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TMI Blog2016 (7) TMI 902X X X X Extracts X X X X X X X X Extracts X X X X ..... d the AO having taken one of the possible views, such order u/s 263 is liable to quashed I cancelled and in view of the facts and in the circumstances it may kindly be held accordingly. 2. For that in view of the facts and in the circumstances it having been explained to the CIT in course of proceedings u/s 263 that Rs. 5,58,93,0001- was never received by the appellant by way of loans and advances and the entire amount represented purchases and sales of goods, provisions of sec. 2(22)(e) were not at all applicable and the order of the AO being not at all erroneous in as much as prejudicial to the interest of revenue on this ground, the CIT is wholly unjustified in setting aside the order of the AO on this issue and for that in view of the facts and in the circumstances such action of the CIT may kindly be deleted. 3. For that in view of the facts and in the circumstances the CIT having issued the notice U/S 263 in connection with allowability of claim for gratuity liability amounting to Rs. 4,19,58,203/- not debited in the Books of A/cs. and the matter having been explained in detail that such amount was never debited in the P&L alc. but had been claimed in computation of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has also filed additional ground which is reproduced below:- Additional Grounds of appeal 1. For that in view of the facts and in the circumstances the order of the AO in respect of Gratuity Liability of Rs. 4,19,97,464/- having merge with the order of CIT(A), C-I, Kolkata in his order dated 28.01.2011 in appeal No. 430/CIT(A), CI/CC-VII/08-09 relating to assessment year 2006-07, no valid jurisdiction on the issue of gratuity liability and particularly and particularly n respect of Gratuity liability of Rs. 4,19,97,464/- lied with CIT, C-I u/s 263 and his order us. 263 dated 01.03.2011 on this issue, is, therefore wholly bad, illegal and uncalled for and in view of the facts and circumstances is liable to quashed / cancelled and in view of the facts and in the circumstances it may kindly be held accordingly." Shri S. Jhajharia and Shri Sujoy Sen L'd Authorized Representatives appeared on behalf of assessee and Shri Rajat Subhra Biswas, L'd Departmental Representative appeared on behalf of Revenue. 3. Sole issue raised by assessee in all the interconnected grounds are that Ld. CIT(A) erred in holding the order of Assessing Officer erroneous and prejudicial to the int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nse for the gratuity of Rs. 4,19,58,203/- was never claimed in its profit and loss a/c. Such claim was made only in the computation of income. Accordingly, the AO has disallowed the same by holding that such liability has not been provided in its books of account, so not eligible for deduction. Therefore the question of holding that order passed by AO is erroneous and prejudicial to the interest of revenue on account of deduction of gratuity liability does not arise. 4.2 Regarding deduction on account of employee contribution, it was submitted that the AO has allowed the deduction in pursuance of direction given by the Hon'ble jurisdictional High Court and after obtaining all the details and particulars. On similar facts the relief was given to the assessee in the AY 2004-05 in its own case by the ld. CIT(A). Similarly the proceedings were dropped by the Hon'ble ITAT against the order passed under section 263 of the Act in its own case for the assessment year 2005-06. Therefore, on this account the order of AO cannot be held erroneous and prejudicial to the interest of revenue. 4.3 Regarding the provision of Sec. 115JB in relation to the disallowance made u/s. 14A of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns between assessee and MHMPL were placed for the year ended 31.03.2004 and for the year ended 31.03.2005 respectively. He further submitted that necessary details was filed at the time of original assessment along with the sample purchase bills of jute material from the MHMPL amounting to Rs. 13,39,26,825.00 and also bank statement reflecting the payments made to the party. This fact was brought to the notice of the AO at the time of assessment. The submission of the assessee at the time of original assessment is placed on page 13 of the 1st paper book. He also drew our attention at page 108 of the 2nd paper book, wherein the payment made to the specified person u/s 40A(2)(b) of the Act was also recorded. The AO while framing original assessment did not raise any query after considering the nature of transactions between assessee and MHMPL. On the other hand, Ld DR before us submitted that there is no whisper in the assessment order regarding the transactions entered between assessee and MHMPL. Therefore it needs to be restored back to the file of AO for further verification. 