2010 (3) TMI 1250 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition made on account of unsecured loans under Section 68 of the Income Tax Act, 1961.
2. Deletion of addition made on account of unsecured loans by admitting additional evidence in contravention of Rule 46A(3) of the Income Tax Rules, 1962.
3. Deletion of addition made on account of disallowance of interest expenses.
4. Deletion of addition made on account of disallowance of traveling expenses.
5. Deletion of addition made on account of disallowance of deduction of PF and ESI collected from employees paid after due dates.
6. Allowing deduction of payment of PF and ESI made after due date by not accepting the decision of the Hon'ble Madras High Court.
7. Whether the order of the Assessing Officer should be upheld.
8. Prayer to set aside the order of the Commissioner of Income Tax (Appeals) and restore that of the Assessing Officer.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made on Account of Unsecured Loans under Section 68:
The assessing officer added Rs. 4,48,03,196/- under Section 68, claiming the appellant failed to substantiate its claim regarding unsecured loans. The appellant argued that the loans were procured in earlier years, not the current year, and provided detailed evidence, including audited accounts and confirmations from depositors. The Commissioner of Income Tax (Appeals) found that only Rs. 2 crores were received as a new loan from an associate concern, which was already assessed by the same officer. The rest of the loans were old, and thus, following the Karnataka High Court's decision in Sridev Enterprise (193 ITR 165), the addition under Section 68 was unjustified and deleted.

2. Deletion of Addition by Admitting Additional Evidence in Contravention of Rule 46A(3):
The Commissioner of Income Tax (Appeals) admitted additional evidence submitted by the appellant, which was not furnished during the assessment proceedings due to the illness of the Finance and Accounts Manager. The Tribunal noted that the Commissioner did not pass an order before accepting the additional evidence and did not confront the assessing officer with this evidence, violating Rule 46A. Consequently, the matter was remanded back to the Commissioner to re-adjudicate after allowing the assessing officer to review the additional evidence.

3. Deletion of Addition Made on Account of Disallowance of Interest Expenses:
The assessing officer disallowed Rs. 11,23,686/- under Section 36(1)(iii), stating the appellant advanced interest-free loans to its subsidiary while paying interest on borrowed funds. The appellant contended that the advances were for business purposes as the subsidiary was a distributor. The Commissioner of Income Tax (Appeals) agreed, citing the Supreme Court's decision in S. A. Builders vs. CIT (288 ITR 1), and deleted the disallowance.

4. Deletion of Addition Made on Account of Disallowance of Traveling Expenses:
The assessing officer disallowed Rs. 2,21,082/- for foreign traveling expenses, citing insufficient evidence to prove the expenses were for business purposes. The appellant provided invoices and other details during the appeal. The Commissioner found that while some expenses could be for business purposes, the evidence was not conclusive. Thus, 50% of the disallowance was retained, and Rs. 1,10,541/- was allowed as relief.

5. Deletion of Addition Made on Account of Disallowance of Deduction of PF and ESI Collected from Employees Paid After Due Dates:
The assessing officer disallowed Rs. 10,41,768/- for late payment of PF and ESI. The appellant argued that payments were made before the due date of filing the return, citing decisions from various courts. The Commissioner of Income Tax (Appeals) followed the decisions of the Supreme Court and the Gujarat High Court, allowing the payments based on actual payment during the relevant previous year, and directed the assessing officer to allow the deductions.

6. Allowing Deduction of Payment of PF and ESI Made After Due Date:
The Commissioner of Income Tax (Appeals) did not accept the decision of the Hon'ble Madras High Court in CJT Vs Madras Radiators and Pressings Limited (183 CTR 322), which disallowed deductions for late payments. Instead, the Commissioner followed the Supreme Court's decision in Allied Motors (P) Ltd. and other relevant judgments, allowing the deductions for payments made before the due date of filing the return.

7. Whether the Order of the Assessing Officer Should be Upheld:
The Tribunal noted that the Commissioner of Income Tax (Appeals) accepted additional evidence without confronting the assessing officer, violating Rule 46A. Therefore, the Tribunal set aside the Commissioner's order and remanded the matter for re-adjudication, ensuring the assessing officer reviews the additional evidence.

8. Prayer to Set Aside the Order of the Commissioner of Income Tax (Appeals) and Restore that of the Assessing Officer:
The Tribunal allowed the appeal for statistical purposes, setting aside the Commissioner's order and remanding the matter back to the Commissioner to re-adjudicate after allowing the assessing officer to review the additional evidence within three months from the date of the Tribunal's order.

Conclusion:
The Tribunal set aside the order of the Commissioner of Income Tax (Appeals) and remanded the matter for re-adjudication, ensuring compliance with Rule 46A and allowing the assessing officer to review the additional evidence submitted by the appellant. The appeal of the revenue was allowed for statistical purposes.