The DCIT, (OSD),Range-1, Ahmedabad V. Ahmedabad Steelcraft Limited, Ahmedabad

ITA 399/AHD/2011

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9700 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 15-07-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 14-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D C MISHRA
• Keywords: Depreciation; Earning of tax free income; Onus to prove
• Section: 43B; 143(3); 14A; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD (BEFORE SHRI RAJPAL YADAV, J.M. & SHRI ANIL CHATURV EDI, A.M.) I.T. A. NO. 489 &399 /AHD/2011 (ASSESSMENT YEAR: 2005-06) AHMEDABAD STEELCRAFT LTD. 401, 4 TH FLOOR, 637 COMPLEX PANCHVATI 2 ND LANE, GULBAI TEKRA, AHMEDABAD V/S THE ASSTT. COMMISSIONER OF INCOME TAX, (OSD), RANGE- 1, AHMEDABAD (APPELLANT) (RESPONDENT) THE DY. COMMISSIONER OF INCOME TAX, (OSD), RANGE- 1, AHMEDABAD V/S AHMEDABAD STEELCRAFT LTD. 401, 4 TH FLOOR, 637 COMPLEX PANCHVATI 2 ND LANE, GULBAI TEKRA, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AAACA 3036B APPELLANT BY : SHRI D.C. MISHRA, SR. D.R. RESPONDENT BY : SHRI DHIREN SHAH ( )/ ORDER DATE OF HEARING : 15-07-2015 DATE OF PRONOUNCEMENT : 17 -07-2015 PER ANIL CHATURVEDI, ACCOUNTANT MEMBER 1. THESE 2 APPEALS OF WHICH ONE IS FILED BY THE ASSESS EE AND THE OTHER FILED BY THE REVENUE ARE AGAINST THE ORDER OF CIT(A)-VI, AHM EDABAD DATED 25.12.2010 FOR A.Y. 2005-06. ITA NO 489 & 399/AHD/2011 . A.Y.2005-06 2 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 3. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE B USINESS OF MANUFACTURING STEEL WINDOWS AND DOOR SECTIONS. ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. 2005-06 ON 26.10.2005 DECLARING TOTAL LOSS OF RS. 5 4,03,955/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED UNDER SECTION 143(3) R.W.S. 144C VIDE ORDER DATED 20.12.2007 AND THE TOTAL LOSS WAS ASSESSED AT RS. 22,09,514/-. AGGRIEVED BY THE ORDE R OF A.O., ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO VIDE ORDER DATED 15.12.2010 GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED B Y THE AFORESAID ORDER OF LD. CIT(A), ASSESSEE AND REVENUE ARE NOW IN APPEAL BEF ORE US. THE GROUNDS RAISED BY THE ASSESSEE READS AS UNDER:- 1 DISALLOWANCE OF DEPRECIATION ON CAR - RS. 60,000 /- 1. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN CO NFIRMING THE DISALLOWANCE OF RS. 60,000/- MADE BY THE A.O ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION ON THE GROUND THAT THE USE OF THE CAR BY THE FOREMAN OF THE APPEL LANT COMPANY FOR THE PURPOSE OF BUSINESS IS NOT AT ALL PROVED AND THE DOMINION AND CONTROL ALSO REMAINED UNPROVED, THEREFORE THE DECISION RELIED UPON BY THE APPELLANT DO NOT HELP THE APPELLANT. II. DISALLOWANCE U/S. 14A OF THE ACT - RS. 98,356; - 1. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN CO NFIRMING THE DISALLOWANCE U/S. 14A OF THE ACT OF RS. 98,3567- AS AGAINST THE TOTAL DISALLOWANCE OF RS. 2,90,7347- ON THE GROUND THAT THERE ARE EXPENSES IN THE FORM OF INTEREST AND OTHER ADMINISTRATIVE EXPENSES RELATABLE TO EARNING OF EXE MPT INCOME WHICH ARE TO BE DISALLOWED UNDER SECTION 14A FOR WHICH RULE 8D GIVE S BASIS FOR COMPUTATION OF SUCH DISALLOWANCE. III. DISALLOWANCE OF EMPLOYEES CONTRIBUTION TO ESIC -RS. 43.4917- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CON FIRMING THE DISALLOWANCE OF EMPLOYEES CONTRIBUTION TO ESIC AMOUNTING TO RS. 43, 4917- ON THE GROUND THAT SINCE ITA NO 489 & 399/AHD/2011 . A.Y.2005-06 3 THERE HAS BEEN DELAY IN PAYMENT FOR THE EMPLOYEE'S CONTRIBUTION TO