Casil Health Products Ltd., Ahmedabad V. The Dy.CIT.,Range-1, Ahmedabad

ITA 384/AHD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 9771 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 04-11-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 09-02-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NARENDRA SINGH
• Keywords: Retrospective amendment; Initiation of penalty proceedings; Scheme of amalgamation; Tax effect
• Section: 143(3); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMEDABAD BEFORE S/SHRI KUL BHARAT, JM, & MANISH BORAD, AM. ITA NO.384/AHD/2012 ASST. YEAR: 2008-09 CASIL HEALTH PRODUCTS LTD., 708, SARKHEJ DHOLKA ROAD, BHAT, AHMEDABAD. VS. DY. CIT, RANGE -1, AHMEDABAD. APPELLANT RESPONDENT PAN AACCB7385C AND ITA NO.545/AHD/2012 ASST. YEAR: 2008-09 ASSTT.. CIT (OSD), RANGE-1, AHMEDABAD VS. CASIL HEALTH PRODUCTS LTD., 708, SARKHEJ DHOLKA ROAD, BHAT, AHMEDABAD. APPELLANT RESPONDENT ASSESSEE BY SHRI S. N. SOPARKAR, AR REVENUE BY SHRI NARENDRA SINGH, SR.DR DATE OF HEARING: 4/11/2015 DATE OF PRONOUNCEMENT: 21/01/2016 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER. THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER OF CIT(A)-6, AHMEDABAD, DATED 8/12/2011 IN APPEAL NO. CIT(A)-VI/ DCIT(OSD)/R- 1/145/10-11 PASSED FOR ASST. YEAR 2008-09. ASSESSME NT WAS FRAMED U/S 143(3) OF THE IT ACT, 1961 (IN SHORT THE ACT) O N 11/12/2010. ITA NO. 384 & 545/AHD/2012 ASST. YEAR2008-09 2 2. FIRST WE TAKE UP ASSESSEES APPEAL ITA NO.384/AH D/2012 FOR ASST. YEAR 2008-09). 3. BRIEFLY STATED FACTS AS CULLED OUT FROM THE MATE RIAL ON RECORD ARE THAT THE ASSESSEE WHICH IS A PRIVATE LIMITED COMPAN Y IS ENGAGED IN THE BUSINESS OF MANUFACTURING & TRADING OF HOSPITAL & ORTHOPEDIC PRODUCTS. INCOME-TAX RETURN FOR ASST. YEAR 2008-09 WAS FILED ON 30 TH SEPTEMBER, 2008 DECLARING TOTAL LOSS OF RS.1,07,55, 119/-. THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT AND NOTICE U/S 143(2) WAS ISSUED ON 17/08/2009. ASSESSMENT ORDER WAS FRAMED U /S 143(3) OF THE ACT ON 11/12/2010 AND THE LOSS OF THE ASSESSEE WAS ASSESSED AT RS.85,82,953/- AFTER MAKING ADDITION OF RS.21,72,16 6/- ON FOLLOWING ITEMS :- TOTAL LOSS AS PER RETURN OF INCOME RS. LATE PAYMENT OF EMPLOYEES CONTRIBUTION TO PF & ESIC 63,832/- INTEREST TO MICRO & SMALL ENTERPRISES 96,822/- DISALLOWANCE U/S 40(A)(IA) 6,93,235/- INTEREST DISALLOWANCE 13,18,277/- TOTAL 21,72,166 AGGRIEVED, ASSESSEE WENT IN APPEAL BEFORE LD. CIT(A ) WHO PARTLY ALLOWED THE APPEAL OF ASSESSEE. 