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TMI Blog2008 (5) TMI 303X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. In ITA No. 5500/Del/2003, the assessee has raised 3 issues. The first issue being against the action of the learned CIT(A) in sustaining an addition of Rs. 10,45,550 out of the total addition of Rs. 29,61,521 made by the AO on account of the processing charges paid by the assessee to M/s Vibgyor Colour Graphics. The second issue is against the order of the learned CIT(A) confirming the addition of Rs. 2,49,000 made by the AO on account of interest paid by the assessee on unsecured loans on the ground that no interest was charged by the assessee on the unsecured loans given by the assessee to his relatives. The third issue is against the order of the learned CIT(A) in sustaining the disallowance of the ESI and PF payments not paid in time. In ITA No. 408/Del/2004, the Revenue has filed the appeal against the action of the learned CIT(A) in restricting the disallowance on account of the processing charges paid by the assessee to M/s Vibgyor Colour Graphics to Rs. 10,45,550. In ITA No. 3361/Del/2004, the assessee has challenged the action of the learned CIT(A) in confirming the addition made by the AO on account of the interest paid by the assessee on unsecured loans on the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ickers. Page 22 of the paper book was the corresponding invoice raised by M/s Vibgyor Colour Graphics with the assessee in regard to the processing of the positive for the said stickers. Page 23 was a copy of the positive which was processed by M/s Vibgyor Colour Graphics on behalf of the assessee. He further drew our attention to pp. 24 to 25 of the paper book which were the details of the party-wise processing charges paid to M/s. Vibgyor Colour Graphics vis-a-vis the amount of final bills raised by the assessee. It is noticed that the total amount charged by M/s Vibgyor Colour Graphics is to an extent of about Rs. 29,39,826 and the corresponding invoice raised by the assessee from the final party was to an extent of nearly Rs. 7 crores. He further drew our attention to pp. 26 to 73 of the paper book which were the details of the bills raised by M/s Vibgyor Colour Graphics vis-a-vis final bills raised by the assessee to the assessee's customers along with the copies of the invoices of the assessee as also the corresponding invoices of M/s Vibgyor Colour Graphics. He further drew our attention to pp. 125 to 144 of the paper book which is the copy of the ledger account of M/s V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant for the earlier 5 years. It was the submission that by taking only two of the assessment years the learned CIT(A) had arrived at a ratio of 4.17 and by applying said ratio of 4.17 per cent he had arrived at a figure of Rs. 19,15,971. It was the submission that if the average of all the 5 years was taken, then the percentage would be 4.58 per cent and if such percentage was taken, the processing charges allowable in relation to the sales/job work in regard to the current assessment year would be nearly Rs. 32,44,990. It was thus his submission that the learned C1T(A) having accepted the genuineness of the transaction ought to have allowed the claim as made by the assessee in full. 5. Learned Departmental Representative in reply submitted that the proportion as taken by the CIT(A) was wrong. It was his further submission that the assessee had not produced the said Shri Anil Goel before the AO for examination. He vehemently supported the order of the AO. He further submitted that the learned CIT(A) ought to have confirmed the order of the AO. It was his submission that the order of the CIT(A) is liable to be reversed and the order of the AO restored. 6. We have considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aving 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 to the extent of nearly Rs. 7 crores 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 an amount of Rs. 32,44,990, 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. 7. In the circumstances 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. 8. As we have already decided this issue in favour of the assessee, the appeal of the Revenue challenging the order of the CIT(A) restricting the disallowance to Rs. 10,45,550 would also stand decided against the Revenue and consequently, the appeal of the Revenue in appeal No. ITA 408/Del/2004 stands dismissed. 9. In regard to the second issue being the disallowance as confirmed by the learned CIT(A) and as made by the AO on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ister concern of the assessee has been shown to have been out of the receipts of the assessee. Thus, it was the submission that no interest-bearing funds had been used for giving any nonbearing loans. He relied upon the decision of the Hon'ble Delhi High Court in the case of CIT vs. Orissa Cement Ltd. (2001) 252 ITR 878 (Del) as also the decision of the jurisdictional High Court in the case of CIT vs. Tin Box Co. (2003) 182 CTR (Del) 171 : (2003) 260 ITR 637 (Del) wherein it has been held that as the capital of the firm and the interest-free unsecured loans with the assessee far exceeded the amounts advanced to the sister concern and further there was no finding of the Department that any specific interest-bearing borrowed funds has been diverted by the assessee to its sister concern, no disallowance can be made. He further placed reliance upon the decision of the Hon'ble Karnataka High Court in the case of CIT vs. Sridev Enterprises (1991) 97 CTR (Kar) 80 : (1991) 192 ITR 165 (Kar) wherein the Hon'ble Karnataka High Court had held that when the assessee had advanced certain sums to another firm having common partners free of interest on money borrowed and in past years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r an assessee should use surplus funds for the repayment of interest-bearing loan or not is the sole prerogative of the assessee. 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. In the circumstances, 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. 11. As identical issue has been raised in the assessee's appeal in ITA No. 3361/Del/2004 for the asst. yr. 2001-02, the finding as given above in this issue would apply to the said appeal in ITA No. 3361 and the appeal of the assessee in ITA No. 3361 stands allowed. 12. In regard to the ground against the order of the CIT(A) in confirming the disallowance of the ESI and PF payments made belatedly by invoking the provisions of s. 43B, the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2(24)(x) r/w ss. 36(1)(va) and 43B of the Act, and the amendment brought therein by various Finance Acts, the High Court observed as under: 'After hearing the learned counsel for the parties, we have carefully examined the above statutory provisions of the Act including definition of s. 2(24)(x) and ss. 36(1)(va) and 43B(b), which reads thus: '2(24)(x) 'income' includes- any sum received by the assessee from his employees as contribution to any provident fund or superannuation fund or any fund set up under the provisions of the Employees State Insurance Act, 1948.' '36(1) The deduction provided for in the following clauses shall be allowed in respect of the matters dealt with therein in computing the income referred to in s. 28. (va) any sum received by the assessee from any of his employees to which the provisions of sub-cl. (x) of cl. (24) of s. 2 apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date. Explanation: For the purposes of this clause, 'due date' means the date by which the assessee is required as an employer to credit an employee's contribut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able in law and therefore the same cannot be accepted by us. The learned counsel, Sri Parthasarathy and Departmental Representative Kishna, appearing for respondents, also drew our attention to the deletion of second proviso to s. 43B of the IT Act by Finance Act, 2003 which provision has come into force w.e.f. 1st April, 2004. The reliance placed upon the decision of the apex Court in the Allied Motors (P) Ltd. vs. CIT and also on the decision in General Finance Co. vs. CIT, in respect of applicability of s. 43B(b) and also omission of cl. (a) or (c) or (d) or (f), referred to above occurred in the first proviso to s. 43B, supports the case of the assessee and also relevant paras extracted from Allied Motor's case and para 59 referred to supra in this judgment from the Finance Bill with all fours support the case of the assessee/respondents. Therefore, we have to answer the substantial question of law No. 1 framed by this Court in these appeals at the instance of the Revenue against them viz. in the negative. Accordingly, we answer the substantial question No. 1 framed in these appeals in the negative. 4. It is crystal clear from the detailed discussion made by the Hon'b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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