7. Now coming to second issue which is regarding the payment of gratuity, before us Ld. AR submitted the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the nature of current account and out of the purview of the provisions of section 2(22)(e) of the Act. In this connection, we are putting our reliance in case Pradip Kumar Malhotra vs. CIT where by the Hon'ble HIGH COURT OF CALCUTTA (2012) 246 CTR 0493 : (2011) 64 DTR 0378 : (2011) 338 ITR 0538 : (2011) 203 TAXMAN 0110. Held : "The phrase "by way of advance or loan" appearing in sub-cl. (e) of cl. (2) of s. 2 must be construed to mean those advances or loans which a share holder enjoys for simply on account of being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power; but if such loan or advance is given to such shareholder as a consequence of any further consideration which is beneficial to the company received from such a shareholder, in such case, such advance or loan cannot be said to a deemed dividend within the meaning of the Act. Thus, gratuitous loan or advance given by a company to those classes of shareholders would come within the purview of s. 2(22) but not the cases where the loan or advance is given in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the business transactions do not fall within s. 2(22)(e), one need not to go further to s. 2(22)(e)(ii). The provision of s. 2(22)(e)(ii) gives an example only of one of the situations where the loan/advance will not be treated as a deemed dividend, but that's all. The same cannot be expanded further to take away the basic meaning, intent and purport of the main part of s. 2(22)(e). This interpretation is in accordance with the legislative intention of introducing s. 2(22)(e). Therefore, the Tribunal was correct in holding that the amounts advanced for business transaction between the parties, namely, the assessee company and PE Ltd. was not such to fall within the definition of deemed dividend under s. 2(22)(e).-CIT vs. Raj Kumar (2009) 23 DTR (Del) 304 : (2009) 181 Taxman 155 (Del) followed. Amount advanced to the assessee company by another company having common directors not being a loan but an advance f or business transaction which is to be adjusted against the moneys payable by the latter to the assessee company in the subsequent years, same did not fall within the definition of deemed dividend under s. 2(22)(e)." Here in the present case, from the facts narrated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) appeal no. 430/CC-VII/CIT(A), C-1/08-09 AY 2006-07 which is placed on record at pages 127 to 135 of the 2nd paper book. In this connection we rely in the judgment of Hon'ble HIGH COURT OF BOMBAY in the case of RITZ LTD. & ANR. vs. UNION OF INDIA & ORS. (1990) 83 CTR 0177 : (1990) 184 ITR 0599 : (1990) 51 TAXMAN 0320 where it was held that "Once an order of assessment is subject matter of appeal, the whole of it merges in that of the appellate order. Thus, the only question that requires consideration is whether the retrospective amendment of s. 263 overrides or nullifies the effect of those judgments.-CIT vs. P. Muncherji & Co. (1987) 63 CTR (Bom) 338 : (1987) 167 ITR 671 (Bom) : TC57R.432#1 and CIT vs. Smt. A.S. Narendrakumari Basaheba of Rajkot (1988) 74 CTR (Bom) 56 : (1989) 176 ITR 515 (Bom) : TC57R.436 followed As a first impression Expln. (c), as it stands without anything more, appears to support the Revenue's submission that Expln. (c) was applicable in the present case also. On carefully examining the provisions of the Expln. (c), however, the position is otherwise. Before its amendment by the Finance Act, 1989, Expln. (c) inserted by the Finance Act, 1988, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the ld. CIT under section 263 of the Act is not sustainable in law and therefore we set aside. 10. At the outset we find that the issue with regard to employees contribution is already covered by the judgment of Hon'ble High Court of Rajasthan in favour of assessee in the case of COMMISSIONER OF INCOME TAX vs. UDAIPUR DUGDH UTPADAK SAHAKARI SANGH LTD. (2014) 265 CTR 0059 (Raj) : (2014) 98 DTR (Raj) 0109 : (2014) 366 ITR 163 (Raj) The head notes reads as under "Business Income-Disallowance-Validity of Deletion-Assessee, engaged in business of dairy product, processing and marketing of milk and milk product and cattle feed etc, filed its return of income-AO noticed that, assessee had deposited payment of Rs. 14,60,412 in PF fund and Rs. 973 in ESI fund with delay, and therefore, added said amount to income of assessee as per provisions of s 36(1)(va) read with s 2(24)(x)-CIT(A), vide its appellate order after noticing certain judgments concluded that, where payments on account of contribution to PF, ESI etc. are made within due date of filing return, such deductions are allowable-CIT(A) accordingly deleted disallowance made by AO-ITAT upheld order passed by CIT(A)-Held, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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