ESIC, THE SAME IS NOT ALLOWABLE U7S. 36(1 )(VA) OF THE ACT. 2. THE APPELLANT SUBMITS THAT THE LD. A.O AS WELL AS C IT (A) OUT TO HAVE ALLOWED THE CLAIM OF APPELLANT IN VIEW OF THE DECISION OF HON'B LE SUPREME COURT IN THE CASE OF CIT VS. ALOM EXTRUSIONS LTD., 319 ITR 306 RELIED UP ON BY THE APPELLANT 4. ON THE OTHER HAND THE GROUND RAISED BY THE REVENUE READS AS UNDER:- 1. THE LD. C1T(A) ERRED IN LAW AND ON FACTS IN DELET ING THE ADDITION OF RS. 1,92,378/- MADE U/S. 14A OF THE IT ACT 2. THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN D ELETING THE ADDITION OF RS. 4,27,703/- ON ACCOUNT OF DISALLOWANCE OF INTEREST. 3. THE LD. CIT(A) ERRED IN LAW AND ON FACTS I N DELETING THE ADDITION OF RS. 21,96,744/- ON ACCOUNT OF DISALLOWANCE OF PAYMENT U/S. 40(A)(IA) OF THE 1 T ACT. 5. WE FIRST TAKE UP ASSESSEES APPEAL IN ITA NO. 489/A HD/2011 1 ST GROUND IS WITH RESPECT TO DISALLOWANCE OF DEPRECIA TION ON CAR 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NO TICED THAT ASSESSEE HAS CLAIMED DEPRECIATION ON CAR. ON FURTHER EXAMINATION OF THE DETAILS, HE NOTICED THAT THE CAR WAS PURCHASED BY MR. DAYAL SIN GH AN EMPLOYEE OF THE COMPANY AND NOT THE ASSESSEE. BEFORE A.O, IT WAS SU BMITTED THAT THERE WAS MUTUAL AGREEMENT BETWEEN THE ASSESSEE AND MR. DAYAL SINGH. A.O NOTICED THAT ASSESSEE HAD FAILED TO JUSTIFY THE CLAIM OF DE PRECIATION AND HAD NOT FULFILLED THE PRIMARY CONDITION TO CLAIM THE DEPREC IATION ON ASSETS. HE ACCORDINGLY DISALLOWED THE CLAIM OF DEPRECIATION ON THE AFORESAID CAR OF RS. 60,000/-. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO UPHELD THE ORDER OF A.O BY HOLDING A S UNDER:- ITA NO 489 & 399/AHD/2011 . A.Y.2005-06 4 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE, ASSESS MENT ORDER AND APPELLANTS SUBMISSION. THE BASIC FACT IS THAT AN EMPLOYEE OF THE COMPANY P URCHASED MOTOR CAR IN HIS NAME AND THE BILL FOR THE SAID PURCHASE IS ALSO IN THE NAME OF EMPLOYEE. THEREFORE APPELLANT COMPANY IS NOT THE LEGAL OWNER OF THE MOTOR CAR. FO R CLAIM OF DEPRECIATION, THE TWO CONDITIONS ARE TO BE FULFILLED NAMELY- APPELLANT MUST BE OWNER OF THE ASSET AND THUS IT MUST BE USED FOR THE PURPOSE OF APPELLANT'S BUSINES S. IN THIS CASE APPELLANT IS NOT THE OWNER SINCE THE OWNERSHIP VESTS WITH THE EMPLOYER W HO IS A SEPARATE ENTITY THAN THE APPELLANT COMPANY. AS REGARDS USE FOR THE PURPOSE O F BUSINESS, DETAILS OF USE OF CAR INCLUDING LOGBOOK WERE NOT FURNISHED. THEREFORE USE OF CAR FOR THE PURPOSE OF COMPANY'S BUSINESS IS NOT ESTABLISHED BY THE APPELLANT. ALTHO UGH THE ONUS TO PROVE THE USER OF ASSET WAS ON THE APPELLANT, THE SAME WAS NOT DISCHARGED E ITHER BEFORE THE ASSESSING OFFICER OR BEFORE THE UNDERSIGNED. CLAIM OF EXPENSE IN THE COMPANY ACCOUNTS IS NOT AN EVIDENCE TO PROVE THAT ASSET WAS USED FOR THE BUSINESS OF THE C OMPANY. IN THE ABSENCE OF ANY TANGIBLE EVIDENCE TO PROVE THE BUSINESS USE OF THE MOTOR CAR PURCHASED IN THE NAME OF EMPLOYEE, IT IS HELD THAT THE MOTOR CAR WAS NOT USE D FOR THE PURPOSE OF APPELLANT'S BUSINESS. COMING TO THE APPELLANT'S ARGUMENT OF BENEFICIAL O WNERSHIP, APPELLANT SUBMITTED THAT PAYMENT FOR THE CAR WAS MADE BY THE COMPANY AN D HENCE THE APPELLANT IS THE BENEFICIAL OWNER. PAYMENT WILL NOT DETERMINE THE OW NERSHIP SINCE PAYMENT CAN BE MADE BY WAY OF LOAN ALSO. IN FACT MAJOR PAYMENT IS MADE BY FINANCE COMPANY BUT IT IS NOT THE BENEFICIAL OWNER. SINCE BOTH APPELLANT AND ITS EMPL OYEE ARE SEPARATE ENTITIES AND EMPLOYEES ARE NOT PERMANENT, IT CANNOT BE SAID THAT APPELLANT COMPANY HAS GOT COMPLETE DOMINION OVER THE