4. AGGRIEVED, ASSESSEE IS NOW IN APPEAL BEFORE THE TRIBUNAL ON THE FOLLOWING GROUNDS :- 1. THE ASSESSMENT ORDER PASSED BY LEARNED ASSESSING OFFICER, DY. COMMISSIONER OF INCOME-TAX RANGE-1, U/S 143(3) OF THE ITA NO. 384 & 545/AHD/2012 ASST. YEAR2008-09 3 INCOME-TAX ACT AND THE LEARNED COMMISSIONER OF INCO ME-TAX (APPEALS)S CONFIRMING THE SAME , ARE BAD IN LAW, I LLEGAL AND DESERVES TO BE MODIFIED. 2. THE LD. ASSESSING OFFICER HAS ERRED IN LAW AND O N THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE LD. CIT(A) HAS ER RED ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN CONFIRMING T HE MAKING OF DISALLOWANCE U/S 40(A)(IA) OF RS.6,93,236/- IN INCO ME. THE DISALLOWANCE BE CANCELLED. 3. THE LD. ASSESSING OFFICER HAS ERRED IN LAW AND O N THE FACTS AND CIRCUMSTANCES OF THE CASE IN MAKING DISALLOWANCE OF RS.13,18,277/- IN INTEREST, AND THE LD. CIT(A) HAS ERRED ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN CONFIRMING T HE SAME EXCEPT FOR A PARTIAL RELIEF IN QUANTUM. THE DISALLO WANCE BE CANCELLED ENTIRELY. 4. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THERE IS NO SCOPE FOR INITIATING PENALTY U/S 271(1)(C) AND SAME SHOULD BE DROPPED. YOUR APPELLANT RESERVES THE RIGHT TO ADD, ALTER, MO DIFY, AMEND OR DELETE, ANY OF THE ABOVE GROUND(S) EITHER BEFORE OR DURING THE APPEAL PROCEEDINGS. 5. GROUND NO.1 IS OF GENERAL NATURE, HENCE NEEDS NO ADJUDICATION. 6. THE GROUND NO.2 WHEREIN LD. CIT(A) HAS CONFIRME D THE ADDITION MADE BY ASSESSING OFFICER BY WAY OF DISALL OWANCE U/S 40(A)(IA) OF THE ACT AT RS.6,93,235/-. 7. THE LD. AR SUBMITTED THAT THE ACCOUNTS OF THE AS SESSEE COMPANY ARE SUBMITTED UNDER TAX AUDIT U/S 44AB OF T HE ACT AND IN ANNEXURE-11 OF THE TAX AUDIT REPORT FOR THE YEAR UN DER APPEAL, THE TAX AUDITOR HAS REPORTED THE TRANSACTIONS INVOLVING NON-COMPLIANCE OF TDS TO THE EXTENT OF RS.15,100/- IN REGARD TO PA YMENT TO CONTRACTOR ITA NO. 384 & 545/AHD/2012 ASST. YEAR2008-09 4 U/S 194C OF THE ACT AT RS.6,66,235/-. THE LD. AR SU BMITTED THAT ASSESSEE COMPANY WAS HAVING A CONTRACT WITH M/S SUR GI PHARM INDUSTRIES FOR SUPPLYING OF LABOUR AND IN THE PRECE DING YEARS PAYMENTS WERE REGULARLY MADE TO THE CONTRACTOR M/S SURGI PHARM INDUSTRIES AND INCOME-TAX WAS DEDUCTED AT SOURCE U/ S 194C OF THE ACT ON THE PAYMENTS. HOWEVER, DURING THE YEAR UNDER APPEAL THERE WAS DISPUTE WITH THE LABOUR CONTRACTOR DUE TO WHIC H PAYMENT WAS NOT MADE TO THE CONTRACTOR M/S SURGI PHARM INDUSTRIES A ND PAYMENT WAS MADE TO THE INDIVIDUAL WORKERS DIRECTLY AND FOR THI S REASON TDS WAS NOT DEDUCTED AS THE PAYMENTS TO THE RECIPIENTS OF T HE WAGES WERE BELOW THE LIMITS PRESCRIBED UNDER THE PROVISIONS OF SECTION 192. 