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TMI Blog2002 (6) TMI 162X X X X Extracts X X X X X X X X Extracts X X X X ..... security deposits with the principals, which were refundable on completion of the contract. The assessee made security deposits of Rs. 8,14,000 and Rs. 63,11,479 for the assessment years 1989-90 and 1990-91 respectively. The assessee claimed deduction thereof from the contract receipts. However, the Assessing Officer observed that amount of security deposits represented the capital investment of the assessee, which were lying with the principals. These amounts were also refundable after completion of the contract. Thus, the Assessing Officer held that the assessee was not entitled to deduction of the same. 3. Aggrieved, the assessee carried the matter in appeals before the CIT(A), who upheld the disallowance by relying on the appellate order for the assessment years 1985-86 to 1988-89. The assessee has now preferred these appeals before us. 4. Both the ld. counsel for the assessee and the ld. D.R. conceded that this issue stood decided in favour of the revenue and against the assessee by ITAT, Chandigarh Bench's order dated 19-10-1994 in assessee's own case (in I.T.A. Nos. 313 & 453 of 1989) for the assessment year 1985-86 and the facts of the case for the assessment year under r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound of appeals for both the assessment years under reference. 6. The next ground of appeal for the assessment year 1989-90 relates to the fact that the CIT(A) was not justified in sustaining disallowance of Rs. 1,27,989 under section 40A(3) of the Income-tax Act. The facts of the case are that while completing the assessment for the assessment year under reference, the Assessing Officer observed that the assessee had made cash payments exceeding Rs. 10,000 in violation of provisions of section 40A(3). The assessee explained that such payments had to be made because the parties from whom the assessee made these purchases insisted on cash payments and, therefore, there were exceptional circumstances justifying such cash payments. However, the Assessing Officer observed that the assessee did not produce any letter or evidence to substantiate its contention that such payments had been made on insistence of the parties. In addition, the Assessing Officer observed that the assessee made purchases of Rs. 75,295 from its sister concern, namely, M/s. Munak International Pvt. Ltd. and there was no justification for making such cash payments as the part from whom it made the purchasers was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctor of the company was not actively managing or looking after the business of M/s. Munak International Pvt. Ltd. Therefore, there is no justification for sustaining the disallowance of payment of Rs. 75,295 made to M/s. Munak International Pvt. Ltd. 9. The ld D.R., Smt. Rachna Singh, on the other hand, strongly relied on the orders of the lower authorities. She submitted that the assessee had not taken any such plea before the lower authorities that the assessee did not have bank account at Calcutta. She submitted that this plea has been raised for the first time. She further submitted that the only explanation given by the assessee before the authorities below that the assessee had to make payments in cash because the parties from whom it made purchases insisted on cash payments. However, neither before the Assessing Officer nor before the CIT(A) the assessee adduced any evidence from the parties that they had asked for such cash payments. She submitted that in the absence of such evidence, the disallowance was rightly sustained by the CIT(A). In support of her contentions, she also relied on the following judgments: (i) Porwal Udhyog (India) v. CIT [1982] 135 ITR 591 (MP)--Whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de on a bank holiday; or (d) the seller is refusing to accept the payment by way of cross cheque/draft and the purchaser's business interest would suffer due to non-availability of goods otherwise than from this particular seller, or (e) the seller, acting as a commission agent, is required to pay cash in turn to persons from whom he has purchased the goods; or (f) specific discount is given by the seller for payment to be made by way of cash." From the above it is obvious that payments made in violation of provisions of section 40A(3) at a place where neither the purchaser nor the seller does have the bank account would fall in the exceptional circumstances mentioned therein. But the abovementioned circular of the Board also mentions that all the circumstances spelt out therein are not exhaustive. These are only some of the exceptional circumstances where it could be said that such payments are covered under rule 6DD(j). However, in response to specific query from the Bench, the ld. Counsel submitted that the registered office of the assessee is located at Chandigarh. The contract work for which such purchases were made from Calcutta was being carried out at Port Blair. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the return of income or before the lower authorities yet the assessee was entitled to such benefit in view of the judgment of Gauhati High Court in the case of Lallacherra Tea Co. (P.) Ltd. v. CIT [1999] 239 ITR 611, and the decision of the ITAT, Madras in Fab Export (P.) Ltd. v. Asstt. CIT [1996] 56 ITD 132. The ld. Counsel further submitted that the assessee was entitled to raise such legal ground in view of the judgment of the Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383. He further submitted that recently Punjab & Haryana High Court in its Full Bench judgment in the case of CIT v. Smt. Aruna Luthra [2001] 252 ITR 76, has considered the issue as to what constitutes mistake apparent from record. The Hon'ble High Court has held that records include everything including the subsequent judgment of the jurisdictional High Court or the Supreme Court. He submitted that in this case the judgment of Gauhati High Court being of subsequent date, the same would constitute mistake apparent from record and, therefore, the additional ground, which is based on the facts already on record, can be allowed to be admitted. 12. The ld. D.R., Smt. Rachna S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Tribunal is not prevented from considering the questions of law arising in the assessment proceedings, although not raised earlier. The Tribunal has the discretion to allow or not to allow a new ground of appeal to be raised. However, the Tribunal is only required to consider the question of law arising from facts, which are on record in the assessment proceedings. It was finally held that the Tribunal had jurisdiction to examine a question of law, which arose from the facts as found by the income-tax authorities and having a bearing on the tax liability of the assessee. The Hon'ble Punjab & Haryana High Court has also taken a similar view in the case of Dehati Co-op. Marketing-cum-Processing Society, where the Hon'ble Court has held that ITAT can admit the additional ground, which had not been taken before the ITO, so long as that does not require a further investigation into facts. 14. Now, what we have to consider is whether, all the relevant facts necessary for deciding the additional ground of appeal were on record or the case required further investigation into the facts. The ld. Counsel has drawn our attention to page 6 of the assessment order where income from busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es that computation of income under section 115J does not affect the determination of the amounts in regard to claims under section 32(2), 32A(3), sub-section (1) of section 72, section 73 or section 74 or sub-section (3) of section 74A etc. In this regard, it would be appropriate to reproduce herein the provisions of sub-section (2) of section 115J: "(2) Nothing contained in sub-section (1) shall affect the determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years under the provisions of sub section (2) of section 32 or sub-section (3) of section 32A or clause (ii) of sub-section (1) of section 71 or section 73 or section 74 or sub section (3) of section 74A or sub-section (3) of section 80J." A bare reading of sub-section (2) of section 115J shows that the benefit of carried forward of loss of the relevant accounting year would be covered by the computation of income as per normal provisions of the Act and determination thereof would not be dependent on the income computed under section 115J. Now, in this case, the income was first computed under the normal provisions of the Income-tax Act and after allowing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f, while considering the question of carrying forward of unadjusted loss. (iii) The very object of the provisions of section 115J is to tax such companies which are making huge profits and also declaring substantial dividends but are managing their affairs in such a way as to avoid payment of income-tax, as a result of various tax concessions and incentives and for that purpose, the taxable income is determined under sub-section (1) of section 115J. If any loss equals to the income thus determined is allowed to be adjusted, then that would defeat the very purpose of enacting the provisions. 16. As regards the contention of the assessee that it would amount to double taxation, the Hon'ble High Court by referring to the judgment of Hon'ble Supreme Court in the case of Jain Bros. v. Union of India [1970] 77 ITR 107, rejected such contention because what is being taxed is income determined on the basis prescribed under the provisions of the Income-tax Act and there is no provision to retax the same income as such and, therefore, there was no double taxation. Thus, we find that the judgment of the Hon'ble Andhra Pradesh High Court clearly takes into account the provisions of section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s order dated 14-12-2000 has held that the assessee is entitled to the benefit of carry forward of losses as determined in accordance with the normal provisions of the Income-tax Act by ignoring the income computed under section 115J. The relevant findings of the ITAT contained in para 5 of the aforesaid order are reproduced hereunder: "5. We have heard both the parties and carefully considered the rival submissions. We have also examined the facts, evidence and material on record. We have also perused orders of authorities below. The provisions of section 115J were introduced in I.T. Act with a view to ensure levy of minimum tax on what were known as prosperous 'zero tax companies'. This Chapter is a self-contained Code and is applicable to companies whose total income computed under the provisions of Act in respect of previous year is less than 30% of their book profit. The provisions of section 115J contemplate two stages. First, the AO has to determine income of the company under the provisions of the Act and secondly the book profit has to be worked out in accordance with the Explanation below section 115J(1A). Thereafter, one has to see whether total income determined under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear that the quantum of unabsorbed losses, unadjusted depreciation, etc. for the purpose of carrying forward has to be under the provisions of the Act, irrespective of the quantum of income determined under the provisions of sub-section (1) of section 115J. There would be no scope for the Revenue to contend that in view of the provisions of sub-section (1), the unabsorbed depreciation allowance, unadjusted loss or deficiency, etc. as the case may be, can no longer be carried forward to the subsequent year or years. On the determination of the taxable income, under the relevant provisions of the Act, whatever amounts remain to be carried forward under the regular computation, either by way of unabsorbed losses or unabsorbed allowances have to be carried forward to the next year ignoring the fact that a notional income is made taxable under sub-section (1) of section 115J.' It may be mentioned that while taking the above view, Hon'ble High Court has also followed the judgment of the Delhi High Court in the case of National Thermal Power Corpn. Ltd. v. UOI 192 ITR 187. Apart from two judgments of A.P. and Delhi High Courts, Karnataka High Court has also taken the same view in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue and judicial discipline and propriety demand that we must follow our own order. Therefore, in the light of these facts and circumstances of the case and the legal position discussed above, we find that the decision of the authorities below is in conformity with the provisions of the Act. Therefore, the same does not merit any interference. Accordingly, while we admit the additional ground, yet the same is rejected on merits. 19. The fast additional ground raised by the assessee relates to deduction under section 32AB. The facts of the case are that the assessee is engaged in the business of execution of contracts procured from the Govt. and other agencies. In the return of income, the assessee had claimed deduction for investment allowance under section 32A. The assessee being engaged in the business of civil construction, such deduction is not admissible to the assessee in view of the judgment of Hon'ble Supreme Court in the case of CIT v. N.C. Budharaja & Co. [1993] 204 ITR 412. The assessee has now raised additional ground for both the assessment years claiming deduction under section 32AB being investment deposit a/c. This claim was neither made before the AO nor before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terial to show as to how the assessee is entitled to such deduction and all the relevant facts are already on record. As mentioned above, the additional ground could only be admitted if the facts relating to the same are already on record, which we find are missing in this case. We, therefore, hold that the additional ground raised by the assessee cannot be admitted. We rely on the judgment of Punjab & Haryana High Court in the case of Dehati Co-op. Marketing-cum-Processing Society and the judgment of Supreme Court in the case of National Thermal Power Co. Ltd. Accordingly, we decline to admit this additional ground, common to both the assessment years under reference. 22. We now take up the revenue's appeals. The first common issue raised in both the appeals is that the CIT(A) was not justified in deleting the disallowance of Rs. 44,80,490 (Rs. 58,68,700 for the assessment year 1990-91) on account of the retention money. The facts of the case are that the principals retained part of the amount out of running bills of the assessee by way of retention money. The amount is paid to the assessee after completion of the contract. The assessee has been consistently following the practic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the work. It was further observed that only after the assessee fulfilled the obligations under the contract, the retention money would be released and the assessee will acquire the tight to receive such retention money. It was held that on the date when the bills were submitted, it could not be, said that the assessee had any right to receive the entire amount on the completion of the work or on the submission of the bills. We find that a similar question had arisen before the Chandigarh Bench of the Tribunal in the case of M/s. Brij Mohan Surinder Kumar for assessment year 1985-86 in I.T.A. No 255 and C.O. No. 35/Chd./1989 and the Tribunal vide order dated 9-5-1994 held that the retention money was not the income of the assessee unless the assessee actually received it. We also find that in the case of Associated Cables Pvt. Ltd. v. Dy. CIT [1994] 119 CTR (Trib.)(Bom.)(TM) 66, it was held that the retention money could not be considered as the income of the assessee and had to be excluded in computing the total income. 41. Since in the present case, the retention money of Rs. 1,80,000 had not actually been paid to the assessee and its refund depended upon the satisfactory pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned the facts, evidence and material on record. We find that this issue is squarely covered in favour of the revenue and against the assessee by the above-mentioned judgment of Hon'ble Supreme Court. Therefore, respectfully following the judgment of Hon'ble Supreme Court in the case of N.C. Budharaia & Co., we set aside the orders of CIT(A) for both the assessment years under reference and restore those of the AO in disallowing the claims of the assessee for investment allowance and deductions under sections 80HH and 80-I. Respective grounds of appeals are accordingly allowed. 30. The next ground of appeal for the assessment year 1990-91 relates to deletion of disallowance of Rs. 3 lakhs made by the AO on account of fee paid to Shri H.P. Sharma, Advocate. The facts of the case are that in the profit & loss account, the assessee had claimed deduction in respect of payment of Rs. 3 lakhs to Shri H.P. Sharma, Advocate on account of professional charges. While examining the details, the AO observed that the impugned payment was made on 16-2-1989 relating to assessment year 1989-90. The AO disallowed the claim on the ground that the same did not relate to assessment year under referenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion/disallowance of Rs. 3 lakhs is deleted and this ground of appeal is allowed. Thus the appellant gets relief of Rs. 3.00 lakhs." Revenue is aggrieved by the order of the CIT(A) and hence the present appeal before us. 32. While the ld. D.R. simply relied on the order of the AO, she submitted that the assessee did not file any evidence to show that Shri H.P. Sharma, Advocate had violated the terms of the agreement. Moreover, deduction could have been allowed in the year when the suit filed by the assessee against Shri Sharma had become final. She submitted that the matter may be remanded to the file of the AO. 33. The ld. counsel, on the other hand, heavily relied on the order of the CIT(A) and reiterated the submissions, which were made before the CIT(A). 34. We have heard both the parties and carefully considered the rival submissions. We have also examined the facts, evidence and material on record. We find that the AO has made the addition in a summary manner without making any in-depth examination of the claim of the assessee. The assessee had clearly mentioned that amount of Rs. 3 lakhs paid to Shri H.P. Sharma, Advocate on 16-2-1989 was merely an advance with a stipulat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; account on that date 1 . State Bank of Patiala 24,00,000 / 15-9-1989 87,63,789 2. -do- 18,00,000 / 25-9-1989 1,30,69,650 3. -do- 20,00,000 / 27-12-1989 1,81,56,266 4. -do- & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found that out of the amounts of Rs. 82 lakhs, the assessee had advanced a sum of Rs. 64 lakhs on 16-9-1989, 27-12-1989 and 12-1-1990 out of the receipts of equal amount from its clients and only an amount of Rs. 18 lakhs was given to its sister concern by utilizing the overdraft account. Thus, the CIT(A) held that while the disallowance of interest in respect of amount of Rs. 18 lakhs given to its sister concern was justified, there was no justification for disallowing interest on amount of Rs. 64 lakhs advanced out of the receipts from assessee's clients. Accordingly, the CIT(A) directed the AO to recompute the interest and restrict the disallowance to an amount of Rs. 18 lakhs. Revenue is aggrieved by the order of the CIT(A) and hence the present appeal before us. 37. The ld. D.R. heavily relied on the order of the AO. She submitted that from the facts discussed by the AO in his order, it was obvious that the Amounts were given to its sister concern by utilizing the overdraft from the bank. On page 4, para 15 of the order, the AO has pointed out substantial amounts on debit balances on the dates when amounts were given to its sister concern. Thus, the CIT (A) was not justified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 1989-90, where the disallowance of interest was held to be not justified in view of the fact that the assessee had sufficient surplus interest-free funds to cover advances given to its sister concern. A copy of the decision was placed at pages 17 to 21 of the paper book. 39. We have heard both the parties and given our utmost consideration to the rival submissions. We have also examined the facts, evidence and material on record. From the facts detailed above, it is clear that the assessee had borrowed huge amounts from the bank. The AO has mentioned in the assessment order that amount of Rs. 3,53 crores was borrowed from the bank. Facts also show that amount of Rs. 82 lakhs was advanced by utilizing the overdraft account. In fact, the AO has mentioned on page 4 of the assessment order that debit balance in the bank account on the dates when impugned amounts were advanced to its sister concern varied from Rs. 87 lakhs to Rs. 1.83 crore on the respective dates. He has thus pointed out that on the dates when the amounts were advanced to the sister concern, there was no credit balance in the bank account. Besides, the assessee has not been able to explain the purpose for which am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,63,07,874 ----------------------------------------------------------------------------- Thus it is clear that even after taking into account receipts from clients, there still remained huge debit balance in the bank account. Therefore, it could not be said that amounts advanced to sister concern were out of the receipts from clients. Even otherwise, we find that as per page 6 of the assessment order, the assessee advanced an amount of Rs. 24 lakhs to its sister concern on 15-9-1989, whereas page 6 of the CIT(A)'s order shows receipt from client on 16-9-1989, i.e. a day later than the date on which amount was advanced. This amount, in any case, cannot be considered out of receipt from clients. Moreover, in the cash credit account, the assessee is allowed overdraft facility subject to limit fixed. In order to ensure that amount of overdraft does not exceed the limit, the assessee does deposit therein receipts. But that does not mean that amounts advanced could be considered from such receipts when there still remained huge debit balance even after taking into account the receipts. In this case, huge amounts borrowed on interest have been utilized in the business. Therefore, recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts advanced to a subsidiary company was Rs. 60,54,928. The assessee had placed before us details to show that there were interest-free loans amounting to Rs. 2,89,95,071 from a sister concern to whom no interest had been paid. Thus, the interest-free funds available with the assessee far exceeded the amounts advanced to its sister concern. In the light of these facts, disallowance of interest was held to be not justified. No such facts have been placed before us to show that in this case the assessee had substantial amount of interest-free loans to cover the amount advanced to its sister concern. Therefore, the decision of the Tribunal in the case of Steel Strips Ltd., would not be applicable to the facts of the present case. 41. We may further add that the facts of the present case are in pari materia with the decision of ITAT, Chandigarh Bench in the case of Addl. CIT v. VK. Construction Ltd. [IT Appeal Nos. 737 and 916 of 1993] for the assessment years 1989-90 and 1990-91, where disallowance of interest was upheld. It would be appropriate to reproduce hereunder the findings recorded in paras 7 to IO of the said order: "7. We have carefully considered the submissions of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ys the assessee had deposited receipts from its business would not, by itself, justify that amounts were advanced out of its own funds. It may be noted that in the cash credit accounts the assessee is allowed overdraft facility subject to the limit fixed by the bank. In order to ensure that assessee's overdraft does not exceed the prescribed limit, the assessee did deposit certain receipts in that account but that does not mean that the assessee had utilized its own funds for advancing the loans. From the facts detailed above, it is obvious that on several dates when the amounts were advanced, there was debit balance in the overdraft account and by advancing the amounts to M/s. Munak Galvasheet Ltd., such debit balance further increased. Besides, the entire loan of Rs. 1,03,24,000 was borrowed by the assessee before the amounts were advanced to the sister concern. The borrowed amounts were obviously utilized for the purpose of assessee's business and, therefore, even business funds utilized for giving loans to the sister concern could be said to be out of such business funds. Moreover, the nature of transactions of the amounts borrowed on interest and given to sister concern is suc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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