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TMI Blog2017 (4) TMI 252X X X X Extracts X X X X X X X X Extracts X X X X ..... cord by the Ld. DR, in order to persuade us to take a view otherwise for the reason that any new facts had emerged during the year under consideration, we are constrained to conclude that as stand covered from the findings of the lower authorities in the case of the assessee for the preceding years, as o nexus had been proved by the AO in respect of the current amount outstanding in respect of the aforesaid company, viz. VCCL Ltd. and the borrowed funds, therefore no disallowance as regards any part of the said amount is called for under Sec. 36(1)(iii) of the Act, in the hands of the assessee company. We thus in light of our aforesaid observations are of the considered view that the CIT(A) by way of a reasoned order had rightly deleted the addition/disallowance of 1,81,81,940/-.- Decided in favour of assessee Disallowance of interest pertaining to debts which were due to the assessee company - Held that:- We are of the considered view that as the issue pertaining to the disallowance of interest of 1,13,40,000/- as regards the debts due to the assessee company from M/s. ESSLON Synthetics Ltd. as conceded by the Ld. DR is covered in favour of the assessee in the backdrop of the earl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of manufacturing and sale of two wheelers had e-filed its return of income on 30.09.2009 declaring loss of ₹ 39,49,11,854/- which was processed as such under Sec. 143(1) of the Act. The case of the assessee was thereafter taken up for scrutiny proceedings under Sec. 143(2) of the 'Act'. 3. That during the course of the assessment proceedings the A.O carried out the following additions/disallowance of in the hands of the assessee company- Sr. No. Particulars Amount 1. Addition for late payment of PF and ESIC under Sec. 36(1)(va) r.w.s. 2(24)(x). Rs.1,09,46,590/- 2. Disallowance of interest under Sec. 36(1)(iii) on amounts advanced to VCCL Ltd. Rs.1,81,81,920/- 3. Disallowance of interest under Sec. 36(1)(iii) of amount advanced to ESSLON Synthetic Ltd. Rs.1,13,40,000/- The AO thereafter deliberating on certain other issues assessed the loss of the assessee company at ₹ 35,43,25,366/-. 4. The assessee being aggrieved with the assessment order therein carried the matter in appeal before the CIT(A). That during the course of the appellate proceedings the assessee adverting to the addition/disallowance of sum of ₹ 1,09,46,590/- on account of de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1515.16 lakhs calculated at 12% disallowed. Hence an amount of ₹ 1,81,81,940/- is disallowed. Unquote The first attempt to disallow the interest in respect of amount given to VCCL Ltd. arose in the year I997-98 when the said VCCL Ltd.'s One Time Settlement obligation with banks and financial institution. For A. Y 1997-98, 1998-99 and 1999-00 the AO worked out the disallowance by linking The OTS payment with the source of the Fund. The source for funding such payment was cash credit account maintained by the company with its Banker. The company disputed the working since the same did not considered subsequent internal accruals by which the Debit Balance in cash credit account was converted into credit balance in cash credit account On Appeal filed by your Appellant, the CIT(A) has accepted company's stand. The disallowance of interest in respect of OTS funding for earlier years was as follows: Assessment year As per AO As per CIT(A)'s directives 1997-98 1,23,886/- 1,06,814/- 1998-99 43,55,815/- 3,90,265/- 1999-2000 1,66,86,012/- 28,310/- In the year 1990-2000 the said VCCL Ltd. has re-paid the sum of ₹ 13.55 crores which is to be adjusted ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of payments made during those years out of cash credit account for funding One Time Settlement of ₹ 11,41,81,000/- to VCCL Ltd, and no other amounts which were receivable from the said VCCL Ltd, During the relevant years the relevant material was placed on record and proved that the relevant cash credit account subsequently were converted into a credit account out of internal accruals realized during the year. The above referred issue has been decided by CIT(A) in favour of assessee. We rely on the order for 2000-01 and 2006-07 (Copy enclosed) Without prejudice to the above, we also place reliance on following decisions: S. A. Builders vs CIT (2007) 158 Taxman 