8. THE LD. DR SUPPORTED THE ORDERS OF LOWER AUTHORI TIES. 9. WE FIND THAT THE LD. CIT(A) HAS CONFIRMED THE AD DITION MADE BY THE ASSESSING OFFICER BY OBSERVING AS UNDER :- 4.3 I HAVE CONSIDERED THE FACTS OF THE CASE; ASSES SMENT ORDER AND APPELLANTS SUBMISSION. ASSESSING OFFICER DISALLOWE D PAYMENT TO CONTRACTORS AND PROFESSIONAL FEES SINCE THIS PAYMEN TS WERE MADE WITHOUT DEDUCTING TDS. IT IS NOT DISPUTED THAT APPELLANT DI D NOT DEDUCT TDS ON THESE PAYMENTS AND THEREFORE AS PER THE PROVISIONS OF SECTION 40(A)(IA) OF IT ACT THE EXPENSES ARE NOT ALLOWABLE. APPELLANT ON LY SUBMITTED THAT IT MADE PAYMENT OF WAGES DIRECTLY TO THE WORKERS SINCE THERE WERE DISPUTES BETWEEN THE CONTRACTOR AND WORKERS. HOWEVER, AUDITO R OF THE APPELLANT CERTIFIED THE PAYMENT BY APPELLANT TO THE CONTRACTO R. FURTHER THESE WORKERS WERE NOT EMPLOYED BY THE APPELLANT AND THEREFORE PA YMENT TO THEM CANNOT BE COVERED UNDER SECTION 192. THE WORKERS WE RE HIRED BY THE CONTRACTOR AND PAYMENT WAS TO BE MADE TO THE CONTRA CTOR ONLY. THEREFORE THE PROVISIONS OF SECTION 194C IS CLEARLY APPLICABL E AND APPELLANT DEFAULTED IN DEDUCTING AND DEPOSING TDS. SINCE THER E IS A CLEAR DEFAULT IN DEDUCTING AND PAYING TDS, EXPENSES CLAMED ARE NOT A LLOWABLE. ACCORDINGLY THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS CONFIRMED. ITA NO. 384 & 545/AHD/2012 ASST. YEAR2008-09 5 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE BEFORE US IS TO EXAMINE AS TO WHETHER ASSESSEE WAS LIABLE TO DEDUCT TDS ON THE PAYMENTS MADE TO TH E WORKERS WHO WERE NOT ON THE PAY-ROLL OF THE ASSESSEE BUT HAVE B EEN WORKING IN THE ASSESSEE COMPANY ON BEHALF OF A LABOUR CONTRACTOR. FROM EXAMINING OF THE RECORDS, WE FIND THAT ASSESSEE HAS BEEN REGU LARLY DEDUCTING TDS IN THE PRECEDING YEARS ON THE PAYMENTS MADE TO M/S SURGI PHARM INDUSTRIES ON THE PAYMENTS MADE FOR THE SUPPL Y OF LABOURERS/WORKERS. DURING THE YEAR UNDER APPEAL THE ASSESSEE HAD A DISPUTE WITH THE LABOUR CONTRACTOR DUE TO WHICH PAY MENT WAS NOT MADE DIRECTLY TO THE ACCOUNT OF LABOUR CONTRACTOR. HOWEVER, ASSESSEE MADE THE PAYMENT TO THE INDIVIDUAL WORKERS. THIS IS AN ACCEPTED FACT BY THE ASSESSEE THAT INDIVIDUAL WORKERS TO WHOM PAY MENT HAS BEEN MADE BY THE ASSESSEE ARE NOT ON THE PAYROLL OF THE EMPLOYEES MEANING THEREBY THAT THE WORKERS WERE NOT EMPLOYEES OF