MOTOR CAR. SINCE MOTOR CAR IS IN POSSESSION AND CONTROL OF THE EMPLOYEE IN WHOSE NAME THE SAME STAND, THERE IS NO DOMINION OR CONTROL OF THE APPELLANT COMPANY ON THE SAID MOTOR CAR. THOUGH PURCHASED FRO M THE FUNDS PROVIDED BY IT, APPELLANT CANNOT BE SAID TO BE BENEFICIAL OWNER FOR THE PURPOSE OF CLAIMING DEPRECIATION. APPELLANT RELIED UPON THE DECISIONS OF ITAT AHMEDAB AD AND ALSO CERTAIN HIGH COURTS INCLUDING SUPREME COURT DECISION IN THE CASE OF MYS ORE MINERALS LTD. IT WOULD BE VERY RELEVANT TO REFER THREE-MEMBER DE CISION OF HONORABLE SUPREME COURT IN THE CASE OF TAMIL NADU CIVIL SUPPLIES CORPORATION LTD VERSUS CI T REPORTED IN 249 ITR 214. IN THIS LARGER BENCH DECISION OF APEX COURT, EARLIE R DECISION OF MYSORE ITA NO 489 & 399/AHD/2011 . A.Y.2005-06 5 MINERALS LTD WAS ALSO CONSIDERED. THE SAID DECISION WAS DISTINGUISHED ON FACTS AND IT WAS HELD THAT SINCE ASSESSEE HAS NOT ACQUIRED DOMIN ION OVER ASSET IN QUESTION, CLAIM OF DEPRECIATION IS NOT ALLOWED. IN ANOTHER DECISION OF DELHI HIGH COURT IN THE CASE OF MM FISHERIES PRIVATE LTD VERSUS CIT, 277 ITR 204, ON THE IDENTICAL ISSUE OF CLAIM OF DEPRECIATION ON VEHICLES REGISTERED IN THE NAME OF DIRECTORS, THE SAME WAS DECIDED AGAINST THE ASSESSEE. IN THE LIGHT OF THESE TWO LAN DMARK DECISIONS, THE ISSUE IS NOT HELD TO BE COVERED BY THE DECISION OF JURISDICTIONAL ITAT S INCE THESE DECISIONS WERE NOT CONSIDERED THEREIN. ONUS IS ON THE APPELLANT TO PRO VE THE DOMINION OVER THE ASSET AS WELL AS USE FOR THE PURPOSE OF BUSINESS. IF APPELLANT IS NOT ABLE TO PROVE EITHER IN THE LIGHT OF LARGER BENCH DECISION OF SUPREME COURT, CLAIM OF DE PRECIATION ON ASSETS STANDING IN OTHERS NAME CANNOT BE ALLOWED. THE DECISIONS OF OTHER HIGH COURTS REFERRED BY THE APPELLANT HAVE BEEN CONSIDERED. IN ALL THOSE DECISIONS THE USER OF ASSE T NAMELY TRANSPORT BUSES ETC WERE BY THE COMPANIES AND THE COMPANIES WERE DISCLOSING THE INC OME FROM HIRING THOSE VEHICLES. THE USER OF ASSET FOR THE PURPOSE OF BUSINESS WAS PROVE D IN ALL THESE CASES BEYOND DOUBT. WITH THE USER OF ASSET, DOMINION AND CONTROL IS ALS O PROVED. THEREFORE CLAIM OF DEPRECIATION IN THESE CASES WERE ALLOWED BY VARIOUS HIGH COURTS. HOWEVER IN THE APPELLANT'S CASE, USE FOR THE PURPOSE OF BUSINESS I F NOT AT ALL PROVED AND THE DOMINION AND CONTROL ALSO REMAINED UNPROVED THEREFORE THESE DECI SIONS DO NOT HELP THE APPELLANT. CONSIDERING THE LARGER BENCH DECISION OF APEX COURT AND THE DELHI HIGH COURT DECISION IN THE CASE OF MM FISHERIES PRIVATE LTD, THE DECISI ON OF JURISDICTIONAL ITAT IS NOT FOLLOWED WHICH HAS NOT CONSIDERED THESE DECISIONS. IT IS THE REFORE HELD THAT THE DEPRECATION CLAIMED BY THE APPELLANT IS CORRECTLY DISALLOWED BY THE ASSESSING OFFICER. 7. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), ASS ESSEE IS NOW IN APPEAL BEFORE US. 8. BEFORE US, LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE A.O AND LD. CIT(A). THE LD. D.R ON THE OTHER HAND SUPPORTED T HE ORDER OF A.O AND LD. CIT(A). ITA NO 489 & 399/AHD/2011 . A.Y.2005-06 6 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO CLAIM OF DEPRECIATION OF VEHICLE WHICH IN THE NAME OF AN EMPLOYEE AND NOT IN THE NAM E OF ASSESSEE. WE FIND THAT LD. CIT(A) WHILE UPHOLDING THE DISALLOWANCE HA S NOTED THAT ASSESSEE HAS FAILED TO PROVE THE BUSINESS USE OF VEHICLE FOR THE PURPOSE OF BUSINESS AND THE DOMINION AND CONTROL OF THE ASSESSEE ON THE VEHICLE ALSO REMAINED UNPROVED. BEFORE US, LD. A.R. HAS NOT PLACED ANY MA TERIAL ON RECORD TO DEMONSTRATE AS TO WHAT WAS THE UNDERSTANDING BETWEE N THE EMPLOYEE AND THE ASSESSEE AND WHETHER THE CONCERNED EMPLOYEE IN WHOS E NAME THE VEHICLE WAS PURCHASED WAS STILL IN THE EMPLOYMENT OF ASSESS EE. LD. A.R. HAS ALSO NOT PLACED ANY MATERIAL ON RECORD TO CONTROVERT THE FINDINGS OF LD. CIT(A). IN VIEW OF THE AFORESAID FACTS, WE FIND NO REASON T O INTERFERE WITH THE ORDER OF LD. CIT(A) AND THUS THE GROUND OF ASSESSEE IS DI SMISSED. 