74(SC) CIT vs. Govind Agencies P. Ltd. [295 ITR 290(All)] In light of the above referred proposition we request your Honour to delete the addition on above account following your predecessors order." The CIT(A) after perusing the contention of the assessee and therein observing that the AO had carried out the aforesaid disallowance merely on the basis of assessment orders for A.Y. 2000-01 and 2001-02 with no new reasons, had however failed to appreciate that the said disallowance had been set aside in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its scooter project in technical collaboration with M/s Piaggio C.S.P.A., Italy. In the year 1987 the decision was taken to hive off the business relating to manmade fiber industry i.e. manufacturing of nylon 6-chips, spinning of yarn and processing of yarn to its wholly onwed subsidiary M/s LML Fibre Ltd. (formerly known as Kanpur Synthetics Ltd.) and now known as M/s Esslon Synthetics Ltd. The business was transferred at book value on 31st July, 1987. The total consideration was worked out as follows: Rs. (In lakhs) Fixed Assets (Net) 3557.89 Capital Work in Progress 33.64 Current Assets Loans & Advances 1764.86 5356.39 Less: Current Labilities 703.86 Loans 413.94 4238.59 The above referred business was transferred as a going concern and was subject to the approval of the Financial institutions/banks etc. who were lenders to the company. The relevant approval of Financial Institutions /Banks was received vide their letter of intent no. E/II/1127/90-93414 dated 13th August, 1990. Under the revival plan, LML Fibre Ltd. and Prakati Synthetics Ltd. which comprise of fibre division was de-linked by introducing a new shareholder. Shri Sitaram Singhania or his nomine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .58 170.10 421.68 1.4.93-31.3.94 226.47 57.19 283.66 170.10 453.76 1.4.94-31.9.94 115.12 40.69 155.81 85.05 240.86 825.53 132.55 958.08 425.25 1383.33 During the previous year relevant to the Assessment year 1997-98 the company had written off the said amount of interest aggregating to ₹ 1383.33 lakhs and same was allowed as a bad debt to the extent of ₹ 915.60 lakhs in A. Y. 1997-98 whereas a balance sum of ₹ 467.73 lakhs was not taxed as an income of the company while processing company's return U/s 143(1) of the Income-tax Act 1961 for A. Y. 1994-95. From the foregoing facts of the case your Honour would kindly appreciate that, the relevant amount of ₹ 17.04 crores represent an un-paid purchase price representing the Profit made on sale of Undertaking and not any amount which has been advanced to the said company as a loan from borrowing. As far as earning of interest is concerned the company has been ordered to be wound up by the Allahabad High Court as stated in the Notes to Accounts and further the relevant amount is considered as Bad & Doubtful of recovery and necessary provision is made in books as stated earlier. There is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIT(A) after perusing the submissions of the assessee and taking cognizance of very fact that the A.O. had made the disallowance in the backdrop of the disallowance made in the hands of the assessee company in A.Y. 2000-01, had however lost sight of the fact that the said disallowance had thereafter been knocked down in appeal by the CIT(A) vide his order dated 06.02.2004 for A.Y. 2000-01, which thereafter was followed by the latter while deleting similar disallowance/addition made in the hands of the assessee in A.Y. 2006.07. The CIT(A) duly appreciating that there was no change in the facts for the year under consideration as against those which was involved in the aforesaid preceding years, therefore, followed the orders of his predecessor for A.Y.2000-01 and deleted the addition of ₹ 1,13,40,000/- in the hands of the assessee. 7. That aggrieved with the order of the CIT(A) the department had carried the matter in appeal before us. That at the very outset of the hearing of the appeal the ld. Departmental Representative (for short 'D.R') adverting to the disallowance/addition of ₹ 1,09,46,590/- made by the A.O. under Sec. 36(1) (va) r.w. Section 2(24)(x) as regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amendments introduced by the finance Act, 2003 had therein put on par the benefit of deduction of tax, duty, cess, and fees on the one hand, as against the contributions to various employee's welfare funds on the other. The second proviso to Section 43B was deleted with effect from 01.04.2004 and simultaneously the first proviso was also amended, therein bringing about a uniformity in deductions claim towards tax, duty, cess, and contributions of the employers PF, superannuation fund and other welfare fund on the other. We are of the considered view that as a fall out of the amendment made to Section 43B with effect from vide Finance Act, 2003 which came into force with effect from 1st April 2004, now when the assessee is found to have deposited the employees contribution towards PF and other labour funds though beyond the stipulated time, but prior to the due date of filing of its return of income under Sec. 139(1), therein no disallowance with respect to the said amount would be called for in the hands of the assessee. That our aforesaid view is fortified by the judgment of the Hon'ble Supreme Court in the case of CIT Vs. Alom Extrusions Ltd. (2009) 319 ITR 306 (SC) which had be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eading of the above provisos, it became ex-facie clear that the Assessee's employers were entitled to deductions only if the contributions to any fund for the welfare of the employees stood credited on or before the due date given in the relevant Act. 7. However the second proviso once again created further difficulties for the Assessees employers. Therefore, Industry once again made representations to the Ministry of Finance who, after taking cognizance of the difficulties, inserted an amendment vide Finance Act, 2003 which came into force with effect from 1st April 2004. Two in other words, with effect from 1st April 2004, two changes were made in section 43B 'viz. deletion of the second proviso to section 43B and further amendment in the first proviso which reads' as under:- "Provided that nothing contained in this section shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub- section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the issue involved in the present appeal is squarely covered by the aforesaid judgment of the Hon'ble High Court of Bombay in the case of Hindustan Organic Chemical Ltd. (supra) pursuant whereto no disallowance/addition of ₹ 1,09,46,590/- as regards the delay in deposit by the assessee of the employees contributions towards PF and ESIC was liable to be made. We thus uphold the order of the CIT(A) who had restored the matter to the A.O. for the purpose of making necessary verifications as to whether the aforesaid amounts had been deposited by the assessee before the due date of filing of the return of income under Sec. 139(1). The grounds of appeal no. 1 is so raised by the department before us is dismissed. 9. We now advert to the disallowance of ₹ 1,81,81,940/- made under Sec. 36(1)(iii) which had been deleted by the CIT(A). The ld. D.R. assailing the order of the CIT(A) therein submitted that the disallowance of interest of ₹ 1,81,81,940/-(supra) so made by the AO in respect of interest free loans advanced by the assessee company to VCCL Ltd. had wrongly been deleted by the CIT(A) for the reason that the similar disallowance had been deleted by his predec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that in the year 1999-2000 the aforesaid company, viz. VCCL Ltd. repaid the sum of ₹ 13.55 crores to the assessee company, in the backdrop of the factual position the disallowance of interest pertaining to the said amount made by the AO A.Y. 2000-01 was deleted by the CIT(A), we are therefore of the considered view that in the backdrop of the aforesaid facts, specifically in light of the very fact that no material had been placed on record before us which could go on the basis of which we could be persuaded to hold that the facts involved during the year under consideration on the aforesaid issue are distinguishable as against those involved in the aforesaid orders, we are of the considered view they remains no scope for carrying out any disallowance of interest connected with the amount funded for OTS. That as regards the current amount outstanding in respect of VCCL Ltd. (excluding the amount) outstanding on account of OTS, we are of the considered view that in the absence of any material being placed on record by the Ld. DR, in order to persuade us to take a view otherwise for the reason that any new facts had emerged during the year under consideration, we are const ..... X X X X Extracts X X X X X X X X Extracts X X X X
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