THE COMPANY. THESE INDIVIDUAL WORKERS WERE WORKING FOR THE ASSESSEE COMPANY ON BEHALF OF LABOUR CONTRACTOR M/S SURGI PH ARM INDUSTRIES. GOING THROUGH THE TAX AUDIT REPORT WE FIND THAT ASS ESSEE HAS NOT CLAIMED THE PAYMENT TO LABOUR CONTRACTOR AS SALARY PAYMENT AND THE TAX AUDITOR HAS CERTIFIED THAT THE PAYMENTS MADE TO INDIVIDUAL WORKERS WERE ACTUALLY THE PAYMENT ON BEHALF OF THE LABOUR CONTRACTOR M/S SURGI PHARM INDUSTRIES AND SUCH PAYMENT WAS DUL Y COVERED WITHIN THE AMBIT OF THE PROVISIONS OF SECTION 194C OF THE ACT AND TDS WAS REQUIRED TO BE DEDUCTED BY THE ASSESSEE. IT SEE MS THAT AT A LATER STAGE (DURING THE COURSE OF ASSESSMENT PROCEEDINGS) ASSESSEE HAS TAKEN PLEA THAT THE PAYMENT WAS ACTUALLY MADE TO IN DIVIDUAL WORKERS BUT THE ACTUAL POSITION AT THE TIME OF FINALIZATION OF BOOKS OF ACCOUNTS ITA NO. 384 & 545/AHD/2012 ASST. YEAR2008-09 6 AS WELL AS UPTO THE COMPLETION OF TAX AUDIT U/S 44A B OF THE ACT WAS THAT THE PAYMENT WAS MADE TO INDIVIDUAL WORKERS WAS A PAYMENT ON BEHALF OF LABOUR CONTRACTOR TO WHOM ASSESSEE HAS BE EN PAYING THE LABOUR CONTRACT CHARGES IN PRECEDING YEARS AND, THE REFORE, THE SUBMISSION OF THE ASSESSEE THAT THE PAYMENT TO INDI VIDUAL WORKERS IS COVERED U/S 192 OF THE ACT CANNOT BE ACCEPTED. WE, THEREFORE, FIND NO REASON TO INTERFERE WITH THE DECISION TAKEN BY LD. CIT(A) ON THIS GROUND AND ACCORDINGLY DISMISS THE GROUND OF APPEAL OF ASSESSEE. 11. NOW WE TAKE UP GROUND NO.3. DURING THE COURSE O F ASSESSMENT PROCEEDINGS IT WAS OBSERVED BY THE ASSESSING OFFICE R THAT INTEREST BEARING FUNDS ON WHICH ASSESSEE HAS BEEN PAYING INT EREST @ 12% TO THE BANK HAVE BEEN DIVERTED TOWARDS PROVIDING OF IN TEREST FREE ADVANCES TO SOME OF THE CONCERNS AND, THEREFORE, AS SESSING OFFICER APPLIED INTEREST @ 12% ON THE AVERAGE OF OPENING AN D CLOSING BALANCES OF THREE PARTIES AND THEREBY MADE INTEREST DISALLOWANCE OF RS.13,18,277/-. BIFURCATION OF PARTY-WISE INTEREST DISALLOWANCE IS AS UNDER :- SL.NO. NAME OF PARTY LOANS GIVEN RS. INTEREST @ 12% 1 MEDTEK ASIA LTD. 1,07,75,407 12,93,040 2 IRM INVESTMENT PVT.LTD. 2,00,235 24,028 3 CASIL FINANCE LTD. 10,000 1,200 TOTAL 13,18,277 12. AGGRIEVED, ASSESSEE WENT IN APPEAL BEFORE CIT(A ), WHO PARTLY ALLOWED THE APPEAL OF THE ASSESSEE BY ACCEPTING THE ASSESSEES ITA NO. 384 & 545/AHD/2012 ASST. YEAR2008-09 7 SUBMISSIONS OF APPLYING AVERAGE COST OF FUND @ 3.5% ON THE AVERAGE COST OF TOTAL FUND BY OBSERVING AS UNDER :- 5.3 I HAVE CONSIDERED THE FACTS OF THE CASE, ASSES SMENT ORDER AND