M/s SHRIRAM CHITS (P) LTD, Hyderabad V. The Addl.CIT, Range -3, Hyderabad

ITA 323/HYD/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66164 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 29-02-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: K GYANA PRAKASH
• Keywords: Business expenditure; Bad and doubtful debts
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 390/HYD/2012 ASSESSMENT YEAR : 2008-09 DCIT, CIR-3(1), HYDERABAD. .... APPELLANT VS. M/S. SHRIRAM CHITS PVT. LTD., HYDERABAD. PAN: AAFCS 4916D RESPONDENT ITA NO. 323/HYD/2012 ASSESSMENT YEAR : 2008-09 M/S. SHRIRAM CHITS PVT. LTD., HYDERABAD. APPELLANT -VS- DCIT, CIR-3(1), HYDERABAD. RESPONDENT APPELLANT BY : SHRI K. GYANA PRAKASH RESPONDENT BY : SHRI K.C. DEVDAS DATE OF HEARING : 28-06-2012 DATE OF PRONOUNCEMENT: 24-08-2012 ORDER PER SAKTIJIT DEY, J.M.: THESE CROSS APPEALS FILED BY THE REVENUE AND THE ASSESSEE ARE DIRECTED AGAINST ORDER DATED 30-12-2011 PASSED IN APPEAL NO.354/ADDL.CIT R-3/CIT(A)-IV/10-11 PERTAINI NG TO THE 2 ITA NOS. 390 &323 OF 2012 MS. SHRIRAM CHIT FUNDSP. LTD. ASSESSMENT YEAR 2008-09. FOR THE SAKE OF CONVENIENC E, THESE ARE CLUBBED TOGETHER AND DISPOSED OF BY THIS COMBINED O RDER. ITA NO.323/HYD/ 2012- ASSESSEES APPEAL): 2 . GROUNDS 1 AND 6 ARE GENERAL IN NATURE AND THEY DO N OT REQUIRE ANY ADJUDICATION. 3. IN GROUND NOS. 2 AND 3, THE ASSESSEE HAS CHALLEN GED THE ORDER OF THE CIT (A) IN NOT ALLOWING DEDUCTION OF I RRECOVERABLE AMOUNTS IN RESPECT OF RUNNING AND TERMINATED CHITS AS LOSS IN COURSE OF CARRYING ON BUSINESS. 4. THE ASSESSEE DURING THE YEAR HAD DEBITED AN AMOU NT OF RS.38,30,13,456/-ON ACCOUNT OF BAD DEBTS WRITTEN O FF DURING THE RELEVANT PREVIOUS YEAR AND OUT OF WHICH RS.21,65,33 ,326/- PERTAINING TO RUNNING CHITS WHILE RS.16,64,80,128/- PERTAINING TO THE TERMINATED CHITS. THE ASSESSEE EXPLAINED BEFORE THE AO THAT THESE AMOUNTS WERE DUE AND PAYABLE BY DEFAULTING PR IZED SUBSCRIBERS. THE ASSESSEE SUBMITTED BEFORE THE AO T HAT WITH REGARD TO BAD DEBTS IN RESPECT OF TERMINATED CHITS, THE ASSESSEE EXPLAINED THAT IRRECOVERABLE AMOUNTS OF SUBSCRIPTIO N IN RESPECT OF TERMINATED CHIT GROUPS OUTSTANDING AS ON 31-3-2008 WERE WRITTEN OFF. THE AO OBSERVED THAT CHIT FUND TRANSACTIONS DO NOT PARTAKE CHARACTER OF DEBT, AND AS SUCH THE RELATIONSHIP BET WEEN CHIT ORGANISATION AND THE SUBSCRIBER IS NOT A RELATIONSH IP OF CREDITOR AND DEBTOR. THE AO FURTHER CONCLUDED THAT SINCE T HE ASSESSEE IS IN CHIT FUND BUSINESS AND NOT MONEY LENDING BUSINES S, THE BAD DEBTS TO THE EXTENT OF WHICH IS OFFERED AS INCOME O N ACCRUAL BASIS IN THE PREVIOUS YEAR OR ANY EARLIER PREVIOUS YEAR S HALL ALONE BE ELIGIBLE FOR DEDUCTION U/S 36(1)(XII) OF THE ACT. THEREFORE, HE RESTRICTED THE CLAIM OF BAD DEBTS TO 5% OF THE AMOU NT DUE FROM 3 ITA NOS. 390 &323 OF 2012 MS. SHRIRAM CHIT FUNDSP. LTD. PRIZED SUBSCRIBER. THE REMAINING 95% OF THE BAD DE BTS HAVING NOT BEEN OFFERED AS INCOME IN THE PREVIOUS YEAR OR ANY OTHER EARLIER PREVIOUS YEAR WERE BROUGHT TO TAX AND AN AM OUNT OF RS.36,38,52,783 WAS DISALLOWED AND ADDED TO THE TOT AL INCOME OF THE ASSESSEE. THE CIT (A) FOLLOWING THE ORDER DAT ED 26-7- 200413-3-2011 PASSED BY THE ITAT IN THE ASSESSEES OWN CASE HELD THAT BAD DEBTS RELATABLE TO TERMINATED CHITS H AD TO BE ALLOWED AND BAD DEBTS RELATABLE TO RUNNING CHITS WE RE SET ASIDE TO THE AO FOR RE-COMPUTATION AS PER THE DIRECTIONS O F ITAT VIDE ITS ORDER DATED 26-7-2004. 5. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIALS ON RECORD. IT HAS BEEN CONTENDED BY THE LD. AR THAT THE ISSUE SQUARELY COVERED BY THE DECISION OF THE ITAT IN ASS ESSEES OWN CASE IN ITA NO. 490/HYD/2010 AND ITA NO.720/HYD/201 0 IN THE CASE OF THE SAME ASSESSEE DATED 11 TH MARCH, 2011. 6. THE LEARNED DR HAS SUBMITTED THAT THE ISSUE IS C OVERED BY THE DECISION OF ITAT MENTIONED SUPRA. WE FIND FROM PARA-7 OF THE ORDER OF TRIBUNAL, THE TRIBUNAL FOLLOWING ITS EARLI ER ORDER PASSED IN ITA NOS.500, 507 OF 1999 AND OTHERS DATED 26-7-2004 HAS UPHELD THE CIT (A)S ORDER IN ALLOWING THE BAD DEBTS RELA TING TO TERMINATED CHITS AND SETTING ASIDE RE-COMPUTATION O F BAD DEBTS FOR RUNNING CHITS. FOLLOWING THE AFORESAID ORDER OF THE ITAT, WE UPHOLD THE DIRECTIONS OF THE CIT (A). HENCE, GROUN DS RAISED BY THE ASSESSEE ARE REJECTED. 7. GROUND NO.4 RELATES TO DISALLOWANCE OF FOREMAN D IVIDEND OF RS.7,99,69,867. WE FIND SIMILAR ISSUE ALSO CAME UP BEFORE THE ITAT, HYDERABAD BENCH IN THE ASSESSEES OWN CASE IN ITA NOS. 4 ITA NOS. 390 &323 OF 2012 MS. SHRIRAM CHIT FUNDSP. LTD. 490 AND 720/HYD/2010 DATED 11-3-2011, THE ITAT PAR 4A 9 AND 10 OF ITS ORDER UPHELD THE ORDER OF THE CIT (A) AND DISMISSED THE GROUNDS RAISED BY THE ASSESSEE. FOLLOWING THE AFOR ESAID ORDERS OF ITAT, WE UPHOLD THE ORDER OF THE CIT (A) AND REJECT THE GROUND RAISED BY THE ASSESSEE. 8. GROUND NOS. 6 AND 7 RELATE TO LEVY OF INTEREST U /S 234B AND 234C OF THE ACT. SIMILAR ISSUE CAME UP EARLIER BEF ORE THE ITAT, HYDERABAD BENCH IN ASSESSEES OWN CASE IN ITA NOS. 490 AND 720/HYD/2010 DATED 11-3-2011 (SUPRA) WHEREIN THE TR IBUNAL HELD IN THE FOLLOWING MANNER:- THE NEXT TWO GROUNDS IN ASSESSEES APPEAL ARE RELA TED TO LEVY OF INTEREST U/SS 234D AND 234B WHICH ARE MANDA TORY AND CONSEQUENTIAL IN NATURE. ACCORDINGLY, THESE TW O GROUNDS RAISED BY THE ASSESSEE ARE DISMISSED. FOLLOWING THE AFORESAID ORDER OF THE ITAT, WE REJEC T THE GROUNDS RAISED BY THE ASSESSEE. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS DISMISSED. ITA NO.390/HYD/2012- REVENUES APPEAL) 10. IN GROUND NO.2 THE REVENUE HAS CHALLENGED THE O RDER OF THE CIT (A) WITH REGARD TO HIS FINDING ON CLAIM OF BAD DEBTS ON RUNNING AND TERMINATED CHITS. IN VIEW OF OUR FINDI NG IN GROUND NOS. 2 AND 3 RAISED IN ASSESSEES APPEAL, THE GROUN D RAISED BY THE REVENUE IS REJECTED. 11. IN GROUND NO.3, THE REVENUE HAS CHALLENGED THE DELETION OF THE AMOUNT OF RS.1,62,45,800/- TOWARDS COMMISSION O N CANCELLED CHITS. WE FIND IDENTICAL ISSUE CAME UP BEFORE THE ITAT, HYDERABAD BENCH IN ASSESSEES OWN CASE PASSED IN IT A 5 ITA NOS. 390 &323 OF 2012 MS. SHRIRAM CHIT FUNDSP. LTD. NO.120/HYD/2010 THE ITAT FOLLOWING ITS EARLIER ORDE R PASSED IN ASSESSEES OWN CASE UPHELD THE ORDER OF THE CIT (A) IN ALLOWING THE COMMISSION ON CANCELLED CHITS. THE OBSERVATION OF THE ITAT IN PARA-15 WHICH IS EXTRACTED HEREUNDER:- 15. SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THIS TRIBUNAL IN ASSESSEE'S OWN CASE IN EARLIER ORDERS FOR THE ASSESSMENT YEARS 199 8899, 1999-2000 IN ITA NOS.471/H/2002 & 1049/H/2002 RESPECTIVELY WHEREIN T HE TRIBUNAL HELD IN PARA 6.3 AS FOLLOWS: 6.3. TIME OF RECOGNITION OF INCOME FROM COMMISSION ON CANCELLED CHITS. THIS ISSUE IS INVOLVED IN THE ASSESSEE'S APPEALS FOR ASS ESSMENT YEARS 1998-99 AND 1999-2000. THE DISPUTE IS ABOUT TIME OF ACCRUAL OF THE INCOME BY WAY OF COMMISSION IN RESPECT OF CASES WHERE DEFAULTING NON PRIZED SUBSCRIBERS WHO ARE REMOVED FROM THE CHIT AND IN WHOSE PLACE NE W SUBSCRIBERS ARE SUBSTITUTED. ON A CAREFUL CONSIDERATION OF THE ISSU E, WE FIND THAT FROM OUT OF THE AMOUNT THAT IS PAYABLE TO THE DEFAULTING SUB SCRIBER CONSEQUENT TO HIS REPLACEMENT BY ANOTHER PERSON THE COMPANY IS ENTITL ED TO DEDUCT 5% AS COMMISSION. THIS HAS NOTHING TO DO WITH THE REGULAR COMMISSION INCOME OF THE ASSESSEE. THUS THE STAND OF THE ASSESSEE THAT T HE COMMISSION INCOME ACCRUES WHEN THE ACCOUNTS HAVE BEEN FINALLY SETTLED TO THE DEFAULTING NON SUBSCRIBER TO OUR MIND APPEARS TO BE THE CORRECT POSITION. OTHERWISE IN CASE OF A NON PRIZED SUBSCRIBER THE AMOUNT ,OF 5% W OULD BE DEDUCTED FROM THE AMOUNTS DUE TO HIM MUCH BEFORE THE SETTLEMENT O F HIS ACCOUNT AND RECOGNISED AS INCOME BY WAY OF TRANSFER FROM CURREN T LIABILITIES TO PROFIT AND LOSS ACCOUNT. RELIANCE PLACED BY THE REVENUE ON THE SPECIAL BENCH DECISION OF THE TRIBUNAL IN THE CASE OF SHRIRAM CHI TS & INVESTMENTS P LTD. CHENNAL VS. ACIT (263 ITR (AT) 65). THIS DECISION I S NOT APPLICABLE TO THE FACTS OF THIS CASE. THE COMMISSION/REMUNERATION TO THE FOREMAN IN THAT CASE WAS SOUGHT TO BE RECOGNISED ON THE COMPLETION OF CHIT METHOD AND HAD NOTHING TO DO WITH THE TYPE OF ADDITIONAL COMMI SSION RECEIVABLE IN CASE OF SUBSTITUTION OF A SUBSCRIBER AS IN THIS CASE. TH E NATURES OF INCOME IN BOTH THESE CASES ARE DIFFERENT. THE FURTHER COMMISSION O F 5% RECEIVABLE FROM A DEFAULTING SUBSCRIBER CONSEQUENT TO HIS REMOVAL AND SUBSTITUTION ON A FULL AND FINAL SETTLEMENT OF A DEFAULTING SUBSCRIBER ACC OUNT IS RECOGNISED AS INCOME ON THE FINALISATION OF THE ISSUES. THIS IS N OT AN UNACCEPTABLE PROPOSITION. WE AGREE WITH THE SUBMISSIONS OF THE L EARNED COUNSEL FOR THE. ASSESSEE, WHICH ARE AT PARA 4.11 OF THIS ORDER. IN THE RESULT, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 6 ITA NOS. 390 &323 OF 2012 MS. SHRIRAM CHIT FUNDSP. LTD. FOLLOWING THE AFORESAID ORDER OF THE ITAT, WE UPHOL D THE ORDER OF THE CIT (A) AND REJECT THE GROUND RAISED BY THE REV ENUE. 12. GROUND NO. 4 RELATES TO DELETION OF THE ROYALTY PAYMENT OF RS.3,34,31,583/-. SIMILAR ISSUE CAME UP BEFORE THE ITAT FOR THE EARLIER ASSESSMENT YEAR IN ITA NO. 490/HYD/10, ITA NO.720/HYD/10 AND THE ITAT HELD IN THE FOLLOWING MA NNER:- 20. SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THIS TRIBUNAL FOR THE ASSESSMENT YEARS 2004-05! 2005~06 AND 2006-07. THE TRIBUNAL VIDE ITS ORDER DATED 26.7.2004 IN PARA 20 HELD AS FOLLOWS: PAGE 136, 137, 138 OF PB. 6.7(LV): WE ARE CONVINCED WITH THE ARGUMENTS OF THE LEARNED COUNSEL FOR THE ASSESSEE. THE BANGALORE BENCH OF THE TRIBUNAL IN ITA NO.751, 750 , 749 &. 748/(BANG.)/1998 IN THE CASE OF M/S SRLRAM CHITS (BANGALORE) LTD. VS. DCIT (ASSI STANT) SPECIAL RANGE, BANGALORE HELD AS FOLLOWS: '29. WE HAVE CAREFULLY GONE THROUGH THE RECORDS AND CONSIDERATION THE RIVAL CONTENTIONS. M/S SRIRAM CHITS &. INVESTMENT (P) LTD. HAVING REGI STERED OFFICE AT MADRAS WAS THE ABSOLUTE OWNER OF THE COPY RIGHT RELATING TO EXISTI NG ARTISTIC WORK 'SRLRAM CHITS' LOGO REGISTERED AS SUCH UNDER THE PROVISIONS OF THE COPY RIGHT ACT, 1957 WITH THE REGISTRAR OF COPYRIGHTS BEARING REGISTRATION NO.A/49899/88 DATED 7.7.1988. THE ASSESSEE ENTERED INTO AN AGREEMENT WITH THE HOLDING COMPANY FOR EXCLUSIVE USE OF THE LOGO OF THE HOLDING COMPANY IN THE COURSE OF SOLICITING ITS BUSINESS AM ONGST POTENTIAL INVESTORS. THE CONDITIONS OF THE AGREEMENT PROVIDED THAT THE ASSES SEE SHALL PAY ROYALTY OF 0.5% ON THE ANNUAL AUCTION TURNOVER OF THE ASSESSEE DETERMINED ON THE BASIS OF VALUE OF AUCTIONS FIXED DURING THE YEAR. IN FACT, THE ASSESSEE HAS USED THE LOGO TO THE BEST ADVANTAGE OF BUSINESS. THE ASSESSEE WAS TO CARRY ON THE BUSINESS OF CHIT F UND IN THE STATE OF KARNATAKA AND THE HOLDING COMPANY GRADUALLY STOPPED FLOATING NEW (GROUNDS AS IT DID IN 1984) ALLOWING SUBSIDIARY COMPANY TO EXPAND ITSELF. THE GROWTH OF BUSINESS OF THE ASSESSEE OVER THE YEARS OF THE ORDER OF THE CIT (A) IS VERY MUCH RELEVANT. THE RELEVANT PORTION READS: 1. SRLRAM CHITS 8R. INVESTMENTS (P) LTD. COMMENCED OPERATIONS IN KARNATAKA IN THE YEAR 1984. THE BUSINESS OF THE COMPANY IN KARNATAKA INCREASED OVER THE YEARS UPTO 1990-91 WHEN THE AUCTION TURNOVER TOUCHED RS.8 0.39 LAKHS. 7 ITA NOS. 390 &323 OF 2012 MS. SHRIRAM CHIT FUNDSP. LTD. 2. SRLRAM CHITS AND INVESTMENTS (P) LTD. DECIDED TO EXPAND ITS BUSINESS IN KARNATAKA BY FORMING A SUBSIDIARY COMPANY SRLRAM CH ITS (BANGALORE) (P) LTD. 3. IN THE YEAR 1990, SRLRAM CHITS (BANGALORE) (P) L TD. WAS FORMED AND WAS CARRYING ON THE BUSINESS OF CHIT FUNDS IN THE STATE OF KARNA TAKA AND SRLRAM CHITS AND INVESTMENTS (P) LTD. GRADUALLY STOPPED FLOATING NEW GROUPS ALLOWING THE SUBSIDIARY COMPANY TO EXPAND. 4. SRLRAM CHITS (BANGALORE) (P) LTD. SINCE INCEPTIO N CONTINUED TO BOOK NEW BUSINESS BY USING THE LOGO OF ITS HOLDING COMPANY. 5. THE BUSINESS GROWTH OF SRLRAM CHITS (BANGALORE) (P) LTD. OVER THE YEARS CAN BE INFERRED FROM THE FOLLOWING FIGURES: FY 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996- 97 NO.OF 4 6 7 9 11 19 19 BRANCHES BUSINESS 29.49 66.41 105 81.26 184.01 260.05 359.05 (IN LAKHS) AUCTION 29.49 95.9 181.15 225.69 348.29 542.28 753.23 . . TURNOVER 6. THE RIGHT TO USE THE LOGO FROM THE HOLDING COMPA NY SRLRAM CHITS AND INVESTMENTS (P) LTD. WAS FORMALLY GIVEN TO SRI RAM CHITS (8ANGALORE ) (P) LTD. THE SUBSIDIARY COMPANY IN THE YEAR 1994 VIDE AN AGREEMENT ENTERED INTO, WHICH PRO VIDED FOR THE PAYMENT OF CERTAIN 010 OF THE AUCTION TURNOVER AS ROYALTY TO SRLRAM CHITS AND INVESTMENTS (P) LTD. 8 ITA NOS. 390 &323 OF 2012 MS. SHRIRAM CHIT FUNDSP. LTD. 7. BY THE AGREEMENT, SRIRAM CHITS AND INVESTMENTS ( P) LTD., HAS FORMALLY COMMITTED ITSELF TO THE GROWTH AND DEVELOPMENT OF SRLRAM CHITS (BANG ALORE) (P) LTD. FOR A FURTHER PERIOD OF 7 YEARS. 8. THE DUTY OF SRLRAM CHLTS AND INVESTMENTS (P) LTD . DOES NOT END WITH MERELY TRANSFERRING THE RIGHT TO SUE ITS LOGO TO ITS SUBSIDIARY COMPANY . IT ALSO ASSUMES THE RESPONSIBILITY TO ENSURE THAT THE NAME WHICH IT HAS BUILT UP OVER THE YEARS IS MAINTAINED BY SRLRAM CHITS (BANGALORE) (P) LTD. TOWARDS THL, SRLRAM CHITS AND INVESTMENTS (P) LTD. HAS PROVIDED FINANCIAL ASSISTANCE TIME AND AGAIN TO SRLRAM CHITS (BANGALORE) (P) LTD. TO HELP ITS WORKING CAPITAL REQUIREMENTS. WHEN SRLRAM CHITS (BANGALORE) (P) LTD. COMMENCED O PERATIONS, ALL ITS EMPLOYEES WERE FROM SRLRAM' CHITS A. INVESTMENTS (P) LTD. WHO HAD PRIOR EXPERIENCE IN THIS LINE. EVEN NOW, SRLRAM CHITS (BANGALORE) {P} LTD. LOOKS FOR MANAGER IAL SUPPORT FROM SRLRAM CHITS AND INVESTMENTS (P) LTD. WHICH IS BEING PROVIDED. IN AD DITION TO THIS, THE ENTIRE SOFTWARE PACKAGE OF SRLRAM CHITS AND INVESTMENTS {P} LTD. WH ICH WAS BEING USED BY IT FOR ITS OPERATIONS WAS TRANSFERRED TO SRLRAM CHITS. ,. (BAN GALORE) (P) LTD. FOR CARRYING OUT ITS DAY TO DAY ROUTINES. THE HOLDING COMPANY ALSO HOLDS PERIOD ICAL MEETINGS WITH THE EXECUTIVES OF THE SUBSIDIARY COMPANY IN ORDER TO MONITOR ITS ACTI VITIES. : ... 10. THE REASONABILITY OF 0.5% ROYAL. THE USE OF LOG O IS ENHANCING THE GROWTH OF SRLRAM CHITS (BANGALORE) (P) LTD. CANNOT BE UNDER ESTIMATED.' 30. THE RECORD ALSO SHOWS THAT HOLDING COMPANY WAS PROVIDING FINANCIAL ASSISTANCE TIME AND AGAIN TO THE ASSESSEE TO HELP IN ITS WORKING CA PITAL REQUIREMENTS. THE RECORD FURTHER SHOWS THAT WHEN THE ASSESSEE COMMENCED ITS OPERATIO N, AILS ITS EMPLOYEES WERE FROM HOLDING COMPANY WHO HAD PRIOR EXPERIENCE IN THIS LI NE. IT IS CLAIMED THAT EVEN THE ASSESSEE LOOKS FOR MANAGERIAL SUPPORT, FROM ITS HOLDING COMP ANY WHICH IS AGAIN PROVIDED. THE HOLDING COMPANY IS ALSO STATED TO HAVE CONDUCTED PE RIODICAL MEETINGS WITH THE EXECUTIVES OF THE ASSESSEE IN ORDER TO MONITOR ITS MEETINGS. A LL THESE AND THE TABLE EXTRACTED ABOVE SHOWS THAT THERE HAS BEEN A SUBSTANTIAL INCREASE IN THE NEW BUSINESS AS ALSO AUCTION TURNOVER FROM WHAT WAS ONLY 29.49 LAKHS IN ASSESSME NT 1990-91 TO RS:225.69 LAKHS IN THE ASSESSMENT YEAR 1994-95 AND RS.348.29 LAKHS IN THE ASSESSMENT YEAR 1995-96 AND THE BUSINESS HAS BEEN SUBSTANTIALLY GROWING FROM YEAR T O YEAR. THE FINANCING BUSINESS AND CONDUCTING OF THE CHIT BUSINESS IS NOT THAT EASY UN LESS IT IS BACKED BY THE PROMOTERS WHO HAVE HIGHEST INTEGRITY AND TRUSTWORTHINESS. MIS SRL RAM CHITS AND INVESTMENTS (P) LTD. MADRAS (HOLDING COMPANY HAS BEEN IN THE NAMES FOR I TSELF WITH THE INVESTORS IN THE SOUTH. WE ARE, THEREFORE, OF THE CONSIDERED OPINION THAT T HE PAYMENT OF ROYALTY AT 0.5% OF HAVING REGARD TO THE BUSINESS REQUIREMENTS OF THE ASSESSEE . IN OUR VIEW, THE PAYMENT IS FOR, LEGITIMATE BENEFIT TAKEN IN THE COURSE OF BUSINESS AND FROM ANY STANDARD, IT CANNOT BE SAID THAT PAYMENT OF RS.1 LAKH AS ROYALTY IS SUFFICIENT TO PRODUCE THE BUSINESS OF THE MAGNITUDE PROCURED BY THE ASSESSEE OVER THE YEARS. THE HOLDIN G COMPANY HAS ENTERED INTO SIMILAR AGREEMENTS WITH OTHER SUBSIDIARY COMPANIES AND THE CIT(A) HAS CONSIDERED THE SAME TO BE REASONABLE BUSINESS OUTFLOW PROPERTY UNDER A SPECIF IC AGREEMENT EXECUTED BY THE PARTIES IS VERY MUCH REASONABLE AND SHOULD HAVE BEEN ACCEPT ED AS A BUSINESS EXPENDITURE 9 ITA NOS. 390 &323 OF 2012 MS. SHRIRAM CHIT FUNDSP. LTD. ALLOWABLE AS DEDUCTION. WE, THEREFORE, DELETE THE D ISALLOWANCE FOR THESE TWO YEARS. THE DISALLOWANCE HAS BEEN PRIMARILY BASED ON A SUSPICIO N AND INCORRECT APPRECIATION OF AHRD REALITIES OF THE BUSINESS BY THE REVENUE AUTHORITIE S. THE DISALLOWANCE IS ACCORDINGLY DELETED.' FOLLOWING THE AFORESAID FINDING OF THE ITAT, WE UPH OLD THE ORDER OF THE CIT (A) AND REJECT THE GROUND RAISED BY THE REVENUE. 13. IN GROUND NO.5, THE REVENUE CHALLENGED THE DEDU CTION ALLOWED BY THE CIT (A) TOWARDS CONTRIBUTION TO PF A ND ESI U/S 36(1)(BA). BRIEFLY THE FACTS ARE DURING THE RELEVA NT PREVIOUS YEAR, IN COURSE OF ASSESSMENT PROCEEDINGS THE AO F OUND FROM THE REPORT SUBMITTED IN FORM 3CD THAT THE ASSESSEE HAS NOT REMITTED THE EMPLOYEES CONTRIBUTION TOWARDS PF AMOUNTING TO RS.25,97,844 AND EMPLOYEES CONTRIBUTION TOWARDS ESI AMOUNTING TO RS.76,770 WITHIN THE DUE DATES. HE THEREFORE CONCLUDED THAT SINCE THE ASSESSEE HAS NOT REMITTED CONTRIBUTION TOWARDS PF AND ESI WITHIN THE DUE DATES, THE SAME CANNOT BE ALLOWED AS DEDUCTION U/S 36(1)(BA). BEFORE THE FIRS T APPELLATE AUTHORITY, THE ASSESSEE SUBMITTED THAT THE CONTRIBU TION TOWARDS PF AND ESI WERE PAID BEFORE THE DUE DATE OF FILING OF RETURN, THEREFORE, NO DISALLOWANCE COULD BE MADE AND CIT (A ) FOLLOWING THE DECISIONS OF THE HONBLE SUPREME COURT IN THE C ASE OF CIT VS. VINAY CEMENT LTD., ( 213 CTR 268) WHICH HAS BEEN FO LLOWED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. AIMIL LIMITED IN ITA NO.1063/HYD/2006, 755 AND 1246 OF 2008 ETC., DATED 23- 12-2009, HELD THAT IF THE CONTRIBUTIONS TOWARDS PF AND ESI HAVE BEEN PAID BEFORE DUE DATE OF FILING OF RETURN, NO A DDITION COULD BE MADE. 14. WE FIND THAT THE ISSUE HAS BEEN SQUARELY COVERE D BY THE JUDGMENT OF DELHI HIGH COURT IN THE CASE OF CIT VS. AIML LTD., 321 ITR 508) AND CIT VS. VINAY CEMENT LIMITED 313 ITR S TATUTES 1.IT 10 ITA NOS. 390 &323 OF 2012 MS. SHRIRAM CHIT FUNDSP. LTD. HAS BEEN HELD BY THE HONBLE SUPREME COURT THAT WHE N THE CONTRIBUTIONS TO PF HAS BEEN MADE BEFORE THE DUE DA TE OF FILING THE RETURN, NO DISALLOWANCE COULD BE MADE. IN VIEW OF THE AFORESAID JUDGMENT OF SUPREME COURT AND DELHI HIGH COURT, WE UPHOLD THE ORDER OF THE CIT (A) AND REJECT THE GROU NDS RAISED BY THE REVENUE. 5. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE COURT ON 14- 8-2012. SD/- SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER (SAKTIJIT DEY) JUDICIAL MEMBER HYDERABAD, DATED THE 24 TH AUGUST, 2012. COPY TO:- 1) DCIT, CIRCLE-3(1), 7TH FLOOR, IT TOWERS, HYDERAB AD. 2) M/S. SHRIRAM CHITS PVT. LTD. 3 RD FLOOR, ANAND ESTATES, HIMAYATNAGAR, HYDERABAD. 3) CIT (A)-IV, HYDERABAD. 4) THE CIT CONCERNED, HYDERABAD 5)THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERA BAD. JMR* 11 ITA NOS. 390 &323 OF 2012 MS. SHRIRAM CHIT FUNDSP. LTD.