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2008 (5) TMI 303 - AT - Income TaxPayment of processing charges - disallowance on interest - unsecured loans to relatives - sustaining the disallowance of the ESI and PF payments not paid in time - Delay in deposit of employees contributions towards CPF GPF and ESI u/s 36(1)(va) - interest advances to the relatives and the sister concern. Disallowance on Payment of processing charges - genuineness of the expenditure and the payments to M/s Vibgyor Colour Graphics - HELD THAT - Considering the fact that learned CIT(A) has given a finding that genuineness of the transaction between the assessee and Vibgyor Colour Graphics is genuine and the same having not been challenged by the Revenue and the fact that without the payment of the said processing charges the assessee could not have generated the said receipts as also the reason that if average of the percentage of the processing charges paid in relation to the job work/sales done by the assessee is considered for 5 years the average of the same would come to 4.58 per cent which would translate into sum we are of the view that no portion of the processing charges paid by the assessee to M/s Vibgyor Colour Graphics is liable to be disallowed - Therefore the order of the learned CIT(A) on this issue is modified to this extent and this issue is decided in favour of the assessee. Disallowance on Interest - HELD THAT - Hon ble Delhi High Court in the case of Orissa Cement Ltd. 2001 (5) TMI 31 - DELHI HIGH COURT is found to be more applicable insofar as it is found that the loans had been advanced out of the sale proceeds and not out of the borrowings as is evident from the paper book. The law only bars an assessee from claiming an interest expenditure when the assessee has diverted interest-bearing loans for non-interest-bearing advances. It is further noticed that the AO has not been able to point out any specific instance where interest-bearing borrowed funds had been diverted by the assessee for giving the non-interest-bearing advances to the relatives and the sister concern. Thus we are of the view that no interest is liable to be disallowed in the hands of the assessee. In the circumstances the finding of the learned CIT(A) and the AO on this issue stands reversed - As identical issue has been raised in the assessee s appeal for the AY 2001-02 the finding as given above in this issue would apply to the other appeal and the appeal of the assessee stands allowed. Disallowance of the ESI and PF payments made belatedly by invoking the provisions of s. 43B - Since it is seen that the payments were made before the due date of filing the return of income the payment by assessee is allowable as such. We accordingly delete the disallowance of the sum for both the years - Undisputedly in the instant case both the employer s and employees contributions were not paid in some of the cases before the statutory dates defined under the respective Acts. but the actual payment was made before the last date of filing the return under s. 139(1) of the Act. In the circumstances respectfully following the decision of the Hon ble Karnataka High Court in the case of Sabari Enterprises 2007 (7) TMI 169 - KARNATAKA HIGH COURT in the case of Kuber Hinges (P) Ltd. 2008 (3) TMI 364 - ITAT DELHI-G the AO is directed to allow the claim of deduction of the PF and ESI as made by the assessee. It may be mentioned here that no decision to the contrary has been brought to our attention on this issue. In the circumstances the appeal of the assessee is allowed. In the result the appeal filed by the assessee for the AY 2000-01 is allowed. Appeal filed by the Revenue for the AY 2000-01 is dismissed and appeal filed by the assessee for the AY 2001-02 is allowed.
Issues Involved:
1. Sustaining an addition of Rs. 10,45,550 out of the total addition of Rs. 29,61,521 on account of processing charges. 2. Addition of Rs. 2,49,000 on account of interest paid on unsecured loans. 3. Disallowance of ESI and PF payments not paid in time. Detailed Analysis: 1. Sustaining an Addition of Rs. 10,45,550 on Account of Processing Charges: The assessee challenged the CIT(A)'s decision to sustain an addition of Rs. 10,45,550 out of Rs. 29,61,521 made by the AO for processing charges paid to M/s Vibgyor Colour Graphics, a proprietary concern of the assessee's brother. The AO questioned the genuineness of the expenses due to the shared electricity meter and non-production of the proprietor for verification. The CIT(A) accepted the genuineness of the transactions but estimated disallowance based on an average ratio from previous years. The ITAT found that the assessee had provided ample evidence, including invoices and ledger accounts, proving the genuineness of the transactions. The CIT(A) had already accepted this genuineness, and the Revenue did not challenge this finding. The ITAT concluded that no portion of the processing charges should be disallowed, as the transactions were genuine and necessary for generating the assessee's income. Consequently, the ITAT modified the CIT(A)'s order in favor of the assessee and dismissed the Revenue's appeal. 2. Addition of Rs. 2,49,000 on Account of Interest Paid on Unsecured Loans: The assessee contested the addition of Rs. 2,49,000 made by the AO and confirmed by the CIT(A) for interest paid on unsecured loans, arguing that no interest was charged on loans given to relatives. The assessee demonstrated that sufficient non-interest-bearing funds were available during the relevant periods, and no specific interest-bearing funds were diverted for non-interest-bearing loans. The ITAT noted that the AO failed to establish any specific instance of diversion of interest-bearing funds. Citing precedents from the Delhi High Court and Karnataka High Court, the ITAT held that the disallowance was unwarranted as the loans were given from non-interest-bearing funds. The ITAT reversed the CIT(A)'s and AO's findings, allowing the assessee's appeal. 3. Disallowance of ESI and PF Payments: The assessee challenged the disallowance of ESI and PF payments made beyond the statutory due date but before the due date for filing the return. The ITAT referred to decisions from the Karnataka High Court and previous Tribunal rulings, which allowed such deductions if payments were made before the return filing deadline under Section 139(1). The ITAT found that the payments were indeed made before the due date for filing the return and directed the AO to allow the deductions. The ITAT emphasized that no contrary decisions were presented, thus allowing the assessee's appeal on this ground. Conclusion: - The appeal in ITA No. 5500/Del/2003 filed by the assessee for the assessment year 2000-01 is allowed. - The appeal in ITA No. 408/Del/2004 filed by the Revenue for the assessment year 2000-01 is dismissed. - The appeal in ITA No. 3361/Del/2004 filed by the assessee for the assessment year 2001-02 is allowed.
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