2 ND GROUND IS WITH RESPECT TO DISALLOWANCE U/S. 14A 10. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NO TICED THAT ASSESSEE HAS EARNED DIVIDEND INCOME OF RS. 14.53 LACS WHICH WAS CLAIMED AS EXEMPT U/S. 10(34) OF THE ACT. HE ALSO NOTICED THAT ASSESSEE HA D INVESTMENT TO THE EXTENT OF RS.115.19 LACS AND HAD ALSO INCURRED INTEREST EX PENSE OF RS. 59.45 LACS. THE ASSESSEE WAS THEREFORE ASKED TO FURNISH THE DET AILS OF INVESTMENTS EXPENDITURE INCURRED AND TO PROVE THAT THE INVESTME NTS HAVE NOT BEEN MADE FROM THE BORROWED FUNDS. THE SUBMISSION OF THE ASSE SSEE OF NOT INCURRING FINANCIAL EXPENDITURE AND OTHER ADMINISTRATIVE EXPE NDITURE WAS NOT FOUND ACCEPTABLE TO THE A.O. A.O WAS OF THE VIEW THAT DIS ALLOWANCE U/S. 14A NEEDS TO BE MADE WHEN ASSESSEE HAS EARNED EXEMPT INCOME. HE ACCORDINGLY DISALLOWANCE 20% OF DIVIDEND INCOME I.E. RS. 2,90,7 34/- U/S. 14A OF THE ACT. ITA NO 489 & 399/AHD/2011 . A.Y.2005-06 7 AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED TH E MATTER BEFORE LD. CIT(A) WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE GRANTED PARTIAL RELIEF TO THE ASSESSEE BY HOLDING AS UNDER: - 3.3. I HAVE CONSIDERED THE FACTS OF THE CASE, ASSES SMENT ORDER AND APPELLANT'S SUBMISSION. IT IS NOT IN DISPUTE THAT APPELLANT EARNED EXEMPT I NCOME IN THE FORM OF DIVIDEND ON INVESTMENT OF MORE THAN RS 1.15 CRORES. IT IS ALSO NOT IN DISPUTE THAT APPELLANT BORROWED FUNDS ON WHICH INTEREST TO THE EXTENT OF RS 59.45 L AKHS WERE PAID. APART FROM THIS SUBSTANTIAL ADMINISTRATIVE EXPENSES WERE INCURRED, PART OF WHICH MAY RELATE TO INVESTMENT RESULTING IN EXEMPT INCOME. CONSIDERING THESE FACTS IT IS CLEAR THAT THERE ARE EXPENSES IN THE FORM OF INTEREST AND OTHER ADMINISTRATIVE EXPEN SES RELATABLE TO EARNING OF EXEMPT INCOME WHICH ARE TO BE DISALLOWED UNDER SECTION 14 A. THEREFORE DISALLOWANCE UNDER SECTION 14 A IS NECESSARY. COMING TO THE METHOD OF COMPUTING DISALLOWANCE UND ER SECTION 14 A, ASSESSING OFFICER DISALLOWED 20% OF EXEMPT INCOME. UP TO 2007 -08 THE METHOD TO ARRIVE AT DISALLOWABLE EXPENSE WAS ESTIMATION. THEREAFTER RUL E 8 D WAS FRAMED WHICH GIVES FORMULA FOR DISALLOWANCE OF EXPENSES RELATING TO EX EMPT INCOME. FOR INTEREST, PROPORTIONATE EXPENSE IS DISALLOWABLE WHEREAS FOR O THER EXPENSES 0.5% OF INVESTMENT VALUE IS DISALLOWABLE. APPELLANT SUBMITTED WORKING AS PER RULE 8D AS PER WHICH DISALLOWANCE OF OTHER EXPENSE IS RS 65,934 BEING 5% OF RS 1,31,94,878 BEING INVESTMENT VALUE. AS REGARDS INTEREST APPELLANT WORKED OUT INT EREST ON BORROWINGS OTHER THAN BANK WHICH IT CONSIDERED EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE DISALLOWANCE WORKED OUT FROM INTEREST EXPENSE IS RS 32,382. CONSIDERING THE FACT THAT EXPENSES RELATING TO EXEMPT INCOME ARE TO BE ESTIMATED AND RULE 8D GIVES BASIS FOR COMPUTING SUCH DISALLOWANCE, THEREFORE THE DISALLOWANCE UNDER SECTION 14A IS CON FIRMED TO THE EXTENT OF RS. 98,356 . 11. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), ASS ESSEE IS NOW IN APPEAL BEFORE US. 12. BEFORE US, LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE A.O AND LD. CIT(A). HE FURTHER SUBMITTED THAT ASSESSEE WAS HAVI NG SUFFICIENT INTEREST ITA NO 489 & 399/AHD/2011 . A.Y.2005-06 8 FREE FUNDS AND THEREFORE IT HAS TO BE PRESUMED THAT INVESTMENTS ARE FROM INTEREST FREE FUNDS AND NO DISALLOWANCE U/S. 14A WA S CALLED FOR. HE FURTHER SUBMITTED THAT RULE 8D IS NOT APPLICABLE TO THE YEA R UNDER CONSIDERATION IN VIEW OF THE DECISION OF BOMBAY HIGH COURT IN THE CA SE OF GODREJ & BOYCE CO. LTD. VS. DCIT (2010) 328 ITR 81 (BOM). THE LD. D.R ON THE OTHER HAND SUPPORTED THE ORDER OF A.O. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE PROVISIONS OF RULE 8 D ARE NOT APPLICABLE TO THE YEAR UNDER CONSIDERATION IN VIEW OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE CO. LTD. (SUPRA ). THE HONBLE HIGH COURT HAS FURTHER HELD THAT EVEN IF RULE 8D HAS NOT APPLICATION, THE A.O WOULD BE DUTY BOUND TO COMPUTE THE EXTENT OF DISALL OWANCE BY THE APPLICATION OF A REASONABLE METHOD HAVING REGARD TO ALL THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT LD. CIT(A) AFTER CONSIDERING THE ENTIRE FACTS HAS RESTRICTED THE DISALLOWANCE U/S. 1 4A TO RS. 98,356/- AS AGAINST THE DISALLOWANCE OF RS. 2,90,734/- MADE BY THE A.O. IN THE PRESENT CASE, WE ARE OF THE VIEW THAT THE ESTIMATION MADE B Y LD. CIT(A) IS FAIR AND REASONABLE. BEFORE US, LD. A.R. COULD NOT POINT OU T ANY ERROR IN THE METHOD OF ESTIMATION FOLLOWED BY LD. CIT(A). IN VIEW OF TH E AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AND THUS THE GROUND OF ASSESSEE IS DISMISSED. 3 RD GROUND IS WITH RESPECT TO DISALLOWANCE OF EMPLOYEE S CONTRIBUTION TO ESIC 14. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O N OTICED THAT THE EMPLOYEES CONTRIBUTION TOWARDS ESIC WAS NOT DEPOSIT ED BY THE ASSESSEE ITA NO 489 & 399/AHD/2011 . A.Y.2005-06 9 WITHIN THE DUE DATES PRESCRIBED. A.O WAS OF THE VIE W THAT IN VIEW OF THE PROVISIONS OF SECTION 36(1)(VA) R.W.S. 2(29)(X), TH E AMOUNT WHICH HAS NOT BEEN DEPOSITED WITHIN THE DUE DATES HAS TO BE CONSI DERED AS INCOME OF THE EMPLOYER. HE ACCORDINGLY MADE ADDITION OF RS. 43,49 1/-. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE L D. CIT(A) WHO UPHELD THE ORDER OF A.O BY HOLDING AS UNDER:- 4.3. I HAVE CONSIDERED THE FACTS OF THE CASE, ASSES SMENT ORDER AND APPELLANT'S SUBMISSION. A.O. MADE ADDITION OF EMPLOYEE'S CONTRIBUTION AMOUN TING TO RS43491 TO ESIC NOT PAID WITHIN DUE DATES PRESCRIBED IN ESIC ACT. EMPLOYEE'S CONTRIBUTION IS ALLOWABLE U/S 36FIJ(VA) . THE AMENDMENT IN SEC. 43B ON WHICH JUDI CIAL DECISION AS REFERRED BY THE APPELLANT, IS NOT APPLICABLE TO EMPLOYEE'S CONTRIBU TION. ON A PLAIN READING OF SEC. 43B IT CAN BE SEEN THAT IF RESTRICTS THE ALLOWANCE OF EXPE NSES WHICH ARE OTHERWISE ALLOWABLE UNDER THE ACT. THE ITEMS COVERED U/S 43B ARE LISTED FROM CLAUSE-A TO F. EMPLOYEE'S CONTRIBUTION TO PF. OR OTHER EMPLOYEES' WELFARE FUN D IS NOT COVERED IN ANY OF THE CLAUSE MENTIONED IN SEC. 43B. EMPLOYER'S CONTRIBUTION IS MENTIONED IN CLAUSE-B AN D THEREFORE, EMPLOYER'S CONTRIBUTION IS ONLY SUBJECT TO SEC. 43B . SINCE, IT IS OTHERWISE ALLOWABLE U/S 37(1) OF IT. ACT. SINCE, PROVISION OF SEC. 43B IS N OT AT ALL RELEVANT FOR EMPLOYEE'S CONTRIBUTION; THE DECISIONS BASED ON AMENDMENT TO S EC. 43B CANNOT BE APPLIED TO EMPLOYEE'S CONTRIBUTION. IT IS NOT IN DISPUTE THAT FOR EMPLOYEES WELFARE, BOTH EMPLOYEE AND EMPLOYER CONTRIBUTE. EMPLOYER'S CONTRIBUTION IS ALLOWABLE AS DEDUCTION ONLY IF THE SAME IS PAID BEFORE THE DUE DATE OF FILING THE RETU RN. HOWEVER, EMPLOYEE'S CONTRIBUTION IS TREATED AS INCOME U/S 2(24) (X) AND THE SAME IS ALL OWED AS EXPENSE IF IT IS PAID WITHIN DUE DATE PROVIDED IN PF. ACT. IF THE PAYMENT IS NOT MAD E WITHIN DUE DATE THEN THE EXPENSES IS NOT ALLOWABLE U/S 36(1)(VA). SINCE, THE EMPLOYEE'S CONTRIBUTION IS ALLOWABLE ONLY WHEN THE PAYMENT IS MADE WITHIN DUE DATE MENTIONED IN PF . ACT., THE SAME BECOMES DISALLOWABLE IF PAYMENT IS MADE AFTER DUE DATE AND ACCORDINGLY, THE SEC. 43B CANNOT BE APPLIED. THEREFORE, MIXING EMPLOYEE'S CONTRIBUTION TO ESIC A LONG WITH EMPLOYER'S CONTRIBUTION IS DISREGARDING THE CLEAR AND UNAMBIGU OUS PROVISIONS OF IT. ACT. EVEN OTHERWISE, IF PROVISIONS OF SEC. 43B ARE APPLI ED TO EMPLOYEE'S CONTRIBUTION, IT WILL MAKE SEC. 36(1)(VA) REDUNDANT. FOR EXAMPLE U/S 36(1)(VA) ANY PAYMENT MADE ITA NO 489 & 399/AHD/2011 . A.Y.2005-06 10 AFTER 20 DAYS FROM THE END OF THE MONTH IS NOT ALLO WABLE, WHICH MEANS PAYMENT OF EMPLOYEE'S CONTRIBUTION TO ESIC AFTER 20 TH APRIL FOLLOWING THE END OF PREVIOUS YEAR WILL NOT BE ALLOWABLE, WHEREAS IF THE EMPLOYEE'S CONTRIB UTION IS CONSIDERED U/S 43B THEN THE SAME IS ALLOWABLE TILL THE DUE DATE OF FILING THE R ETURN. IN VIEW OF THIS, IF SEC. 43B IS APPLIED TO EMPLOYEE'S CONTRIBUTION, IT WILL MAKE PR OVISIONS OF SEC. 36(I)(VA) REDUNDANT . THE RULE OF HARMONIOUS CONSTRUCTION REQUIRES THAT I NTERPRETATION TO THE STATUTE SHOULD BE SUCH THAT IT SHOULD NOT RENDER ANY PROVISION REDUND ANT. SINCE, THERE IS A CLEAR PROVISION FOR DISALLOWANCE OF EMPLOYEE'S CONTRIBUTION; THE SA ME CANNOT BE MADE REDUNDANT BY LINKING IT WITH SEC. 43B. IN VIEW OF THIS, IT IS CL EAR THAT ALL THE DECISIONS INTERPRETING THE APPLICABILITY OF SEC. 43B WHERE EMPLOYEE'S CONTRIBU TION IS ALSO LOOSELY MENTIONED , DO NOT APPLY TO EMPLOYEE'S CONTRIBUTION COVERED U/S 36(1) (VA). IT IS TRUE THAT THERE ARE CONFLICTING DECISIONS WHEREIN EMPLOYEE'S CONTRIBUTI ON IS ALSO CLUBBED WITH THE EMPLOYER'S CONTRIBUTION. HOWEVER THERE IS NO JURISDICTIONAL HI GH COURT DECISION ON THIS ISSUE AFTER AMENDMENT TO SECTION 43 B. ON THE ISSUE OF RULE OF INTERPRETATION OF STATUTE, THERE ARE SEVERAL DECISIONS HOLDING THE VIEW THAT THERE SHOUL D BE HARMONIOUS CONSTRUCTION WHILE INTERPRETING STATUTE. SOME OF THIS ARE- 1-ASSAM CO. LTD VS STATE OF ASSAM AND OTHERS, 248 I TR 567 (SC) 2-LIC OF INDIA VS CIT, 219 ITR 410 (SC) 3-CIT VS S E UPPER SILERU , 152 ITR 752 (AP) IF THE ABOVE RATIONAL AND LOGIC IS FOLLOWED, THERE IS NO CONFUSION OVER APPLICABILITY OF THE CORRECT PROVISION TO EMPLOYEE'S CONTRIBUTION. IN VI EW OF THE CLEAR PROVISIONS AND LEGISLATIVE INTENT, THE EMPLOYEE'S CONTRIBUTION IS ALLOWABLE ONLY IF THE SAME IS PAID WITHIN DUE DATES UNDER ESIC ACT. SINCE, THERE HAS BEEN DEL AY IN PAYMENT FOR THE EMPLOYEE'S CONTRIBUTION TO ESIC THE SAME IS NOT ALLOWABLE U/S 36 (1)(VA). ADDITION MADE BY THE AO IS THEREFORE, CONFIRMED. 15. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), AS SESSEE IS NOW IN APPEAL BEFORE US. ITA NO 489 & 399/AHD/2011 . A.Y.2005-06 11 16. BEFORE US, LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE A.O AND LD. CIT(A). THE LD. D.R ON THE OTHER HAND SUPPORTED TH E ORDER OF A.O AND SUBMITTED THAT THE ORDER OF A.O NEEDS TO BE UPHELD IN VIEW OF THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. G UJARAT STATE ROAD TRANSPORT CORPORATION 366 ITR 170 (SUPRA). HE THUS SUPPORTED THE ORDER OF A.O AND LD. CIT(A). 17. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE EMPLOYEES CONTRIBUTION OF ESIC WAS BELATEDLY DEPOSITED BY THE ASSESSEE. WE FIND THAT THE HONBLE GUJARAT HIGH COURT IN THE CASE OF GUJARAT STATE ROAD TRANSPORT CORPORATIO N (SUPRA) HAS HELD AS UNDER:- 'ANY SUM WITH RESPECT TO THE EMPLOYEES CONTRIBUTION AS MENTIONED IN S. 36(L)(VA), ASSESSEE SHALL BE ENTITLED TO THE DEDUCTION OF SUCH SUM TOWARDS THE EMPLOYEES CONTRIBUTION IF THE SAME IS DEPOSITED IN THE ACCOUN TS OF THE CONCERNED EMPLOYEES AND IN THE CONCERNED FUND SUCH AS PROVIDENT FUND, ESI CONT RIBUTION FUND, ETC PROVIDED THE SAID SUM IS CREDITED BY THE ASSESSEE TO THE EMPLOYEES AC COUNTS IN THE RELEVANT FUND OR FUNDS ON OR BEFORE THE 'DUE DATE' UNDER THE PROVIDENT FUND A CT, ESI ACT, RULE, ORDER OR NOTIFICATION ISSUED THEREUNDER OR UNDER ANY STANDIN G ORDER, AWARD, CONTRACT OR SERVICE OR OTHERWISE. ..' 18. IN VIEW OF THE AFORESAID DECISION OF HONBLE GUJARA T HIGH COURT AND IN THE ABSENCE OF ANY CONTRARY BINDING DECISION, WE FIND N O REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AND THUS THE GROUND OF ASSE SSEE IS DISMISSED. 19. IN THE RESULT, THE APPEAL OF ASSESSEE IS DISMISSED . NOW WE TAKE UP REVENUES APPEAL IN ITA NO. 399/AHD/ 2011 ITA NO 489 & 399/AHD/2011 . A.Y.2005-06 12 GROUND NO. 1 IS WITH RESPECT TO DISALLOWANCE U /S. 14A. 20. BEFORE US, BOTH THE PARTIES SUBMITTED THAT THE PRES ENT GROUND IS INTERCONNECTED WITH GROUND NO. 2 OF ASSESSEES APPE AL AND THE SUBMISSIONS MADE BY THEM WHILE ARGUING THE ASSESSEES APPEAL WO ULD ALSO BE APPLICABLE TO THE PRESENT GROUND. IN VIEW OF THE AFORESAID SUB MISSION OF BOTH THE PARTIES, WE FOR THE REASONS STATED HEREINABOVE WHI LE DECIDING THE APPEAL FOR ASSESSEES APPEAL IN ITA NO. 489/AHD/2011(SUPRA) AN D FOR SIMILAR REASONS DISMISS THE GROUND OF REVENUE. GROUND NO. 2 IS WITH RESPECT TO DELETION OF ADDITION ON ACCOUNT OF DISALLOWANCE OF INTEREST. 21. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NO TICED THAT ASSESSEE HAD GIVEN LOANS AND ADVANCES TO THE TUNE OF RS. 5.35 CR ORES WHICH INCLUDED LOAN TO COMPANIES/FIRM OF RS. 30.94 LACS AND TO STAFF OF RS. 4.69 LACS. A.O ALSO NOTICED THAT AGAINST THE INTEREST FREE FUNDS OF RS. 11.23 CRORES, THE APPLICATION OF FUNDS IN FIXED ASSETS, INVENTORIES E TC. WERE TO THE EXTENT OF RS. 10.60 CRORES AND THEREFORE IN THE ABSENCE OF ANY PR OOF WITH RESPECT TO NON INTEREST BEARING FUNDS BEING USED FOR ADVANCING INT EREST FREE ADVANCES, A.O ON THE BASIS OF INTEREST AT 12% WORKED OUT THE DISA LLOWANCE OF INTEREST ON THE AMOUNT THAT WAS ADVANCED TO THE COMPANIES AND TO ST AFF RESULTING INTO DISALLOWANCE OF INTEREST OF RS. 4,27,703/-. AGGRIEV ED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO D ELETED THE ADDITION BY HOLDING AS UNDER:- ITA NO 489 & 399/AHD/2011 . A.Y.2005-06 13 5.3 I HAVE CONSIDERED THE FACTS OF THE CASE, ASSESS MENT ORDER AND APPELLANT'S SUBMISSION. THIS ISSUE IS SQUARELY COVERED BY THE ORDER OF MY L EARNED PREDECESSOR DATED 5TH JUNE 2007 IN ASSESSMENT YEAR 2004-05 IN. APPELLANT'S OWN CASE. IN PARA-3.2 OF THE SAID ORDER, IT HAS BEEN HELD THAT ADVANCES ARE MAINLY IN THE NA TURE OF BUSINESS ADVANCES AS WELL AS IT HAS SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH I T. BY RELYING ON VARIOUS CASE LAWS REFERRED BY THE APPELLANT, ADDITION OUT OF INTEREST EXPENSES MADE BY THE ASSESSING OFFICER WAS DELETED. FACTS IN THIS YEAR ARE SIMILAR. ADVANC ES WERE GIVEN IN EARLIER YEARS AND APPELLANT HAD SUFFICIENT CAPITAL AND RESERVES THERE FORE NO DISALLOWANCE ON ACCOUNT OF NON-BUSINESS USE OF BORROWED FUNDS CAN BE MADE. RES PECTFULLY FOLLOWING THE ORDER OF MY LEARNED PREDECESSOR, ADDITION MADE BY THE ASSESSING OFFICER IS DELETED. 22. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), REV ENUE IS NOW IN APPEAL BEFORE US. 23. BEFORE US, LD. D.R SUPPORTED THE ORDER OF A.O. ON T HE OTHER HAND LD. LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE A.O AND LD. CIT(A) AND SUPPORTED THE ORDER OF LD. CIT(A). 24. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT LD. CIT(A) WHILE DELETING THE ADDITION HA S NOTED THAT THE ADVANCES WERE GIVEN BY ASSESSEE IN EARLIER YEARS AND AT THAT TIME ASSESSEE WAS HAVING SUFFICIENT CAPITAL AND RESERVES AND THAT THE ADVANC ES WERE IN THE NATURE OF BUSINESS ADVANCES. HE HAS FURTHER NOTED THAT SIMILA R DISALLOWANCE WAS MADE BY THE A.O IN A.Y. 04-05 WHICH WAS DELETED BY LD. C IT(A) AND THE FACTS OF THE CASE IN THE YEAR UNDER APPEAL WERE IDENTICAL TO A.Y. 04-05. BEFORE US, REVENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO C ONTROVERT THE FINDINGS OF LD. CIT(A). IN VIEW OF THE AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AND THUS THE GROUND OF REVE NUE IS DISMISSED. ITA NO 489 & 399/AHD/2011 . A.Y.2005-06 14 3 RD GROUND IS WITH RESPECT TO DISALLOWANCE U/S. 40(A)( IA) OF THE ACT. 25. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ON VERIFICATION OF THE TDS RETURNS, A.O NOTICED THAT IN SOME CASES THE DEPOSIT OF TDS TO THE GOVERNMENT ACCOUNT WAS NOT WITHIN THE DUE DATE PRES CRIBED. HE ACCORDINGLY CONSIDERED THE AMOUNT OF RS. 21,96,744/- AS BEEN NO T ALLOWABLE U/S. 40(A)(IA) OF THE ACT. AGGRIEVED BY THE ORDER OF A.O., ASSESSE E CARRIED THE MATTER BEFORE LD. CIT(A) WHO DELETED THE ADDITION BY HOLDI NG AS UNDER:- 6.3 I HAVE CONSIDERED THE FACTS OF THE CASE, ASS ESSMENT ORDER AND APPELLANT'S SUBMISSION. FROM THE ASSESSMENT ORDER IT IS SEEN TH AT DISALLOWANCE UNDER SECTION 40(A)(IA) WAS MADE BECAUSE TDS WAS DEPOSITED TO THE GOVERNMENT ACCOUNT ON 08/04/2005 INSTEAD OF 7/4/2005. THIS MEANS THE TDS WAS DEDUCTED IN THE LAST MONTH OF THE FINANCIAL YEAR AND IT WAS DUE ON 7/4/2005. THE DISALLOWANCE WAS ONLY ON ACCOUNT OF DELAY IN PAYMENT BY ONE DAY. HOWEVER THE PROVISIONS WERE AMENDED RETROSPECTIVELY BY FINANCE ACT 2008 AS PER WHICH IF TDS DEDUCTED FOR L AST MONTH OF THE FINANCIAL YEAR IS PAID BEFORE DUE DATE OF FILING RETURN, THE EXPENSE ARE ALLOWABLE. SINCE THIS AMENDMENT CAME AFTER ASSESSMENT ORDER IS PASSED, ASSESSING OF FICER HAD NO OCCASION TO APPLY THIS AMENDED PROVISION. ASSESSING OFFICER IS THEREFORE D IRECTED TO ALLOW EXPENSE FOR THE MONTH OF MARCH 2005, TDS IN RESPECT OF WHICH HAS BEEN PAI D BEFORE DUE DATE OF FILING RETURN. THIS GROUND IS DISPOSED OFF ACCORDINGLY. 26. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), REV ENUE IS NOW IN APPEAL BEFORE US. 27. BEFORE US, LD. D.R SUPPORTED THE ORDER OF A.O. ON T HE OTHER HAND LD. LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE A.O AND LD. CIT(A) AND SUPPORTED THE ORDER OF LD. CIT(A). ITA NO 489 & 399/AHD/2011 . A.Y.2005-06 15 28. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. LD. CIT(A) WHILE DELETING THE ADDITION HAS NOTED THAT T HE DELAY IN DEPOSIT OF TDS WAS OF ONLY A DAY AND FURTHER THE TDS WAS DEPOS ITED BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME AND IN VIEW OF T HE AMENDMENT MADE BY FINANCE ACT, 2008, NO DISALLOWANCE U/S. 40(A)(IA) W AS CALLED FOR. BEFORE US, REVENUE HAS NOT BROUGHT ANY MATERIAL TO CONTROVERT THE FINDINGS OF LD. CIT(A). WE THEREFORE FIND NO REASON TO INTERFERE WI TH THE ORDER OF LD. CIT(A) AND THUS THE GROUND OF REVENUE IS DISMISSED. 29. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED. 30. IN THE RESULT, THE APPEAL OF REVENUE AS WELL AS ASS ESSEE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 17 - 07 - 20 15. SD/- SD/- (RAJPAL YADAV) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD