Relish Pharmaceuticls Ltd., Ahmedabad V. The Income tax Officer, Ward-5(3), Ahmedabad

ITA 2988/AHD/2004

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1843 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 16-11-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 06-10-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Question of law; Bad and doubtful debts; Set aside
• Section: 43B; 143(2); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A AHMEDABAD BEFORE SHRI N.S.SAINI, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.2988 & 2990/AHD/2004 ASSESSMENT YEAR:2001-02 DATE OF HEARING:16.11.09 DRAFTED:17.11.09 RELISH PHARMACEUTICALS LTD., 1-2, MOOONLIGHT COMPLEX, OPP. GURUKUL, DRIVE-IN ROAD, AHMEDABAD PAN NO.AAACR5476N INCOME TAX OFFICER, WARD 5(3), C.U. SHAH COLLEGE BUILDING, 2 ND FLOOR, AHMEDABAD V/S . V/S . INCOME TAX OFFICER, WARD 5[3], AHMEDABAD RELISH PHARMACEUTICALS LTD., (APPELLANT) .. (RESPONDENT) ITA NO.1155 & 1110/AHD/2008 ASSESSMENT YEAR:2005-06 DY. COMMISSIONER OF INCOME-TAX, CIRCLE-5, AHMEDABAD RELISH PHARMACEUTICALS LIMITED, 1-2, MOONLIGHT COMPLEX, OPP. GURUKUL, DRIVE-IN-ROAD, AHMEDABAD PAN NO.AAACR5476N V/S . V/S . RELISH PHARMACEUTICALS LIMITED, 1-2, MOONLIGHT COMPLEX, OPP. GURUKUL, DRIVE-IN-ROAD, AHMEDABAD INCOME TAX OFFICER, WARD-5[3], AHMEDABAD (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- NONE REVENUE BY:- SHRI SAMIR TEKRIWAL, SR. DR ITA NO.2988 & 2990/AHD/2004 & 1110 & 1155/AHD/2008 A.Y. 01-02 & 05-06 RELISH PHARMACEUTICALS LTD V. ITO WD 5[3]ABD PAGE 2 O R D E R PER BENCH:- THESE CROSS APPEALS TWO EACH, BY REVENUE AND ASS ESSEE ARE ARISING OUT OF DIFFERENT ORDERS OF COMMISSIONER OF INCOME-TAX (APP EALS)-XI, AHMEDABAD IN APPEAL NO. CIT(A)-XI/31/2004-05 AND CIT(A)-XI/134/07-08 BY DIFFERENT DATE 30-07-2004 AND 30-01-2008. THE ASSESSMENTS WERE FRAMED BY THE INC OME-TAX OFFICER, WARD-5(3), AHMEDABAD U/S.143(3) OF THE INCOME-TAX ACT, 1961 (H EREINAFTER REFERRED TO AS THE ACT) VIDE THEIR DIFFERENT ORDER DATED 30-03-2004 A ND 29-03-007 FOR THE ASSESSMENT YEARS 2001-02 AND 2005-06 RESPECTIVELY. FIRST WE WILL DEAL WITH CROSS APPEALS IN ITA NO.298 8/AHD/2004 (ASSESSEE) AND ITA NO.2990/AHD/2004 (REVENUE). 2. THE FIRST COMMON ISSUE IN THESE CROSS APPEALS IS AS REGARDS TO THE ORDER OF CIT(A) PARTLY CONFIRMING THE DISALLOWANCE OF INTERE ST ON THE LOAN AMOUNT OF RS.95.91 LAKHS OUT OF THE INTEREST FREE ADVANCES LOANS OF RS .4,49,95.173/-. FOR THIS THE ASSESSEE HAS RAISED FOLLOWING GROUND NO. 2 TO 4 :- 2. THE LEARNED COMMISSIONER OF INCOME TAX [APPEALS ]-XI OUGHT NOT TO HAVE CONFIRMED THE DISALLOWANCE OF INTEREST ON RS.95.91L ACS @ 15% ON THE GROUND THAT THE INTEREST BEARING FUNDS WERE DIVERTED TO NO N-INTEREST BEARING ADVANCES. THE DISALLOWANCE HAS BEEN CONFIRMED WITHO UT PROPER APPRECIATION OF THE FACTS, EVIDENCES AND DATA AVAILABLE ON RECOR D AND THEREFORE THE SAME DESERVES TO BE CANCELLED. 3. THE LEARNED COMMISSIONER OF INCOME TAX [APPEALS] -XI GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST PROPORTIONA TE TO THE ADVANCES MADE OUT OF THE INTEREST BEARING FUNDS. THE LEARNED COMM ISSIONER OF INCOME TAX [APPEALS]-XI CONFIRMED THE DISALLOWANCE THOUGH THER E WAS NO INSTANCE OF FINDING THAT THERE WAS A NEXUS BETWEEN SUCH TRANSAC TIONS. THE APPELLANT FEELS THAT WITHOUT THERE BEING ANY NEXUS, NO DISALLOWANCE CAN BE MADE AND HENCE IT IS PRAYED THAT THE DISALLOWANCE OUT OF THE CLAIM OF INTEREST MAY KINDLY BE CANCELLED AND THE SAME MAY KINDLY BE ALLOWED IN FUL L AS CLAIMED BY THE APPELLANT. 4. THE LEARNED COMMISSIONER OF INCOME TAX [APPEALS] -XI GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE OF PROPORTIONATE INTERE ST ON ADVANCES MADE BY THE APPELLANT ON THE GROUND OF THAT THE ADVANCES WE RE FOR OTHER THEN BUSINESS ITA NO.2988 & 2990/AHD/2004 & 1110 & 1155/AHD/2008 A.Y. 01-02 & 05-06 RELISH PHARMACEUTICALS LTD V. ITO WD 5[3]ABD PAGE 3 PURPOSE AND THEREFORE THE SAME IS DISALLOWED. IN FA CT EVEN THE LEARNED COMMISSIONER OF INCOME TAX [APPEALS]-XI HAS EXPRESS ED HIS VIEW IN THE APPELLATE ORDER ITSELF THAT THE IT IS NOT CLEAR AS TO HOW THE ADVANCES MADE BY THE APPELLANT IS FOR OTHER THEN BUSINESS FOR THE PU RPOSE OF DISALLOWANCE OF THE CLAIM OF THE EXPENSES. AS THIS IS NOT PROPERLY CONS IDERED THE DISALLOWANCE OF THE PROPORTIONATE CLAIM OF EXPENDITURE MAY KINDLY B E ALLOWED IN FULL AS CLAIMED. AND THE REVENUE HAS RAISED THE FOLLOWING GROUND NO.3 AND 4 :- 3. THE LD COMMISSIONER OF INCOME-TAX (APPEALS)-XI, AHMEDABAD ERRED IN LAW AND ON FACTS IN HOLDING THAT THE ASSESSEE HAD I NTEREST FREE FUNDS OF RS.346.42 CONSISTING OF RS.315 LACS AS CAPITAL AND RS.21.4 LACS AS RESERVES RESULTING INTO A DIFFERENCE OF ONLY RS.95.91 LACS. 4. THE LD COMMISSIONER OF INCOME-TAX (APPEALS) FURT HER ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THAT THE CAPITAL WAS ALRE ADY USED AND DURING THE RELEVANT ACCOUNTING PERIOD AND THE PRECEDING ACCOUN TING YEAR THERE WAS NO FRESH CAPITAL RAISED AND THE RESERVES/PROFITS WERE NOT TO THE TUNE OF RS.4.49 CRORES SO AS TO MAKE ADVANCES. 3. AFTER HEARING LD DEPARTMENTAL REPRESENTATIVE AND GONE THROUGH THE FACTS OF THE CASE WE FIND THAT THE ASSESSING OFFICER HAS BRO UGHT OUT A FACT REGARDING M/S. ESKAY ENGINEERS, ESKAY ELECTRICALS, M/S. PHARMATEC ENGG. CO., VINODCHANDR N PATEL, SAURASHTRA REFRIGERATION THAT EITHER OF THES E PARTIES DO NOT EXIST OR THE AMOUNT ADVANCED FOR THE PURCHASE OF CAPITAL GOODS AND THE OPENING AND CLOSING BALANCES WITH THESE PARTIES OF THE ASSESSEE DO NOT TALLY BEF ORE THE CIT(A). THE ASSESSEE CONTENDED THAT THE ASSESSING OFFICER HAS GIVEN LIST OF 21 PARTIES OUT OF WHICH HE SELECTED FIVE PARTIES FOR WHOM SCRUTINY WAS CARRIED OUT AND CONCLUDED THAT ADVANCES MADE TO ALL THESE PARTIES ARE NOT FOR THE BUSINESS PURPOSES. BEFORE US LD. DEPARTMENTAL REPRESENTATIVE STATED THAT THE CIT(A) HAS NOT VERIFIED ANY OF THE PARTIES AND ALLOWED THE CLAIM OF THE ASSESSEE PARTL Y BY MAKING ESTIMATE ON PROPORTIONATE BASIS BY STATING THAT THE ASSESSEE-CO MPANY HAS ADVANCED FOR 132.32 LAKHS FROM DIFFERENT PARTIES DURING THE ACCOUNTING YEAR AND HE HAS GONE THROUGH THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE AS RESERVE AND ON CAPITAL AT RS.736.42 LAKHS AND OUT OF 73.15 LAKHS WAS CAPITAL AND RS.21.4 LAKHS AS REVERSED AND SURPLUS. ACCORDINGLY HE MADE PROPORTIONATE DISA LLOWANCE OF EXCESS OF INTEREST FREE ADVANCE BY RS.95.91 LAKHS AND BALANCE WAS DELE TED. LD. DR FURTHER STATED THAT THE CIT(A) SHOULD HAVE VERIFIED EACH OF THE PARTIES WHETHER THEY EXIST AND THEIR ITA NO.2988 & 2990/AHD/2004 & 1110 & 1155/AHD/2008 A.Y. 01-02 & 05-06 RELISH PHARMACEUTICALS LTD V. ITO WD 5[3]ABD PAGE 4 BALANCES WITH THE ASSESSEE DURING THE CURRENT YEAR AT LEAST EXIST OR NOT. SINCE THE CASE CAME UP FOR HEARING FROM 09-12-2004 AND AT LEA ST IT IS FIXED FOR 8 / 9 TIMES, THE ASSESSEE NEVER TURNED UP. ACCORDINGLY, IN THE ABSE NCE OF THE ASSESSEE AND TO PROVIDE ONE MORE OPPORTUNITY TO EXPLAIN HIS CASE, W E SET ASIDE THIS ISSUE TO THE FILE OF CIT(A). THE CIT(A) IS DIRECTED TO VERIFY EACH OF T HE PARTIES I.E. 21 PARTIES, A LIST WHICH HAVE BEEN GIVEN TO THE ASSESSING OFFICER BY THE ASS ESSEE. THE AO CANNOT MAKE AN ESTIMATED ADDITION BY PROPORTIONATELY THE AMOUNT AV AILABLE WITH THE ASSESSEE, IN CASE THE LOAN AND ADVANCES WERE GIVEN TO THE NON-EX ISTENCE PARTY. IN VIEW OF THESE FACTS, WE SET ASIDE THIS ISSUE TO THE FILE OF THE C IT(A) AND THIS ISSUE OF THE REVENUES APPEAL AS WELL AS ASSESSEES APPEAL ARE ALLOWED FOR STATISTICAL PURPOSES. 4. THE NEXT ISSUE IN THIS APPEAL OF THE ASSESSEE IN ITA NO.2988/AHD/2004 IS AGAINST THE ORDER OF CIT(A) CONFIRMING THE DISALLOW ANCE OF DEPRECIATION AMOUNTING TO RS.1,19,681/- ON THE MACHINERY PURCHASED FROM M/S E SKAY ENGINEERING FOR AN AMOUNT OF RS.9,57,450/-. 5. SINCE WE HAVE ALREADY SET ASIDE THE MAIN ISSUE T O THE FILE OF CIT(A), THIS INTER- CONNECTED AND INTER-RELATED TO THE ABOVE ISSUE, WHE RE THE ASSESSEE HAS TO PROVE THE PURCHASE OF THAT MACHINERY, THIS ISSUE CAN ALSO SET ASIDE TO THE FILE OF CIT(A) AND ALLOWED FOR STATISTICAL PURPOSES. 6. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IN ITA NO.2990/AHD/2004 IS AS REGARDS TO THE ORDER OF CIT(A) IN DELEING THE DISAL LOWANCE OF COMMISSION PAYMENT TO SHRI ASHWIN PATEL AMOUNTING TO RS.7,61,250/-. FOR THIS, THE REVENUE HAS RAISED THE FOLLOWING GROUND NO.1 AND 2 :- 1. THE LD COMMISSIONER OF INCOME-TAX (APPEALS)-XI , AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 7,61,250/- RELATED TO COMMISSION PAYMENT TO SH. ASWIN PATEL. 2. THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-XI, AHMEDABAD ALSO ERRED IN NOT CONSIDERING THE FACT THAT THE PAYMENT OF COM MISSION WAS CRYSTALLIZED BEFORE THE PREVIOUS YEAR RELEVANT TO THE ASTT. YEAR UNDER CONSIDERATION AS THE SALES EFFECTED THROUGH SH. ASHWIN PATEL WERE REALIZ ED IN THOSE YEARS. THERE IS ALSO NO EVIDENCE TO SHOW THAT SH.ASHWIN PATEL HAD R ENDERED ANY SERVICES ITA NO.2988 & 2990/AHD/2004 & 1110 & 1155/AHD/2008 A.Y. 01-02 & 05-06 RELISH PHARMACEUTICALS LTD V. ITO WD 5[3]ABD PAGE 5 DURING THE ACCOUNTING YEAR SO AS TO BE ELIGIBLE FOR COMMISSION FOR THE YEAR UNDER CONSIDERATION. 7. WE HAVE HEARD THE LD DEPARTMENTAL REPRESENTATIVE AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE ALSO P ERUSED THE CASE RECORD INCLUDING THE ASSESSMENT ORDER AS WELL AS THE ORDER OF CIT(A). WE FIND THAT THE ASSESSEE-COMPANY HAS PAID COMMISSION TO SHRI ASWIN PATEL FOR EXPORT ORDERS RECEIVED THROUGH HIM. THE ASSESSING OFFICER DISALLO WED THE CLAIM BY STATING THAT EXPORT RELATES TO FINANCIAL YEAR 1997-98 AND 1998-9 9 AND NOT TO THE RELEVANT FINANCIAL YEAR 2000-01 RELEVANT TO ASSESSMENT YEAR 2001-02, T HE YEAR UNDER CONSIDERATION. BEFORE THE ASSESSING OFFICER THE ASSESSEE EXPLAINED THE NATURE OF TRANSACTION BUT, UNFORTUNATELY, IT DID NOT FIND FAVOUR. THE FACTS AR E THAT THE ASSESSEE-COMPANY HAD AN UNDERSTANDING WITH SHRI ASHWINBHAI PATEL TO GET EXP ORT ORDER FOR THE COMPANY AND WAS REQUIRED TO GET THE ORDER TO EXECUTE THE SAME, ARRANGE FOR THE PAYMENT THROUGH LETTER OF CREDIT AND ALSO ADVISE AND HELP ALL TYPES OF FORMALITIES REGARDING THE APPROVAL FROM THE GOVT. OF THE IMPORTING COUNTRY. S HRI ASHWINBHAI PATEL WAS TO BE PAID HIS COMMISSION ON SUCCESSFULLY COMPLETING THE EXPORT TRANSACTION AS PER UNDERSTANDING BETWEEN THEM. THE ASSESSEE-COMPANY G OT THE EXPORT ORDER THROUGH SHRI ASHWINBHAI PATEL AGAINST THE LETTER OF CREDIT FACILITY AND THE GOODS WERE ALSO DISPATCHED ALONG WITH EXPORT ORDER REACHED THE SHOR E OF THE IMPORTING COUNTRY. UNFORTUNATELY, IT COULD NOT GET CLEARANCE FROM THE CUSTOMS OF THE IMPORTING COUNTRY BECAUSE CERTAIN APPROVALS WERE NOT IN CONFORMITY WI TH THE RULES AND REGULATIONS OF THE SAID COUNTRY AND NO CLEARANCE WAS GIVEN AND THE GOODS EXPORTED WERE LYING IN THE DOCK BEARING DEMURRAGE. HENCE, THE ESSENCE OF UNDERSTANDING FOR MAKING SHRI ASHWINBHAI PATEL WAS NOT FULFILLED THOUGH APPARENTL Y IT LOOKED LIKE THAT THE TRANSACTION EXPORTING GOODS WERE OVER. THE UNDERST ANDING WITH SHRI ASHWINBHAI PATEL BEING NOT SUCCESSFULLY COMPLETED AND THE LIAB ILITY TO PAY HIM COMMISSION DOES NOT ARISE TILL THE COMPLETION OF THE EXPORT TRANSAC TION I.E. THE YEAR UNDER CONSIDERATION THOUGH THE EXPORT SALE TOOK PLACE DURING THE FINANC IAL YEAR 1997-98 AND 1998-99 FOR WHICH THE ASSESSEE SUBMITTED THE LIABILITY TO PAY C OMMISSION WAS CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION AND THEREFORE IT IS CL AIMED DURING THE YEAR AND THEREFORE IT IS NOT A PRIOR PERIOD EXPENDITURE AND REQUIRES T O BE ALLOWED. THE AO DISALLOWED THE CLAIM OF ASSESSEE. AGGRIEVED, THE ASSESSEE PRE FERRED APPEAL BEFORE CIT(A). ITA NO.2988 & 2990/AHD/2004 & 1110 & 1155/AHD/2008 A.Y. 01-02 & 05-06 RELISH PHARMACEUTICALS LTD V. ITO WD 5[3]ABD PAGE 6 THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE BY GIV ING FOLLOWING FINDING IN PARA-3.2 OF HIS APPELLATE ORDER:- 3.2 I HAVE CONSIDERED THE FACTS OF THE CASE AND SU BMISSIONS OF THE A.R. OF THE APPELLANT CAREFULLY. I HAVE ALSO ONE THROUGH TH E DECISIONS RELIED UPON BY THE A.R OF THE APPELLANT AND THE OBSERVATIONS OF TH E ASSESSING OFFICER IN THE ASSESSMENT ORDER. IT IS SEEN THAT THE APPELLANT-COM PANY GOT THE EXPORT ORDERS THROUGH SHRI ASHWIN PATEL AGAINST THE LETTER OF CRE DIT FACILITY. IN ORDER TO BE ENTITLED FOR THE DEDUCTION, THE EXPENSES MUST BE IN CURRED OR THE LIABILITY FOR THE EXPENSES MUST HAVE OCCURRED IN THE YEAR IN QUESTION DEPENDING UPON THE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE, MERC ANTILE OR CASH AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF KEDARNATH JUTE MFT. CO. LTD. VS. CIT REPORTED IN 82 ITR 363(SC). THE APPELLATE COMPA NY AS EXPLAINED BY THE A.R HAD AN UNDERSTANDING WITH SHRI ASHWINBHAI PATEL TO GET THE EXPORT ORDERS, EXECUTE THE SAME, ARRANGE FOR PAYMENT THROUGH LETTE R OF CREDIT AND ALSO ADVISE AND HELP IN COMPLETING ALL TYPES OF FORMALIT IES REGARDING APPROVAL FROM THE GOVERNMENT OF THE IMPORTING COUNTRY. THE EXPORT ORDER WHICH WAS GOT THROUGH SHRI ASHWINBHAI PATEL AGAINST THE LETTER OF CREDIT FACILITY WAS EXECUTED BUT, ON ARRIVAL AT THE PORT OF THE IMPORTING COUNTR Y, COULD NOT GET CLEARANCE AS APPROVAL FROM THE IMPORTING COUNTRY WAS TO BE TAKEN . THUS, AS EXPLAINED BY THE A.R THE FOODS EXPORTED WERE LYING IN THE DOCK O F THE IMPORTING COUNTRY BEARING DEMURRAGE. THEREFORE THE EXECUTION OF UNDER STANDING COULD NOT BE COMPLETED BY SHRI ASHWINBHAI PATEL IN THE YEAR OF E XPORT AND THE LIABILITY TO PAY THE COMMISSION CRYSTALLIZED DURING THE YEAR UND ER CONSIDERATION ONLY. SINCE THE LIABILITY TO PAY COMMISSION HAS CRYSTALLI ZED DURING THE YEAR UNDER CONSIDERATION, IT IS TO BE ALLOWED. IT IS FURTHER S EEN THAT THE APPELLANT HAS DISCHARGED THE LIABILITY ACCORDING TO SECTION 37 OF THE I.T. ACT. IN THESE CIRCUMSTANCES, IT CAN BE SAID THAT THE EXPENDITURE INCURRED BY THE APPELLANT ON ACCOUNT OF COMMISSION TO SHRI PATEL WAS NEITHER A P RIOR PERIOD NOR CONTINGENT FOR THE YEAR, AND THEREFORE, FULLY ALLOWABLE AS DED UCTION. HAVING CONSIDERED THE FACTS OF THE CASE CAREFULLY, THERE IS NO JUSTIF ICATION FOR THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. THE ADDITION MADE B Y THE A.O OF RS.7,61,250/- IS, THEREFORE, DELETED. 8. WE FIND THAT THE FACTS FROM THE ABOVE THAT THE E XECUTION OF UNDERSTANDING OF EXPORT ORDER COULD NOT BE COMPLETED IN THE YEAR OF EXPORT AND THE ORDER TO PAY THE COMMISSION TO SHRI ASHWINBHAI PATEL IS CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION AND THE CIT(A) HAS RIGHTLY ALLOWED TH E CLAIM OF THE ASSESSEE AND WE CONFIRM THE SAME AND THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 9. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IN ITA NO.2990/AHD/2004 IS AS REGARDS TO THE ORDER OF CIT(A) IN DELETING THE ADDI TION OF LATE PAYMENT OF PF AMOUNTING TO RS.87,425/-. ITA NO.2988 & 2990/AHD/2004 & 1110 & 1155/AHD/2008 A.Y. 01-02 & 05-06 RELISH PHARMACEUTICALS LTD V. ITO WD 5[3]ABD PAGE 7 10. WE FIND THAT THE ISSUE IS SQUARELY COVERED IN F AVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. P.M. ELECTRONICS LTD. (2008) 220 CTR 635 (DEL), WHEREIN THE HON'BLE DELH I HIGH COURT HAS DISCUSSED IN PARA-4 AS UNDER:- 4. ON 27 TH NOV., 1998 THE ASSESSEE HAD FILED A RETURN OF INCO ME DECLARING A LOSS OF RS.8,92,888. ON 11 TH MAY, 1999 THE RETURN WAS PROCESSED UNDER S. 143(1)(A) OF THE ACT. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY. ACCORDINGLY, A NOTICE DT. 27 TH SEPT., 1999 UNDER S. 143(2) OF THE ACT WAS ISSUED TO THE ASSESSEE. IN RESPONSE TO THE NOTICE A ND ON EXAMINATION OF THE DETAILS SUBMITTED BY THE ASSESSEE WITH RESPECT TO P ROVIDENT FUND PAYMENTS MADE BOTH ON ACCOUNT OF EMPLOYERS AND EMPLOYEES S HARE REVEALED THAT PAYMENTS IN THE SUM OF RS.17,94,042 WERE LATE AS PE R THE PROVISIONS OF S. 36(1)(VA) R.W S. 2(24)(X) AND S. 43B. CONSEQUENTLY , THE AO DISALLOWED THE DEDUCTION AND ADDED A SUM OF RS.17,94,042 TOWARDS E PF CONTRIBUTION. AND SUBSEQUENTLY DECIDE THIS ISSUE IN PARA-10 TO 14 OF HON'BLE DELHI HIGH COURT, WHICH READ AS UNDER:- 10. IN VIEW OF THE ABOVE, IT IS QUITE EVIDENT THAT THE SPECIAL LEAVE PETITION WAS DISMISSED BY A SPEAKING ORDER AND WHILE DOING SO TH E SUPREME COURT HAD NOTICED THE FACT THAT THE MATTER IN APPEAL BEFORE I T PERTAINS TO A PERIOD PRIOR TO THE AMENDMENT BROUGHT ABOUT IN S. 43B OF THE ACT. T HE AFORESAID POSITION AS REGARDS THE STATE OF THE LAW FOR A PERIOD PRIOR TO THE AMENDMENT TO S. 43B HAS BEEN NOTICED BY A DIVISION BENCH OF THIS COURT IN DHARMENDRA SHARMA (SUPRA). APPLYING THE RATIO OF THE DECISION OF THE SUPREME COURT IN VINAY CEMENT (SUPRA) A DIVISION BENCH OF THIS COURT DISMISSED T HE APPEALS OF THE REVENUE. IN THE PASSING WE MAY ALSO NOTE THAT A DIV ISION BENCH OF THE MADRAS HIGH COURT IN THE CASE OF CIT VS. NEXUS COMPUTER (P) LTD. BY A JUDGMENT DT. 19 TH AUG., 2008, PASSED IN TAX CASE (APPEAL) NO.1192/20 08 [REPORTED AT (2008) 219 CTR (MAD.) 54 ED.] DISCUS SED THE IMPACT OF BOTH THE DISMISSAL OF THE SPECIAL LEAVE PETITION IN THE CASE OF GEORGE WILLIAMSON (ASSAM) LTD. (SUPRA) AND VINAY CEMENT (SUPRA) AS WELL AS A CONTRARY VIEW OF THE DIVISION BENCH OF ITS OWN COURT IN SYNERGY FINANCIAL EXCHANGE (SUPRA). THE DIVISION BENCH OF THE MADRAS HIGH COURT HAS EXP LAINED THE EFFECT OF THE DISMISSAL OF A SPECIAL LEAVE PETITION BY A SPEAKING ORDER BY RELYING UPON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF KUNHAYAMMED & ORS.VS. STATE OF KERALA & ANR. (2000) 162 CTR (SC) 97: 119 STC 505 AT P. 526 IN P ARA 40 AND NOTED THE FOLLOWING OBSERVATIONS : IF THE ORDER REFUSING LEAVE TO APPEAL IS A SPEAKIN G ORDER, I.E., GIVES REASONS FOR REFUSING THE GRANT OF LEAVE, THEN THE O RDER HAS TWO IMPLICATIONS. FIRSTLY, THE STATEMENT OF LAW CONTAIN ED IN THE ORDER IS A DECLARATION OF LAW BY THE SUPREME COURT WITHIN THE MEANING OF ART. 141 OF THE CONSTITUTION. SECONDLY, OTHER THAN THE DECLA RATION OF LAW, WHATEVER IS STATED IN THE ORDER ARE THE FINDINGS RE CORDED BY THE SUPREME COURT WHICH WOULD BIND THE PARTIES THERETO AND ALSO THE ITA NO.2988 & 2990/AHD/2004 & 1110 & 1155/AHD/2008 A.Y. 01-02 & 05-06 RELISH PHARMACEUTICALS LTD V. ITO WD 5[3]ABD PAGE 8 COURT. TRIBUNAL OR AUTHORITY IN ANY PROCEEDINGS SUB SEQUENT THERETO BY WAY OF JUDICIAL DISCIPLINE, THE SUPREME COURT BEING THE APEX COURT OF THE COUNTRY. BUT, THIS DOES NOT AMOUNT TO SAYING TH AT THE ORDER OF THE COURT. TRIBUNAL OR AUTHORITY BELOW HAS STOOD MERGED IN THE ORDER OF THE SUPREME COURT REJECTING SPECIAL LEAVE PETITION OR T HAT THE ORDER OF THE SUPREME COURT IS THE ONLY ORDER BINDING AS RES JUDICATA IN SUBSEQUENT PROCEEDINGS BETWEEN THE PARTIES. 11. UPON NOTING THE OBSERVATIONS OF THE SUPREME COU RT IN KUNHAYAMMED & ORS. (SUPRA) THE DIVISION BENCH OF THE MADRAS HIGH COUR T IN THE CASE OF NEXUS COMPUTER (P) LTD. (SUPRA) CAME TO THE CONCLUSION THAT THE VIEW TAKEN BY THE SUPREME COURT IN VINAY CEMENT (SUPRA) WOULD BIND THE HIGH COURT AS IT WAS LAW DECLARED BY THE SUPREME COURT UNDER ART. 141 OF THE CONSTITUTION. 12. WE ARE IN RESPECTFUL AGREEMENT WITH THE REASONI NG OF THE MADRAS HIGH COURT IN NEXUS COMPUTER (P) LTD. (SUPRA). JUDICIAL DISCIPLINE REQUIRES US TO FOLLOW THE VIEW OF THE SUPREME COURT IN VINAY CEMEN T (SUPRA) AS ALSO THE VIEW OF THE DIVISION BENCH OF THIS COURT IN I DHARM ENDRA SHARMA (SUPRA). 13. IN THESE CIRCUMSTANCES, WE RESPECTFULLY DISAGRE E WITH THE APPROACH ADOPTED BY A DIVISION BENCH OF THE BOMBAY HIGH COUR T IN PAMWI TISSUES LTD. (SUPRA). 14. IN THESE CIRCUMSTANCES INDICATED ABOVE, WE ARE OF THE OPINION THAT NO SUBSTANTIAL QUESTION OF LAW ARISES FOR OUR CONSIDER ATION IN THE PRESENT APPEAL. THE APPEAL IS, THUS, DISMISSED. 11. WE FIND THAT THE CIT(A) HAS DIRECTED THE ASSESS ING OFFICER TO VERIFY THE PAYMENTS MADE TO PF AND ALLOW ON THE BASIS OF ACTUA L PAYMENT DURING THE PREVIOUS YEAR. WE ARE NOT IN AGREEMENT WITH THE FINDINGS OF CIT(A) WHICH ARE CONTRARY TO THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF P.M. ELECTRONICS LTD. (SUPRA) AND ACCORDINGLY WE DIRECT THE ASSESSING OFFICER TO VERI FY THE DATES OF PAYMENT OF PF AND IN CASE THESE ARE MADE WITHIN THE DUE DATE OF FILIN G OF RETURN, HE WILL ALLOW THE CLAIM OF THE ASSESSEE OTHERWISE NOT. THIS ISSUE OF THE R EVENUES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. NOW COMING TO CROSS APPEALS ITA NO.1110/AHD/2008 (A SSESSEE) AND ITA NO.1155/AHD/008 (REVENUE). 12. THE FIRST COMMON ISSUE IN THESE CROSS APPEALS, IS AS REGARDS TO THE ORDER OF CIT(A) DISALLOWING PARTLY THE INTEREST ON FREE LOAN AND ADVANCES GIVEN DURING THE ITA NO.2988 & 2990/AHD/2004 & 1110 & 1155/AHD/2008 A.Y. 01-02 & 05-06 RELISH PHARMACEUTICALS LTD V. ITO WD 5[3]ABD PAGE 9 COURSE OF BUSINESS ON PROPORTIONATE BASIS. FOR THI S, THE ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.5 :- 5. IN THE LAW AND IN THE FACTS AND CIRCUMSTANCES O F THE APPELLANTS CASE, THE HONOURABLE COMMISSIONER OF INCOME TAX (APPEALS) HAS GROSSLY ERRED IN DISALLOWING PARTLY INTEREST OF RS.1891319 BEING INT EREST ON INTEREST FREE LOAN AND ADVANCES GIVEN DURING THE COURSE OF BUSINESS AN D SAME ON ESTIMATE BASIS. AND THAT OF REVENUE HAS RAISED THE FOLLOWING GROUND NO.1 :- 1. THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHME DABAD HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE ASSESSING OFFICER TO CALCULATE INTEREST ON RS.95.91 LACS INSTEAD OF INTEREST ON RS.126.08 LACS AS CALCULATED BY THE ASSESSING OFFICER. 13. WE HAVE HEARD THE LD DEPARTMENTAL REPRESENTATIV E AND FIND THAT EXACTLY ON SIMILAR FACTS IN ASSESSMENT YEAR 2001-02 WE HAVE AL READY SET ASIDE THE COMMON ISSUE TO THE FILE OF CIT(A) AS THE DECISION BY CIT( A) IS TAKEN ON THE BASIS OF THAT YEAR. THE FACTS BEING EXACTLY IDENTICAL, WE SET ASIDE THI S ISSUE TO THE FILE OF THE CIT(A) TO DECIDE IN TERMS OF DIRECTION IN ITA NO.2988/AHD/2004 AND ITA NO.2990/AHD/2004 IN PARA-3 AND THE COMMON ISSUE OF THE REVENUE AS WELL AS THAT OF ASSESSEES APPEAL ARE ALLOWED FOR STATISTICAL PURPOSES AS INDICATED A BOVE. 14. THE NEXT THREE ISSUES IN THIS APPEAL OF ASSESSE E IN ITA NO.1110/AHD/008 IS AS REGARDS THE ORDER OF CIT(A) CONFIRMING THE DISAL LOWANCE OF BAD DEBTS, THE CLAIM OF DEPRECIATION AND DISALLOWANCE OF 1/10 TH OF EXPENSES. FOR THIS, THE ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.2 TO 4 :- 2. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF TH E APPELLANTS CASE, THE HONOURABLE COMMISSIONER OF INCOME TAX (APPEALS) HAS GROSSLY ERRED IN DISALLOWING BAD DEBTS OF RS.3420749. 3. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE, THE HONOURABLE COMMISSIONER OF INCOME TAX (APPEALS) HAS GROSSLY ERRED IN DISALLOWING THE CLAIM OF DEPRECIATION OF RS.2210319 . 4. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE, THE HONOURABLE COMMISSIONER OF INCOME TAX (APPEALS) HAS GROSSLY ERRED IN DISALLOWING OF RS.415267 OUT OF EXPENSES INCURRED O F RS.4152670. 15. AT THE OUTSET, IT IS NOTICED THAT BEFORE THE CI T(A) NONE WAS PRESENT AND THE CIT(A) HAS ALSO PASSED ORDER WITHOUT HEARING THE AS SESSEE ON THESE ISSUES. AFTER ITA NO.2988 & 2990/AHD/2004 & 1110 & 1155/AHD/2008 A.Y. 01-02 & 05-06 RELISH PHARMACEUTICALS LTD V. ITO WD 5[3]ABD PAGE 10 HEARING THE LD DR AND GOING THROUGH THE ORDER OF CI T(A), WE FIND THAT THE ORDER IS PASSED WITHOUT MAKING ANY DISCUSSION IN THE ABSENCE OF THE ASSESSEE. SINCE THE APPELLATE ORDER PASSED IN THE ABSENCE OF ASSESSEE, WE NOW SET ASIDE THIS ISSUE TO THE FILE OF CIT(A) TO PASS A SPEAKING ORDER AFTER P ROVIDING REASONABLE OPPORTUNITIES OF BEING HEARD THE ASSESSEE. THE ASSESSEE IS DIRECTED TO CO-OPERATE THE CIT(A). 16. IN THE RESULT, ALL CROSS APPEALS OF THE ASSESSEE AN D REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 18/12/2009 SD/- SD/- (N.S.SAINI) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD, DATED :18/12/2009 *DKP COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- XI, AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD