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TMI Blog2002 (6) TMI 162X X X X Extracts X X X X X X X X Extracts X X X X ..... equired to furnish security deposits with the principals, which were refundable on completion of the contract. The assessee made security deposits of Rs. 8,14,000 and Rs. 63,11,479 for the assessment years 1989-90 and 1990-91 respectively. The assessee claimed deduction thereof from the contract receipts. However, the Assessing Officer observed that amount of security deposits represented the capital investment of the assessee, which were lying with the principals. These amounts were also refundable after completion of the contract. Thus, the Assessing Officer held that the assessee was not entitled to deduction of the same. 3. Aggrieved, the assessee carried the matter in appeals before the CIT(A), who upheld the disallowance by relying on the appellate order for the assessment years 1985-86 to 1988-89. The assessee has now preferred these appeals before us. 4. Both the ld. counsel for the assessee and the ld. D.R. conceded that this issue stood decided in favour of the revenue and against the assessee by ITAT, Chandigarh Bench's order dated 19-10-1994 in assessee's own case (in I.T.A. Nos. 313 & 453 of 1989) for the assessment year 1985-86 and the facts of the case for the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... miss this common ground of appeals for both the assessment years under reference. 6. The next ground of appeal for the assessment year 1989-90 relates to the fact that the CIT(A) was not justified in sustaining disallowance of Rs. 1,27,989 under section 40A(3) of the Income-tax Act. The facts of the case are that while completing the assessment for the assessment year under reference, the Assessing Officer observed that the assessee had made cash payments exceeding Rs. 10,000 in violation of provisions of section 40A(3). The assessee explained that such payments had to be made because the parties from whom the assessee made these purchases insisted on cash payments and, therefore, there were exceptional circumstances justifying such cash payments. However, the Assessing Officer observed that the assessee did not produce any letter or evidence to substantiate its contention that such payments had been made on insistence of the parties. In addition, the Assessing Officer observed that the assessee made purchases of Rs. 75,295 from its sister concern, namely, M/s. Munak International Pvt. Ltd. and there was no justification for making such cash payments as the part from whom it made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that the director of the company was not actively managing or looking after the business of M/s. Munak International Pvt. Ltd. Therefore, there is no justification for sustaining the disallowance of payment of Rs. 75,295 made to M/s. Munak International Pvt. Ltd. 9. The ld D.R., Smt. Rachna Singh, on the other hand, strongly relied on the orders of the lower authorities. She submitted that the assessee had not taken any such plea before the lower authorities that the assessee did not have bank account at Calcutta. She submitted that this plea has been raised for the first time. She further submitted that the only explanation given by the assessee before the authorities below that the assessee had to make payments in cash because the parties from whom it made purchases insisted on cash payments. However, neither before the Assessing Officer nor before the CIT(A) the assessee adduced any evidence from the parties that they had asked for such cash payments. She submitted that in the absence of such evidence, the disallowance was rightly sustained by the CIT(A). In support of her contentions, she also relied on the following judgments: (i) Porwal Udhyog (India) v. CIT [1982] 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and payments are made on a bank holiday; or (d) the seller is refusing to accept the payment by way of cross cheque/draft and the purchaser's business interest would suffer due to non-availability of goods otherwise than from this particular seller, or (e) the seller, acting as a commission agent, is required to pay cash in turn to persons from whom he has purchased the goods; or (f) specific discount is given by the seller for payment to be made by way of cash." From the above it is obvious that payments made in violation of provisions of section 40A(3) at a place where neither the purchaser nor the seller does have the bank account would fall in the exceptional circumstances mentioned therein. But the abovementioned circular of the Board also mentions that all the circumstances spelt out therein are not exhaustive. These are only some of the exceptional circumstances where it could be said that such payments are covered under rule 6DD(j). However, in response to specific query from the Bench, the ld. Counsel submitted that the registered office of the assessee is located at Chandigarh. The contract work for which such purchases were made from Calcutta was being carried out at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preferred either in the return of income or before the lower authorities yet the assessee was entitled to such benefit in view of