APPELLANTS SUBMISSION. IT IS NOT IN DISPUTE THAT A PPELLANT HAS BORROWED FUNDS ON WHICH INTEREST WAS PAID THEREFORE IT CANNO T BE SAID THAT APPELLANT HAD SUFFICIENT OWN FUNDS. THE AMOUNT OUTSTANDING AG AINST ASSOCIATE COMPANY IS IN THE NATURE OF ADVANCE SINCE APPELLANT HAS NOT RECOVERED THE SAME. IF THIS WAS BUSINESS ADVANCE, THE SAME COULD HAVE BEEN RECOVERED OR ADJUSTED BY NOW BUT THE FACT THAT IT REMAIN OUTS TANDING FOR MANY YEARS CLEARLY SHOWS THAT THIS IS INTEREST FREE ADVANCES G IVEN OUT OF OVERALL BUSINESS FUND WHICH INCLUDED BORROWED FUNDS ALSO. S INCE APPELLANT DID NOT MAINTAIN SEPARATE BANK ACCOUNTS FOR BORROWED FUNDS AND THEIR UTILIZATION, THE EVERY PART OF THE FUND OF THE APPELLANT HAS COS T. SINCE APPELLANT IS NOT ABLE TO ESTABLISH THAT BORROWED FUNDS WERE NOT AT A LL USED FOR ADVANCING TO SISTER CONCERNS, THE DISALLOWANCE OF PART OF INTERE ST IS JUSTIFIED IN VIEW OF THE FACTS MENTIONED BY THE ASSESSING OFFICER. HOWEVER, I AGREE WITH THE APPELLANT THAT DISALLOW ANCE OF INTEREST CANNOT BE AT THE RATE OF BORROWING BUT IT HAS TO BE ON THE AVERAGE COST OF FUND FOR THE COMPANY. APPELLANT SUBMITTED THAT AVER AGE COST OF FUND IS 3.5% AT WHICH DISALLOWANCE OF INTEREST CAN BE MADE IF AT ALL DISALLOWANCE IS TO BE CONFIRMED. ASSESSING OFFICER IS DIRECTED T O RESTRICT THE DISALLOWANCE OF INTEREST TO THE AVERAGE COST OF TOT AL FUNDS DURING THE YEAR. APPELLANT ETS PART RELIEF ON THIS ACCOUNT. 13. BEING NOT SATISFIED WITH THE ORDER OF CIT(A), T HE ASSESSEE IS IN APPEAL BEFORE US. THE LD. AR SUBMITTED THAT THERE I S NO SCOPE OF DISALLOWANCE DUE TO GENUINE PURPOSE OF ADVANCE & TH E APPELLANT HAS ALSO MADE SUBMISSIONS AS TO THERE BEING ABSENCE OF NEXUS OF INTEREST BEARING FUNDS TOWARDS ADVANCES GIVEN. THIS INTEREST ITA NO. 384 & 545/AHD/2012 ASST. YEAR2008-09 8 DISALLOWANCE IS MAINLY ON ACCOUNT OF ADVANCES GIVEN TO M/S MEDTEK ASIA P. LTD. FROM WHOM NO INTEREST HAS BEEN CHARGED . IT IS PERTINENT TO NOTE THAT THERE ARE ADVANCES GIVEN TO M/S MEDTEK ASIA P. LTD. IN PAST ALSO AND THERE HAS BEEN NO DISALLOWANCE CONSI DERED IN VIEW OF THESE BEING TRADE/BUSINESS ADVANCES. LD. AR FURTHER SUBMITTED THAT IN THE PRESENT ASSESSMENT ALSO, FOR THE SAID ADVANC ES APPLICABILITY OF 36(I)(III) OR DISALLOWANCE IS NOT APPLICABLE AS THE SE ARE TRADE ADVANCES AND THIS CAN BE SUBSTANTIATED BY THE FACT THAT YEAR ON YEAR ASSESSEE COMPANY HAS TRANSACTION OF PAYMENT TOWARDS PURCHASE S OF MATERIAL ETC.(SUCH PURCHASES OF EACH OF PRIOR TWO YEARS WELL EXCEEDS THE AMOUNT OF ADVANCE). FURTHER AS REGARDS, THE ADVANCE TO MEDTEK ASIA P. LTD. WE HAVE TO STATE THAT THE SAID BUSINESS VES TED INTO THE ASSESSEE COMPANY IN AMALGAMATION OF ERSTWHILE CASIL HEALTH PRODUCTS LTD. INTO CASIL INDUSTRIES LTD. THERE IS A S SUCH NO INTEREST BEARING BORROWING/LIABILITY VESTED IN RESPECT OF TH E SAME. IN FACT, WE ARE IN A POSITION TO SUBSTANTIATE THAT THE OP. DR. BAL. OF M/S MEDTEK OF RS.82 LACS IS OUT OF THE HOLDING COMPANY VIZ. CASIL INDUSTRIES LTD. AND/OR DR. ON ACCOUNT OF RATE DIFF. IT IS ALSO TO B E CONSIDERED THAT THERE HAS BEEN IMMEDIATELY AFTER THE YEAR END I.E. W.E.F. 1.4.2008 A SCHEME OF AMALGAMATION OF M/S MEDTEK ASIA P. LTD. I NTO M/S IRM LTD. AND THERE ARE IDENTICAL MONIES GIVEN BY M/S IR M LTD. TO THE ASSESSEE COMPANYS HOLDING COMPANY WHICH IN TURN HA VE BEEN FLOWN INTO THE ASSESSEE COMPANY AND THUS EFFECTIVELY THE ADVANCE TO MEDTEK GETS SQUARED OFF AGAINST IDENTICAL LIABILITY TO IRM LTD. (WHICH SINCE HAS MERGED MEDTEK INTO ITSELF.). IN RESPECT O F WORKING CAPITAL LOANS, WHERE INTEREST IS SPENT, THESE ARE TAKEN AGA INST MOVING DEBTORS, RM/PM AND STOCKS. THUS THERE ARE NO SPECIF IC BORROWINGS ITA NO. 384 & 545/AHD/2012 ASST. YEAR2008-09 9 FOR ADVANCES TO MEDTEK ASA LD. AR FURTHER SUBMITTED THAT IF AT ALL THESE ARE TREATED AS ADVANCES WITHOUT CHARGING INTE REST OR NON BUSINESS ADVANCES WE WOULD LIKE TO SUBMIT THAT THE SAID ADVANCES ARE GIVEN OUT OF HUGE NON INTEREST BORNE FUNDS OF T HE ASSESSEE COMPANY AND THE AVG. INTEREST SERVICING COST OF FUN DS FOR THE COMPANY IS HARDLY 3.5% WORKED OUT BY CONSIDERING TH E AVERAGE COST OF INTEREST, WITH OWN CAPITAL AND UNSECURED LOANS N OT HAVING BORNE INTEREST COST, THE INTEREST TO BANKS ON WORKING CAP ITAL LOANS AT APPC.12%). ACCORDINGLY, IF AT ALL THERE IS DISALLOW ANCE THE SAME (WITHOUT PREJUDICE) WILL NOT EXCEED RS.3.92 LACS. 14. THE LD. DR RELIED ON THE ORDERS OF AUTHORITIES BELOW. 15. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE BEFORE US IS TO EXAMINE AS TO WHAT SHOULD BE THE QUANTUM OF INTEREST DISALLOWANCE ARISING ON ACCOUNT OF DIVERSION OF INTEREST BEARING FUNDS TO INTEREST FREE ADVANCES. W E FIND FROM THE RECORD THAT DURING THE ASSESSMENT PROCEEDINGS ASSES SING OFFICER HAS MADE ADDITION OF RS..13,18,277/- BY CALCULATING INT EREST @ 12% ON AVERAGE BALANCE OF INTEREST FREE ADVANCES. ON APPEA L BEFORE LD. CIT(A), ASSESSEE HAS SUBMITTED THAT THE MAJOR AMOUN T OF DISALLOWANCE IS ON INTEREST FREE LOANS AND ADVANCES GIVEN TO M/S MEDTEK ASIA LTD. RS. 12,93,040/- OUT OF TOTAL DISALLOWANCE OF RS.13,18,277/-, THERE HAS BEEN REGULAR TRADE/BUSINE SS TRANSACTIONS WITH MEDTEK ASIA P. LTD. IN PAST AS WELL AS IN THE YEAR UNDER APPEAL AND THEREFORE, AS ADVANCES TO MEDTEK ASIA P. LTD. A RE OF BUSINESS ITA NO. 384 & 545/AHD/2012 ASST. YEAR2008-09 10 ADVANCE NATURE THE SAME SHOULD NOT BE TAKEN AT PAR AS INTEREST FREE ADVANCES. 15.1 WE ALSO FIND THAT LD. AR HAS FURTHER SUBMITTED THAT THE INTEREST BEARING FUNDS AND OTHER FUNDS OF THE COMPANY HAVE B EEN ROUTED THROUGH THE SAME BANK ACCOUNT AND IT IS ALSO A FACT THAT ADVANCE GIVEN TO M/S MEDTEK ASIA P. LTD. STOOD GIVEN FOR WH OLE YEAR AND THE AVERAGE INTEREST SERVICING COST OF INTEREST BEARING FUND IS HARDLY 3.5% WHICH HAVE BEEN WORKED OUT BY CONSIDERING THE AVERA GE COST OF INTEREST WITH OWN CAPITAL AND UNSECURED LOAN NOT HA VING INTEREST COST AND THEREFORE ASSESSEE HAS ACCEPTED THAT DISALLOWAN CE, IF ANY, BE SUSTAINED SHOULD NOT EXCEED 3.5% OF THE AVERAGE BAL ANCE OF LOAN AND ADVANCE. 16. FROM GOING THROUGH THE CIT(A)S ORDER WE FIND T HAT LD. CIT(A) HAS DULY ACCEPTED THE SUBMISSIONS OF THE ASSESSEE A ND HAS, THEREFORE, REDUCED THE ADDITION OF DISALLOWANCE OF INTEREST EXPENDITURE BY RESTRICTING IT TO 3.5% BEING AVERAGE INTEREST COST OF TOTAL FUND GIVEN AS INTEREST FREE FUNDS. WE ARE, TH EREFORE, OF THE VIEW THAT AS A TOTAL FUND OF THE ASSESSEE COMPRISING OF OWN CAPITAL, INTEREST FREE UNSECURED LOANS AS WELL AS INTEREST BEARING FU NDS ARE ALL MOVING THROUGH A COMMON BANK ACCOUNT AND THE APPLICATION O F THIS FUND IS FOR BUSINESS AS WELL AS AT SOMETIMES INTEREST FREE LOAN & ADVANCE USE AND LD. CIT(A) HAS RIGHTLY APPLIED 3.5% RATE OF IN TEREST ON THE AVERAGE BALANCE OF INTEREST FREE LOANS AND ADVANCES . WE, THEREFORE, UPHOLD THE ORDER OF CIT(A) AND DISMISS THIS GROUND OF ASSESSEE. ITA NO. 384 & 545/AHD/2012 ASST. YEAR2008-09 11 17. GROUND NO.4 IS REGARDING INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT, WHICH IS PREMATURE AND NEEDS NO ADJUDICATION. 18. THE APPEAL OF ASSESSEE IS DISMISSED. 19. NOW WE TAKE UP REVENUES APPEAL IN ITA NO.545/A HD/2012 FOR ASST. YEAR 2008-09, WHEREIN FOLLOWING GROUNDS HAVE BEEN RAISED :- 1. THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN DIRE CTING THE AO TO ALLOW THE EMPLOYEES CONTRIBUTION OF PF & ESI, IF PA ID, BEFORE THE DUE DATE OF FILING THE RETURN, WITHOUT CONSIDER ING THE SPECIFIC PROVISION OF 36(1)(VA) R.W.S.2(24)(X) OF THE IT ACT FOR EMPLOYEES CONTRIBUTION OF PF & ESI. 2. THE LD. CIT(A) ERRED IN HOLDING THAT THE DISALLO WANCE U/S 36(1)(III) OF THE ACT SHOULD BE AT AVERAGE COST OF FUNDS 3.5% AS AGAINST THE ACTUAL RATE AT WHICH THE FUNDS DIVERTED WERE BORROWED (12%). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF TH E ASSESSING OFFICER TO THE EXTENT MENTIONED ABOVE, SINCE THE AS SESSEE HAS FAILED TO DISCLOSE HIS TRUE INCOME. THE APPELLANT PRAYS THAT THE ORDER OF LD. CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFI CER BE RESTORED. THE APPELLANT CRAVES LEAVE OR ALTER ANY G ROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 20. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND GOING THROUGH THE FACTS OF THE CASE, WE FIND THAT THIS APPEAL WAS PRESENTED ON 02/03/2012. ON 10.12.2015 THE CBDT HAS ISSUED INST RUCTIONS BEARING NO. 21/2015 PROHIBITING ITS SUBORDINATE AUT HORITIES FROM FILING ITA NO. 384 & 545/AHD/2012 ASST. YEAR2008-09 12 OF THE APPEAL TO THE TRIBUNAL AGAINST THE ORDER OF THE CIT(A) WHERE THE TAX EFFECT BY VIRTUE OF THE RELIEF GIVEN BY THE CIT(A) IS LESS THAN RS.10 LAKHS. THE INSTRUCTIONS HAVE BEEN MADE APPLI CABLE WITH RETROSPECTIVE EFFECT, MEANING THEREBY, THESE INSTRU CTIONS ARE APPLICABLE ON PENDING APPEALS ALSO. THE TAX EFFECT ON DELETION OF TOTAL ADDITION WOULD BE LESS THAN RS.10 LAKHS. THE PRESENT APPEAL DESERVES TO BE DISMISSED BEING TREATED TO BE FILED IN VIOLATION OF CBDT INSTRUCTIONS. THE CASE DOES NOT FALL WITHIN T HE AMBIT OF EXCEPTIONS PROVIDED IN THE INSTRUCTIONS. IT IS FUR THER OBSERVED THAT SINCE, WHILE HEARING THE APPEAL, SUCH FACTORS WERE NOT CONSIDERED, THEREFORE, IN CASE, ON RE-VERIFICATION AT THE END O F THE AO, IT CAME TO THE NOTICE THAT THE TAX EFFECT IS MORE OR IT FALLS WITHIN THE AMBIT OF EXCEPTIONS PROVIDED IN THE INSTRUCTION, THEN THE DE PARTMENT WILL BE AT LIBERTY TO APPROACH THE TRIBUNAL FOR RECALL OF THIS ORDER. SUCH APPLICATION SHOULD BE FILED WITHIN FOUR YEARS OF TH IS ORDER. IN VIEW OF THE ABOVE, THE APPEAL OF THE REVENUE IS DISMISSED. 21. IN THE RESULT, APPEAL OF THE ASSESSEE AND THAT OF REVENUE BOTH ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 JANUARY, 2016 SD/- SD/- (KUL BHARAT) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 21 /01/2016 MAHATA/- ITA NO. 384 & 545/AHD/2012 ASST. YEAR2008-09 13 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION: 19/01/2016 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 20/01/2016 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 21/1/16 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: