italy. In the year 1987 the decision was taken to hive off the business relating to manmade fiber industry i.e. manufacturing of nylon 6-chips, spinning of yarn and processing of yarn to its wholly onwed subsidiary M/s LML Fibre Ltd. (formerly known as Kanpur Synthetics Ltd.) and now known as M/s Esslon Synthetics Ltd. The business was transferred at book value on 31st July, 1987. The total consideration was worked out as follows: Rs. (In lakhs) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In cash upon execution of deed conveyance 14.00 In cash not later than 31st Match, 1992 9.45 In cash in 28 equal quarterly installment Beginning from 1st April, 1991 17.59 71.03 It was provided that, a sum of ₹ 9.45 crores shall not carry any interest and in the event of re-payment of the said account or in part thereof being made before 31st March, 1992 the purchaser was entitled to a reduction in the said amount by way of discount calculated @ 16.5% per annum on the amount of such early re-payment. It was provided that, the balance sum of ₹ 17.59 crores was to carry an interest @ 12.5% on the On-paid purchase price to be paid within 28 quarterly installment of the principle amount. The company in its books of account credited the interest on above referred amount as per the details given hereunder: Period Int. on 1759 lacs Sub Total Interest on 945 lacs total Normal Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. (formerly known as LML Fibre Ltd) based on the guarantee given by Saraswati Trading Co. Ltd. (Vaduz) (notes. No.11 to Notes to Accounts) of Annual Accounts for year ending 31st March, 2000. In light of the above, we respectfully submit the following: a. The relevant sum of ₹ 27.04 crores is bifurcated into two components which are as follows: 1. ₹ 9.45 crores amount recoverable from M/s Esslon Synthetics Ltd. based on the guarantee given by M/s Saraswati Trading Co. Ltd (Vaduz). 2. ₹ 17.59 crores amount recoverable from M/s Esslon Synthetics Ltd towards un-paid purchase price with regard to sale of undertaking which has been credited as a profit on sale of undertaking to the Appellant's Profit Loss Account. b. The relevent amount of ₹ 9.45 crores has been shown as recoverable from M/s Esslon Synthetics Ltd., and it is not assigned to M/s Perfect Polycons Ltd. as alleged. d. Sum of ₹ 17.59 crores was provided for provisions for bad and doubtful debts for the year 1997-98 which was assigned to M/s Perfect Polycons Ltd., during the year. f. No interest could be accrued on the amount of ₹ 9.45 crores since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respective funds were different placed. It was averred by the ld. D.R that the employers contribution which are scrutinized under Sec. 43B, the employees contributions are exclusively dealt with under Sec. 36(1)(va) of the Act . It was thus submitted by the Ld. D.R that as both of the aforesaid statutory provisions were separate and distinct, therefore the provisions applicable with respect to Section 43B could not be made applicable with respect to Section 36(1)(va) of the Act. The Ld. D.R in order to drive home his aforesaid contentions therein placed heavy reliance on the judgment of the Hon ble High Court of Gujarat in the case of CIT Vs. Gujarat State Road Transport Corporation (2014) 41 taxmann.com 100(Gujarat). That on the other hand the Ld. Authorized Representative (for short A.R) for the assessee therein rebutting the aforesaid contention of the Ld. A.R therein submitted that though the deposit of the employee s contribution towards PF and ESIC by the assessee involved a delay in the backdrop of the dates prescribed therein, but the same had been deposited before the due date of filing of the return of the return of income by the assessee company under Sec. 139(1) as s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herein held as under- 5. We find no merit in the aforestated contention. Section 43B of the Income Tax Act 1961 was inserted in the Act with effect from 1st April 1984 by which the mercantile system of accounting with regard to tax, duty and contribution to welfare funds stood discontinued and under Section 43B of the Act, it became mandatory for the Assessee to account for the aforestated items not on a mercantile basis but on a cash basis. This situation continued between 1st April 1984 and 1st April 1988 when Parliament again amended section 43B and inserted the first proviso thereto which inter alia laid down that in the context of any sum payable by the Assessee by way of tax, duty, cess or fee, if paid by the Assessee even after the closing of the accounting year but before the date of filing of the return of income, the Assessee would be entitled to the deduction under section 43B on actual payment basis and such deduction would be admissible for that accounting year. This proviso however did not apply to contributions made by the Assessees to the Labour Welfare Funds. In view thereof, by the Finance Act 1988, the second proviso came to be inserted which read as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amendments thereto came up for consideration before the Hon'ble Supreme Court in the case of CIT v. Alom Entruions Ltd [2009] 319 ITR 306/185Taxman 416 when the Supreme Court inter alia held that the amendments to the said section brought about by the Finance Act, 2003 with effect from 1st April 2004 were retrospective in nature and would operate from 1st April 1988, The ITAT, relying upon the aforesaid judgment of the Supreme Court, has dismissed the Revenue's Appeal and confirmed the order passed by the CIT (Appeals). In this view of the matter and in view of the fact that the Supreme Court has expressly held that the amendments to section 43B that were brought about by the Finance Act, 2003 are retrospective in nature, we find that the 1TAT was fully justified in deleting the addition of ₹ 1,82,77,138/- on account of delayed payment of Provident Fund of employees' contribution. We therefore find that no substantial question of law arises on this count as sought to be contended by Mr. Malhotra on behalf of the Revenue. 9. Even otherwise, we fail to understand how this deduction could have, been disallowed to the Assessee - Admittedly, the Assessment Yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company for A.Y.2001-02, 2005-06, 2007-08, and 2008-09. It was vehemently submitted by the Ld. D.R. that res-judicata is not applicable to Income Tax proceedings. That on the other hand the Ld. A.R. strongly supported the order of the CIT(A) and therein submitted that the addition/disallowance had rightly been deleted by the CIT(A) we though in agreement with the contention of the Ld. D.R. that the res-judicata is not applicable to Income Tax proceedings, but then now when it remains as a matter of fact that the facts involved in the case as regards the issue under consideration are the same as against those which were involved in the case of the assessee for the aforesaid preceding years viz. A.Y. 2000-01, 2001-02 to 2005-06, 2006-07, 2007-08 and 2008-09, and nothing had been draft on record before the lower authorities not before us which could go to persuade us that either the facts or issue involved therein were distinguishable as against those involved in the aforesaid preceding years, we are unable to persuade ourselves to subscribe to the view of the ld. DR that despite from being no shift from the facts which were involved in the said preceding years, the reasoning and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities in the case of the assessee for the preceding years, as o nexus had been proved by the AO in respect of the current amount outstanding in respect of the aforesaid company, viz. VCCL Ltd. and the borrowed funds, therefore no disallowance as regards any part of the said amount is called for under Sec. 36(1)(iii) of the Act, in the hands of the assessee company. We thus in light of our aforesaid observations are of the considered view that the CIT(A) by way of a reasoned order had rightly deleted the addition/disallowance of ₹ 1,81,81,940/-. Thus the order of the CIT(A) to the said extent is upheld and the ground of appeal no. 2 raised by the revenue before us is dismissed. 10. We not take up the ground of appeal No. 3 wherein the revenue had assailed the deletion the addition/disallowance of interest of ₹ 1,13,40,000/- pertaining to debts which were due to the assessee company by M/s ESSLON Synthetics Ltd. That at the very outset it was submitted by the ld. AR that the issue was squarely covered in favour of the assessee company by the order passed by the CIT(A) dated 06.02.2004 for A.Y.2000-01 which thereafter had been followed by the successor CIT(A) while disp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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