the judgment of Gauhati High Court in the case of Lallacherra Tea Co. (P.) Ltd. v. CIT [1999] 239 ITR 611, and the decision of the ITAT, Madras in Fab Export (P.) Ltd. v. Asstt. CIT [1996] 56 ITD 132. The ld. Counsel further submitted that the assessee was entitled to raise such legal ground in view of the judgment of the Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383. He further submitted that recently Punjab & Haryana High Court in its Full Bench judgment in the case of CIT v. Smt. Aruna Luthra [2001] 252 ITR 76, has considered the issue as to what constitutes mistake apparent from record. The Hon'ble High Court has held that records include everything including the subsequent judgment of the jurisdictional High Court or the Supreme Court. He submitted that in this case the judgment of Gauhati High Court being of subsequent date, the same would constitute mistake apparent from record and, therefore, the additional ground, which is based on the facts already on record, can be allowed to be admitted. 12. The ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erms and, therefore, the Tribunal is not prevented from considering the questions of law arising in the assessment proceedings, although not raised earlier. The Tribunal has the discretion to allow or not to allow a new ground of appeal to be raised. However, the Tribunal is only required to consider the question of law arising from facts, which are on record in the assessment proceedings. It was finally held that the Tribunal had jurisdiction to examine a question of law, which arose from the facts as found by the income-tax authorities and having a bearing on the tax liability of the assessee. The Hon'ble Punjab & Haryana High Court has also taken a similar view in the case of Dehati Co-op. Marketing-cum-Processing Society, where the Hon'ble Court has held that ITAT can admit the additional ground, which had not been taken before the ITO, so long as that does not require a further investigation into facts. 14. Now, what we have to consider is whether, all the relevant facts necessary for deciding the additional ground of appeal were on record or the case required further investigation into the facts. The ld. Counsel has drawn our attention to page 6 of the assessment order where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 115J further provides that computation of income under section 115J does not affect the determination of the amounts in regard to claims under section 32(2), 32A(3), sub-section (1) of section 72, section 73 or section 74 or sub-section (3) of section 74A etc. In this regard, it would be appropriate to reproduce herein the provisions of sub-section (2) of section 115J: "(2) Nothing contained in sub-section (1) shall affect the determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years under the provisions of sub section (2) of section 32 or sub-section (3) of section 32A or clause (ii) of sub-section (1) of section 71 or section 73 or section 74 or sub section (3) of section 74A or sub-section (3) of section 80J." A bare reading of sub-section (2) of section 115J shows that the benefit of carried forward of loss of the relevant accounting year would be covered by the computation of income as per normal provisions of the Act and determination thereof would not be dependent on the income computed under section 115J. Now, in this case, the income was first computed under the normal provisions of the Income-tax Act and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be taken note of, while considering the question of carrying forward of unadjusted loss. (iii) The very object of the provisions of section 115J is to tax such companies which are making huge profits and also declaring substantial dividends but are managing their affairs in such a way as to avoid payment of income-tax, as a result of various tax concessions and incentives and for that purpose, the taxable income is determined under sub-section (1) of section 115J. If any loss equals to the income thus determined is allowed to be adjusted, then that would defeat the very purpose of enacting the provisions. 16. As regards the contention of the assessee that it would amount to double taxation, the Hon'ble High Court by referring to the judgment of Hon'ble Supreme Court in the case of Jain Bros. v. Union of India [1970] 77 ITR 107, rejected such contention because what is being taxed is income determined on the basis prescribed under the provisions of the Income-tax Act and there is no provision to retax the same income as such and, therefore, there was no double taxation. Thus, we find that the judgment of the Hon'ble Andhra Pradesh High Court clearly takes into account the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal vide its order dated 14-12-2000 has held that the assessee is entitled to the benefit of carry forward of losses as determined in accordance with the normal provisions of the Income-tax Act by ignoring the income computed under section 115J. The relevant findings of the ITAT contained in para 5 of the aforesaid order are reproduced hereunder: "5. We have heard both the parties and carefully considered the rival submissions. We have also examined the facts, evidence and material on record. We have also perused orders of authorities below. The provisions of section 115J were introduced in I.T. Act with a view to ensure levy of minimum tax on what were known as prosperous 'zero tax companies'. This Chapter is a self-contained Code and is applicable to companies whose total income computed under the provisions of Act in respect of previous year is less than 30% of their book profit. The provisions of section 115J contemplate two stages. First, the AO has to determine income of the company under the provisions of the Act and secondly the book profit has to be worked out in accordance with the Explanation below section 115J(1A). Thereafter, one has to see whether total incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 115J, it is clear that the quantum of unabsorbed losses, unadjusted depreciation, etc. for the purpose of carrying forward has to be under the provisions of the Act, irrespective of the quantum of income determined under the provisions of sub-section (1) of section 115J. There would be no scope for the Revenue to contend that in view of the provisions of sub-section (1), the unabsorbed depreciation allowance, unadjusted loss or deficiency, etc. as the case may be, can no longer be carried forward to the subsequent year or years. On the determination of the taxable income, under the relevant provisions of the Act, whatever amounts remain to be carried forward under the regular computation, either by way of unabsorbed losses or unabsorbed allowances have to be carried forward to the next year ignoring the fact that a notional income is made taxable under sub-section (1) of section 115J.' It may be mentioned that while taking the above view, Hon'ble High Court has also followed the judgment of the Delhi High Court in the case of National Thermal Power Corpn. Ltd. v. UOI 192 ITR 187. Apart from two judgments of A.P. and Delhi High Courts, Karnataka High Court has also taken the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ady decided this issue and judicial discipline and propriety demand that we must follow our own order. Therefore, in the light of these facts and circumstances of the case and the legal position discussed above, we find that the decision of the authorities below is in conformity with the provisions of the Act. Therefore, the same does not merit any interference. Accordingly, while we admit the additional ground, yet the same is rejected on merits. 19. The fast additional ground raised by the assessee relates to deduction under section 32AB. The facts of the case are that the assessee is engaged in the business of execution of contracts procured from the Govt. and other agencies. In the return of income, the assessee had claimed deduction for investment allowance under section 32A. The assessee being engaged in the business of civil construction, such deduction is not admissible to the assessee in view of the judgment of Hon'ble Supreme Court in the case of CIT v. N.C. Budharaja & Co. [1993] 204 ITR 412. The assessee has now raised additional ground for both the assessment years claiming deduction under section 32AB being investment deposit a/c. This claim was neither made before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not placed any material to show as to how the assessee is entitled to such deduction and all the relevant facts are already on record. As mentioned above, the additional ground could only be admitted if the facts relating to the same are already on record, which we find are missing in this case. We, therefore, hold that the additional ground raised by the assessee cannot be admitted. We rely on the judgment of Punjab & Haryana High Court in the case of Dehati Co-op. Marketing-cum-Processing Society and the judgment of Supreme Court in the case of National Thermal Power Co. Ltd. Accordingly, we decline to admit this additional ground, common to both the assessment years under reference. 22. We now take up the revenue's appeals. The first common issue raised in both the appeals is that the CIT(A) was not justified in deleting the disallowance of Rs. 44,80,490 (Rs. 58,68,700 for the assessment year 1990-91) on account of the retention money. The facts of the case are that the principals retained part of the amount out of running bills of the assessee by way of retention money. The amount is paid to the assessee after completion of the contract. The assessee has been consistently fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee on the completion of the work. It was further observed that only after the assessee fulfilled the obligations under the contract, the retention money would be released and the assessee will acquire the tight to receive such retention money. It was held that on the date when the bills were submitted, it could not be, said that the assessee had any right to receive the entire amount on the completion of the work or on the submission of the bills. We find that a similar question had arisen before the Chandigarh Bench of the Tribunal in the case of M/s. Brij Mohan Surinder Kumar for assessment year 1985-86 in I.T.A. No 255 and C.O. No. 35/Chd./1989 and the Tribunal vide order dated 9-5-1994 held that the retention money was not the income of the assessee unless the assessee actually received it. We also find that in the case of Associated Cables Pvt. Ltd. v. Dy. CIT [1994] 119 CTR (Trib.)(Bom.)(TM) 66, it was held that the retention money could not be considered as the income of the assessee and had to be excluded in computing the total income. 41. Since in the present case, the retention money of Rs. 1,80,000 had not actually been paid to the assessee and its refund depended upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We have also examined the facts, evidence and material on record. We find that this issue is squarely covered in favour of the revenue and against the assessee by the above-mentioned judgment of Hon'ble Supreme Court. Therefore, respectfully following the judgment of Hon'ble Supreme Court in the case of N.C. Budharaia & Co., we set aside the orders of CIT(A) for both the assessment years under reference and restore those of the AO in disallowing the claims of the assessee for investment allowance and deductions under sections 80HH and 80-I. Respective grounds of appeals are accordingly allowed. 30. The next ground of appeal for the assessment year 1990-91 relates to deletion of disallowance of Rs. 3 lakhs made by the AO on account of fee paid to Shri H.P. Sharma, Advocate. The facts of the case are that in the profit & loss account, the assessee had claimed deduction in respect of payment of Rs. 3 lakhs to Shri H.P. Sharma, Advocate on account of professional charges. While examining the details, the AO observed that the impugned payment was made on 16-2-1989 relating to assessment year 1989-90. The AO disallowed the claim on the ground that the same did not relate to assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvations, the addition/disallowance of Rs. 3 lakhs is deleted and this ground of appeal is allowed. Thus the appellant gets relief of Rs. 3.00 lakhs." Revenue is aggrieved by the order of the CIT(A) and hence the present appeal before us. 32. While the ld. D.R. simply relied on the order of the AO, she submitted that the assessee did not file any evidence to show that Shri H.P. Sharma, Advocate had violated the terms of the agreement. Moreover, deduction could have been allowed in the year when the suit filed by the assessee against Shri Sharma had become final. She submitted that the matter may be remanded to the file of the AO. 33. The ld. counsel, on the other hand, heavily relied on the order of the CIT(A) and reiterated the submissions, which were made before the CIT(A). 34. We have heard both the parties and carefully considered the rival submissions. We have also examined the facts, evidence and material on record. We find that the AO has made the addition in a summary manner without making any in-depth examination of the claim of the assessee. The assessee had clearly mentioned that amount of Rs. 3 lakhs paid to Shri H.P. Sharma, Advocate on 16-2-1989 was merely an adva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns to its sister concern from whom no interest was charged. Therefore, it could be said that the assessee had not utilized the borrowed funds for the purpose of its business. The AO also relied on the following judgments: (i) Triveni Engg. Works Ltd. v. CIT [1987] 167 ITR 742 (All.)--Where the High Court has observed that the assessee had not been able to prove that the disputed part of the amount taken as a loan from the bank was used for the purpose of its business or that the advance made to other concern had been made for the purpose of its business. The disallowance of part of the interest under section 36(1)(iii) of the Act was, therefore, held to be justified. (ii) CIT v. H.R. Sugar Factory (P.) Ltd [1991] 187 ITR 363 (All.)--The facts of the case before the High Court were that the assessee had taken huge loans from banks for the business of sugar manufacture and substantial amounts were advanced to the directors on a very nominal rate of interest. The difference in interest recovered from the directors and paid to bank was held not allowable under section 36(1)(iii). (iii) CITV. Sujani Textiles (P.) Ltd. [1985] 151 ITR 653 (Mad.)--In this case, borrowed amounts were adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, the ld. D.R. further relied on the below mentioned judgments: (i) Indian Metals & Ferro Alloys Ltd. v. CIT [1992] 193 ITR 344 (Ori.)--Wherein it was held that interest in respect of investment in and advanced to a subsidiary company was not deductible under section 36(1)(iii). (ii) CIT v. United Breweries [1973] 89 ITR 17 (Mys.)--In this case, amount was advanced to a subsidiary company and no interest was charged. It was held that there was no material for the Tribunal to come to the conclusion that the assessee company carried its business through the agency of its subsidiary and that the business carried on by the subsidiary was not there own but that of the assessee-company. It was thus held that part of capital borrowed by the assessee and advanced by it to its subsidiary free of interest was not borrowed for the purpose of its own business and the interest on such borrowing was not an admissible deduction under section 36(1)(iii). (iii) Milapchand R. Shah v. CIT [1965] 58 ITR 525 (Mad.)--In this case, amounts borrowed on interest were advanced to the partners without charging any interest. It was held that the amounts advanced by the firm to its partners were not for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its sister concern. The assessee has also not established that the impugned amount was advanced during the course of its business. The CIT(A) has deleted the interest in respect of amount of Rs. 64 lakhs on the ground that the assessee had utilized the receipts from the customers for advancing the amounts to its sister concern. Considering the fact that the debit balance on the dates when amounts were advanced to its sister concern far exceeded the amounts received from the clients, it could not be said that the assessee had utilized the receipts from its clients for advancing the amounts to the sister concern because even if we take into account these amounts, there would still remain a debt balance in the overdraft account. This would be clear from the following facts: ----------------------------------------------------------------------------- Date Debit balance Amount received Net debit balance in the bank a/c from clients after the receipt (Pg. 6 of AO) (Pg. 7 of CIT(A)) ----------------------------------------------------------------------------- 15-9-1989 87,63,789 24,00,000 63,63,789 27-12-1989 1,81,56,266 20,00,000 1,61,56,266 12-1-1990 1,83,07,874 20,00,000 1,63 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose of its business. Looking to the facts of the case, the Hon'ble High Court has held that even the direct nexus need not be established. The various other judgments cited by the revenue and discussed above also support the case of the revenue. The ld. Counsel has relied on the judgment of Delhi High Court in the case of Orissa Cement Ltd., where the Tribunal had deleted the disallowance of interest on the ground that the assessee had advanced the same out of the sale proceeds and on the basis of facts of the case Hon'ble Delhi High Court has held that no question of law was involved. This judgment was given in the light of its own facts. But in the present case, the fact that on the dates when amounts were advanced, there was a substantial debit balance in the overdraft account has not been controverted by the ld. Counsel. Therefore, the judgment of Hon'ble Delhi High Court would not be applicable to the facts of the present case. 40. Besides, the ld. Counsel has also relied on the decision of ITAT, Chandigarh Bench in the case of Steel Strips Ltd. We have referred to the aforesaid decision. We find that in that case, disallowance of interest was only of Rs. 98,064 and the amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heet Ltd. as loan to company under the same management. These facts clearly show that amount advanced to M/s. Munak Galvasheet Ltd. was not for the purpose of allotment of shares and, therefore, the same was in the nature of interest-free loan. 8. Now, the next issue that needs to be considered is, whether the assessee was justified in advancing an amount of Rs. 1,03,50,000 to its sister concern without charging any interest when, in fact, the assessee had borrowed a sum of Rs. 1,03,24,000 from its sister concern, namely, M/s. V.K. Credit & Investment Pvt. Ltd. on interest @ 20%. It may be mentioned that nowhere the assessee has taken the plea before the authorities below that assessee had sufficient interest-free funds available with it, which could be considered to have been utilized for the purpose of giving interest-free loan to M/s. Munak Galvasheet Ltd. 9. The facts detailed above clearly show that amounts advanced to M/s. Munak Galvasheet Ltd. were partly by utilizing the overdraft account on which the assessee had directly paid the interest. Further, the amounts were advanced to M/s. Munak Galvasheet Ltd. from the cash credit account. The mere fact that on certain days th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of interest only if the three conditions are satisfied, namely (i) assessee must have borrowed amount on interest, (ii) borrowed amount must have been utilized for the purpose of assessee's business and (iii) interest must have been paid on the borrowed amount. Now in this case, the interest paid on amounts borrowed and diverted to a sister concern M/s. Munak Galvasheet cannot be considered having been utilized for the purpose of assessee's business. Therefore, one of the conditions mentioned in section 36(1)(iii) has not been fulfilled. Moreover, the assessee has not adduced any explanation before either of the authorities below justifying the advancing of amount to M/s. Munak Galvasheet Ltd. for the purpose of assessee's business or to some business advantage obtained by giving such loan. 10. Having regard to the aforesaid facts and circumstances of the case, we are of the view that CIT(A) was not justified in deleting the disallowance of proportionate interest of Rs. 15,97,753 and Rs. 15,25,562 for the assessment years 1989-90 and 1990-91 respectively. We set aside the order of the CIT(A) and restore that of the Assessing Officer for both the assessment years. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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