M/s.Nortrans Marine Services P. Ltd, Cochin V. The Jt CIT(OSD), Ernakulam

ITA 59/COCH/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96803 (ITAT-COCHIN)
• Duration Of Justice: 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2015
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 02-11-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 22-01-2015
• Court: TRIBUNAL
• Department Lawyers: K P GOPAKUMAR
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Audit objection; Proportionate interest; Cost of acquisition; Difference of opinion; Capital receipt; Commercial expediency; Reason to believe; Change of opinion
• Section: 43B; 143(3); 234B; 14A; 148; 28; 139

Judgement Text

I.T.A. NO.59/COCH/2015 1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH C OCHIN BEFORE S/SHRI B.P. JAIN, AM AND GEORGE GEOR GE K., JM I.T.A. NO.59/COCH/2015 ASSESSMENT YEAR : 2006-07 M/S. NORTRANS MARINE SERVICE PVT. LTD., XIV/396, TRANS ASIA CORPORATE PARK, SEAPORT AIRPORT ROAD, CHITTETHUKARA, KAKKANAD, KOCHI-37. VS. THE JOINT COMMISSIONER OF INCOME-TAX(OSD), CIRCLE-4(1), ERNAKULAM. (ASSESSEE -APPELLANT) (REVENUE-RESPONDENT) ASSESSEE BY SHRI R.VIJAYARAGHAVAN, CA REVENUE BY SHRI K.P. GOPAKUMAR, SR. DR DATE OF HEARING 02/11/2015 DATE OF PRONOUNCEMENT 19/11/2015 O R D E R PER B.P.JAIN, ACCOUNTANT MEMBER: THIS APPEAL OF THE ASSESSEE ARISES FROM THE ORD ER OF THE LD. CIT(A)-II, KOCHI DATED 02/09/2014 FOR THE ASSESSMENT YEAR 2006-07. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. BEFORE ISSUING ANY NOTICE U/S. 148 OF THE ACT T HE ASSESSING OFFICER MUST HAVE REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. REASON TO BELIEVE CANNOT BE A REASON TO SUSPECT MER ELY. THERE MUST BE A DIRECT NEXUS BETWEEN THE MATERIAL COMING TO THE NOTICE OF THE AO AND THE FORMATION OF BELIEF THAT THERE HAS BEEN ESCAPEMENT OF INCOME OF THE ASSESSEE FROM ASSESSMENT IN A PARTICULAR YEAR. THE MATERIAL FOR FORMATION OF BELIEF MUST BE RELEVANT AND NOT VAGUE. MERELY A CHANGE OF OPINION CANNOT CONSTITUTE A REASON TO BELIEVE. YOUR APPELLANT HAD DISCLOSED BASIC AND ALL THE TRUE FACTS IN THE RETURN OF INCOME AND ALSO DURING THE COURSE OF ASSESSMENT. LATER ON NOTICE U/S. 148 CANNOT BE ISSUED MERELY BECAUSE THERE IS ANOTHER IN FERENCE POSSIBLE FROM THE SAME DOCUMENTS AND THE FACTS PLACED BEFORE THE ASSE SSING OFFICER DURING THE COURSE OF ASSESSMENT AS IT WILL AMOUNT TO CHANGE OF OPINION. THERE MUST BE SOME NEW MATERIAL COMING INTO LIGHT FOR ACTION U/S. 147/148. YOUR APPELLANT HAS NOT SUPPRESSED ANY RELEVANT FACTS WHICH LEAD TO CON CEALMENT OF INCOME. HENCE ISSUE O NOTICE U/S. 148 OF THE ACT IS AGAINST LAW. THE ASSESSING OFFICER HAS NOT COLLECTED ANY NEW EVIDENCE TO PROVE THAT INCOME HAS ESCAPED ASSESSMENT. WE PRESUME THAT THIS NOTICE HAS BEEN ISSUED ONLY ON AC COUNT OF AUDIT OBJECTION WHICH BY ITSELF DOES NOT GIVE AUTHORITY TO ASSESSIN G OFFICER, TO REOPEN ASSESSMENT U/S. 147/148. I.T.A. NO.59/COCH/2015 2 2. AN AMOUNT OF RS.4,91,86,945/- WAS CHARGED TO TA X BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1(3) AS A REVENU E RECEIPT, WHILE PASSING THE ORDER DATED 15.12.2008 U/S. 143(3) OF THE ACT. YOU R APPELLANT CLAIMED THAT THE AMOUNT OF RS. 4,91,86,945/- WAIVED BY THE PRINCIPAL S IN THE SETTLEMENT DEAL, IS A CAPITAL RECEIPT AND HAD FILED AN APPEAL AGAINST THI S BEFORE THE CIT(A) AND ITAT AND BOTH THESE APPELLATE AUTHORITIES HAD DISMISSED THE CLAIM OF YOUR APPELLANT AND THE MATTER IS NOW PENDING BEFORE THE HON. HIGH COURT OF KERALA. YOUR APPELLANT, WHILE FILING THE RETURN OF INCOME U/S. 1 48, THEREFORE CLAIMED THIS AMOUNT AGAIN AS A CAPITAL RECEIPT FOLLOWING THE DEC ISION OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH IN ACCELERATED FRE EZE AND DRYING CO. LTD. VS. DEPUTY COMMISSIONER OF INCOME TAX (3) SOT 442). TH E LEARNED JCIT WHILE PASSING THE ASSESSMENT ORDER AND CIT(A)-II WHILE PA SSING THE APPELLATE ORDER HAS NOT CONSIDERED YOUR APPELLANTS CLAIM AND CHARG ED THIS AMOUNT TO TAX. 3. IN THE ORDER PASSED, THE LEARNED JCIT IS CONTE NDING THAT YOUR APPELLANT HAD DIVERTED ITS LOAN FUNDS FOR NON-BUSINESS PURPOSES A ND HENCE THE JCIT DISALLOWED THE ENTIRE EXPENDITURE DEBITED TO THE PROFIT AND LO SS ACCOUNT OF YOUR APPELLANT UNDER THE HEAD INTEREST AND BANK CHARGES. WHILE P ASSING THE APPELLATE ORDER, CIT(A)-II ALSO DIDNT CONSIDER THIS CLAIM. THIS DIS ALLOWANCE IS NOT JUSTIFIABLE FOR THE FOLLOWING REASONS: 3.1 ALL THE SECURED LOANS TAKEN BY YOUR APPELLANT A RE FOREIGN CURRENCY TERM LOANS TAKEN SPECIALLY FOR THE PURPOSE OF PURCHASING MARINE CONTAINERS. THE ENTIRE INTEREST EXPENDITURE INCURRED BY YOUR APPELL ANT IS AGAINST THESE FOREIGN CURRENCY TERM LOANS ONLY. YOUR APPELLANT H AD UTILIZED THE ENTIRE LOANS FOR THE SPECIFIC PURPOSE FOR WHICH IT WAS TAK EN. IT IS WRONG TO SAY THAT YOUR APPELLANT HAD DIVERTED A PART OF THESE LOANS F OR NON-BUSINESS PURPOSES. 3.2 YOUR APPELLANT HAD DECLARED INCOME FROM CONTAI NER RENTAL FOR THE ASSESSMENT YEAR 2006-07. THE WHOLE INTEREST DEBITE D TO THE PROFIT AND LOSS ACCOUNT IS DIRECTLY ATTRIBUTABLE TO THE INCOME DECL ARED. 3.3 PURCHASE OF CONTAINERS IS A LONG TERM USE. I T IS NOT PRUDENT FOR A SENSIBLE BUSINESS HOUSE TO DIVERT SHORT TERM FUNDS FOR SUCH LONG TERM USE. HENCE THE BOARD OF DIRECTORS INTENTIONALLY DECIDED GO BORROW FOREIGN CURRENCY LOAN AND DECIDED TO CONTINUE PARKING THE S HORT TERM FUNDS IN BANKS, MUTUAL FUNDS OR COMPANY DEPOSITS. THE ASSES SING OFFICER DOES NOT HAVE THE AUTHORITY TO DECIDE WHAT IS BEST FOR THE C OMPANY AND HIS DECISION THAT THE BORROWAL WAS UN-WANTED AND THAT DIVERSIONS WERE FOR NON BUSINESS PURPOSE AMOUNTS TO INFRINGEMENT INTO THE DECISION M AKING POWERS OF THE BOARD OF DIRECTORS. 3.4 IN THE CASE OF SIVA INDUSTRIES AND HOLDINGS LTD. VS. ACIT (59 DTR TRIB. 182), IT WAS HELD THAT FOR APPLICABILITY OF S ECTION 14A, THERE MUST BE INCOME WHICH IS TAXABLE UNDER THE ACT FOR THE RELEV ANT YEAR AND THERE SHOULD ALSO BE INCOME WHICH IS CLAIMED AS EXEMPT. IF EITHER IS ABSENT, IT HAS NO APPLICABILITY. IN YOUR APPELLANTS CASE, NON E OF THE INVESTMENTS HAVE GENERATED ANY DIVIDEND INCOME DURING THE YEAR AND H ENCE NO DISALLOWANCE IS CALLED FOR. 4. THE LEARNED JOINT COMMISSIONER OF INCOME TAX ( OSD) HAS TREATED EMPLOYEES CONTRIBUTION TO PROVIDENT FUND FOR THE M ONTHS OF AUGUST, OCTOBER AND NOVEMBER 2005 AMOUNTING TO RS.87,720/- AS INCOME ON THE GROUND THAT YOUR APPELLANT HAD REMITTED THESE CONTRIBUTIONS AFTER TH E DUE DATE PRESCRIBED U/S. 36(109VA) OF THE ACT. PAYMENT MADE BY THE APPELLA NT UNDER NO STRETCH OF IMAGINATION CAN BE TREATED AS INCOME. WHEN THE P AYMENT IS DELAYED THE SAME IS REMITTED WITH INTEREST/PENALTY AND HENCE THERE I S A DEEMED EXTENSION OF THE DUE DATE OF PAYMENT. CONSEQUENTLY PAYMENT OF EMPLOY EES CONTRIBUTION WITH I.T.A. NO.59/COCH/2015 3 INTEREST IS DEEMED TO HAVE BEEN PAID WITHIN DUE DAT E. A RECENT DECISION BY THE HONBLE HIGH COURT OF DELHI IN COMMISSIONER OF INCO ME TAX VS. AIMIL LTD. & OTHERS IN (2010) 229 CTR (DEL) 418 HAS HELD THAT IF THE EMPLOYEES CONTRIBUTION IS NOT DEPOSITED BY THE DUE DATE PRESCRIBED UNDER T HE RELEVANT ACTS AND IS DEPOSITED LATE, THE EMPLOYER NOT ONLY PAYS INTEREST ON DELAYED PAYMENT BUT CAN INCUR PENALTIES ALSO, FOR WHICH SPECIFIC PROVISIONS ARE MADE IN THE PROVIDENT FUND ACT AS WELL AS THE ESI ACT. THEREFORE, THE ACT PER MITS THE EMPLOYER TO MAKE THE DEPOSIT WITH SOME DELAYS, SUBJECT TO THE AFORESAID CONSEQUENCES. IN SO FAR AS THE INCOME-TAX ACT IS CONCERNED, THE ASSESSEE CAN G ET THE BENEFIT IF THE ACTUAL PAYMENT IS MADE BEFORE THE RETURN IS FILED. WE HAD REMITTED THE EMPLOYEES CONTRIBUTION OF PF FOR MONTHS OF AUGUST, OCTOBER AN D NOVEMBER BEFORE FILING OUR RETURN OF INCOME. THE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IN CIT & ANR VS. ANZ INFORMATION TECHNOLOGY PVT. LTD, 318 IT R 123 ALSO HOLDS THIS VIEW. HENCE BASED ON THE VARIOUS JUDICIAL DECISIONS THESE CONTRIBUTIONS ARE NOT TO BE DISALLOWED. BUT CIT(A)-II FAILED TO ALLOW THESE PA YMENTS AS A DEDUCTIBLE EXPENSE. 5. YOUR APPELLANT HAD INVESTED AN AMOUNT OF RS.60 LAKHS IN MUTUAL FUNDS. SECTION 48 OF THE INCOME TAX ACT PERMIT THE INDEXAT ION OF THE AMOUNT INVESTED AND EXPENSES CONNECTED THEREWITH. IF THE ASSESSEE HAS INCURRED ANY INTEREST COST, THE SAME COULD BE ADDED TO THE COST OF INVEST MENT. HOWEVER, THE ACT DOES NOT GIVE PERMISSION TO THE ASSESSING OFFICER TO RED UCE THE COST OF INVESTMENT. WHILE PASSING THE ORDER, THE ASSESSING OFFICER HAS DISALLOWED THE ENTIRE INTEREST CLAIMED UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS OR PROFESSION . IF THAT BE SO, PROPORTIONATE INTEREST OUGHT TO HAVE BE EN THE BASIS TO CALCULATE THE INDEXED COST. HOWEVER, INSTEAD OF ADDING SUCH INTE REST TO THE COST, THE ASSESSING OFFICER HAS DEDUCTED THE SAME FROM THE CO ST OF ACQUISITION WHEREBY THE LTCG WENT UP BY DOUBLE THE AMOUNT. THE INTERES T DISALLOWANCE MADE BY THE AO ITSELF IS OBJECTIONABLE. THE ASSESSING OFFICER HAS NO LEGAL BACKING TO DEDUCT THE INTEREST FROM THE COST OF ACQUISITION IN ANY CA SE. IN OUR COMPUTATION WE HAVE CALCULATED THE INDEXED COST ON THE ACTUAL INVE STMENT MADE BY US WHICH IS AS PER LAW. WHILE PASSING THE APPELLATE ORDER, CIT( A)-II DIDNT CONSIDER OUR CONTENTION, AND FAILED TO SPECIFY THE SECTION NUMBE R IN THE ACT WHICH GIVES POWER TO THE ASSESSING OFFICER TO REDUCE THE COST OF INVE STMENT IN CALCULATING THE COST OF INVESTMENT. 6. THE CIT(A) HAD CONFIRMED THE WRONGLY CHARGED INTEREST U/S. 234A OF THE ACT, BY THE LEARNED JCIT, AMOUNTING TO RS.5,44,926/ -. INTEREST U/S. 234A NEED BE CHARGED ONLY FROM THE EXPIRY OF THE TIME ALLOWED BY THE ASSESSING OFFICER, TO FILE THE RETURN OF INCOME U/S. 148. AS PER NOTICE DATED 22.09.2011, THE ASSESSEE WAS GRANTED TIME TILL 14.10.2011 TO FILE THE RETURN OF INCOME. THE ASSESSEE FILED THE RETURN ON 11.10.2011. (COPY OF THE NOTICE REFER RED TO ABOVE IS ATTACHED HEREWITH AS PAGE NO. 25 AND THE ASSESSING OFFICER I N HER ORDER IN PARAGRAPH NO. 1 HAS CONFIRMED THAT THE DATE OF FILING AS 11.10.20 11 WHICH IS ALSO MARKED AND ATTACHED HEREWITH AS PAGE NO. 26). SINCE THE RETU RN OF INCOME WAS FILED WITHIN THE TIME ALLOWED, 234A IS NOT APPLICABLE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSE SSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF STEAMER AGENCY. THE CAS E OF THE ASSESSEE WAS TAKEN UP FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED U/ S. 143(3) ON 15/12/2008 DETERMINING THE TOTAL INCOME OF RS.5,47,76,010/-. T HE SAID ORDER WAS CHALLENGED BY THE ASSESSEE BEFORE THE LD. CIT(A) AND THE LD. C IT(A) VIDE ORDER DATED 30-11- 2009 DETERMINED THE INCOME AT RS.2,48,06,305/-. TH EREAFTER, NOTICE U/S. 148 OF I.T.A. NO.59/COCH/2015 4 THE ACT DATED 14-03-2011, WAS ISSUED TO THE ASSES SEE AS THE ASSESSING OFFICER HAD NOTICED THAT THE INTEREST U/S. 234B WAS SHORT L EVIED, INTEREST EXPENDITURE ATTRIBUTABLE TO FUNDS DIVERTED FOR NON BUSINESS PUR POSES WAS NOT DISALLOWED, EMPLOYEES CONTRIBUTION TO PF NOT REMITTED WITHIN TH E DUE DATE WAS NOT ASSESSED, CERTAIN SUMS WERE TO BE DISALLOWED U/S. 40(A)(IA) A ND CAPITAL GAINS IN RESPECT OF MUTUAL FUNDS SOLD WAS NOT CORRECTLY WORKED OUT IN RESPONSE TO THE AFORESAID NOTICE, THE ASSESSEE FILED THE RETURN OF INCOME ON 11/10/2011. THE RE - ASSESSMENT WAS COMPLETED U/S. 143(3) R.W.S. 147 OF THE ACT VIDE THE ORDER PASSED BY THE ASSESSING OFFICER DATED 19-12-2011 WHEREIN T HE ASSESSING OFFICER DETERMINED THE TOTAL INCOME AT RS.2,90,21,937/-. T HE ASSESSEE CHALLENGED THE SAME BEFORE THE LD. CIT(A) AND VIDE THE IMPUGNED OR DER PASSED BY THE LD. CIT(A), THE APPEAL OF THE ASSESSEE WAS PARTLY ALLOW ED. 4. GROUND NO. 1 WAS NOT PRESSED AND ACCORDINGLY, TH E SAME IS DISMISSED AS NOT PRESSED. 5. GROUND NO. 2 PERTAINS TO THE CLAIM OF RS.4,91, 86,945/- WHICH WAS CHARGED TO TAX BY THE ASSESSING OFFICER IN THE ASSESSMENT PROC EEDINGS U/S. 143(3) OF THE ACT, TREATING THE SAME AS REVENUE RECEIPT WHEREAS THE AS SESSEE CLAIMED THE SAME AS CAPITAL RECEIPT. THE ASSESSMENT ORDER PASSED U/S. 143(3) WAS CHALLENGED BY THE ASSESSEE BEFORE THE LD. CIT(A) AS WELL AS BEFORE TH E ITAT AND THE AFORESAID ASSESSMENT WAS HELD AGAINST THE ASSESSEE BY BOTH TH E APPELLATE FORUMS. AFTER THE ISSUANCE OF NOTICE U/S. 148 OF THE ACT, THE ASSESSE E AGAIN CLAIMED THE AFORESAID AMOUNT AS CAPITAL RECEIPT IN THE RETURN OF INCOME. THE ISSUE HAS ALREADY BEEN ADJUDICATED AND HELD AGAINST THE ASSESSEE BY THE IT AT, COCHIN BENCH VIDE ITS ORDER DATED 17/02/2012 IN I.T.A NOS. 60&76/COCH/201 0. IN VIEW THEREOF, GROUND NO. 2 RAISED BY THE ASSESSEE IS DISMISSED. I.T.A. NO.59/COCH/2015 5 6. GROUND NO. 3 RELATES TO THE DISALLOWANCE OF INTEREST AMOUNTING TO RS.35,36,837/- ON ACCOUNT OF DIVERSION OF FUNDS BY THE ASSESSEE TO ITS SISTER CONCERN. THE DISALLOWANCE WAS MADE U/S. 36(1)(III) R.W.S. 14A OF THE ACT. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD MA DE HUGE BORROWINGS FROM THE BANKS AND DESPITE THAT, INTEREST FREE ADVANCES WERE MADE TO THE SISTER CONCERNS. ACCORDING TO THE ASSESSING OFFICER, IF THESE INTERE ST FREE ADVANCES WERE NOT MADE BY THE ASSESSEE TO ITS SISTER CONCERNS, THE LOAN LI ABILITY AND CONSEQUENT INTEREST LIABILITY OF THE ASSESSEE COULD HAVE BEEN LOWER. 7. THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER . R 8. THE LD. AR IN SUPPORT OF HIS SUBMISSIONS, AR GUED THAT THE ASSESSEE HAS SUFFICIENT SURPLUS WITH IT SO AS TO MAKE THE ADVANC E OF RS.2,87,50,931/- AS ON 31/03/2006 TO TRANS-ASIAN SHIPPING SERVICES PVT. LT D., A SISTER CONCERN. THE LD. AR RELIED ON THE BALANCE SHEET FOR THE YEARS ENDING 31 ST MARCH 2005 AND 31 ST MARCH 2006 OF THE ASSESSEE WHICH SHOWED THAT SURPLU S FUNDS WERE AVAILABLE. HE FURTHER ARGUED THAT THE SECURED LOAN TAKEN BY THE A SSESSEE WERE FOREIGN CURRENCY TERM LOAN TAKEN SPECIFICALLY FOR THE PURCHASE OF MA RINE CONTAINERS. THE ENTIRE INTEREST EXPENDITURE WAS FOR THE AFORESAID TERM LOA N ONLY AND THE ASSESSEE HAD UTILIZED THE ENTIRE LOAN FOR THE PURPOSE OF PURCHAS E OF CONTAINERS USED FOR SHIPPING BUSINESS AND NO PART OF THE LOANS WAS DIVERTED FOR NON BUSINESS PURPOSES. THE LD. AR REFERRED TO THE BOOKS OF ACCOUNT EVIDENCING PURC HASE OF CONTAINERS DURING THE RELEVANT YEAR AND SHOWED A DIRECT NEXUS BETWEEN THE LOAN FUNDS AND TH E PURCHASES MADE. WITH RESPECT TO INTEREST FROM ADVA NCE TO THE SISTER CONCERN, THE LD. AR SUBMITTED THAT THE SAME WAS MADE AS A MEASUR E OF COMMERCIAL EXPEDIENCY. HE SUBMITTED THAT THE ADVANCES WERE M ADE TO THE SISTER CONCERN AS THE LITIGATIONS WERE PENDING AGAINST THE ASSESSEE O N ACCOUNT OF TERMINATION OF AGENCY BY THE PRINCIPAL COMPANY OF THE ASSESSEE. T HE FUNDS WERE ADVANCED TO THE SISTER CONCERN SO AS TO HONOUR THE EMERGENCY SI TUATION, IF ANY, ARISING OUT OF LITIGATIONS PENDING AGAINST THE ASSESSEE. I.T.A. NO.59/COCH/2015 6 9. THE LD. DR ON THE OTHER HAND RELIED UPON THE ORDER OF THE LD. CIT(A). 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED THE MATERIAL ON RECORD. ON PERUSAL OF THE BALANCE SHEET OF THE ASSESSEE FOR TH E YEARS ENDING 31 ST MARCH 2005 AND 31 ST MARCH 2006, IT IS CLEAR THAT THE ASSESSEE HAD SURP LUS FUNDS OF ITS OWN TO ADVANCE INTEREST FREE LOANS TO ITS SISTER CONCERN . FURTHERMORE, THE LD. AR HAS CLEARLY ESTABLISHED THAT THE LOAN FUNDS WERE UTILIZ ED FOR PURCHASE OF CONTAINERS USED BY SHIPPING AGENCIES AND WERE NOT DIVERTED FOR NON BUSINESS PURPOSES. THE QUESTION THAT REQUIRES TO BE RESOLVED IS WHETHER TH E INTEREST FREE ADVANCE WAS GIVEN AS A MEASURE OF COMMERCIAL EXPEDIENCY. THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDER 288 ITR 1 HELD THAT THE ASSES SEE CAN MAKE INTEREST FREE ADVANCE TO ITS SISTER CONCERN IF THE SAME IS GIVEN AS A MEASURE OF COMMERCIAL EXPEDIENCY. THE DISALLOWANCE CANNOT BE MADE SOLELY ON THE GROUND THAT THE ASSESSEE HAD AVAILED LONG TERM LOANS ON THE ONE HAN D AND IS MAKING INTEREST FREE ADVANCE TO ITS SISTER CONCERN ON THE OTHER HAND. H OWEVER, WHEN THE ASSESSEE HAD AVAILED LONG TERM LOANS, A HEAVY ONUS IS PLACED ON THE ASSESSEE TO SHOW THE COMMERCIAL EXPEDIENCY AND NECESSITY FOR MAKING SUCH INTEREST FREE ADVANCES. 11. IN THE PRESENT CASE, THE ASSESSEE WAS INVOLVE D IN LITIGATION CASE PENDING IN FOREIGN COURTS ON ACCOUNT OF TERMINATION OF AGENCY BY ITS PRINCIPAL COMPANIES. THE FUNDS WERE ADVANCED TO THE SISTER CONCERN TO TAKE C ARE OF EMERGENCY SITUATION ARISING PURSUANT TO THE LITIGATION PENDING IN THE F OREIGN COURTS AGAINST THE ASSESSEE. WE ARE IN AGREEMENT WITH THE REASONING A ND EXPLANATION GIVEN BY THE LD. AR AND HOLD THAT THE ADVANCE MADE BY THE ASSESSE E TO ITS SISTER CONCERN WAS FOR THE PURPOSE OF COMMERCIAL EXPEDIENCY. THE DISA LLOWANCE MADE UNDER SECTION 36(1)(III) R.W.S. 14A OF THE ACT CANNOT BE SUSTAINE D IN VIEW OF THE FACT THAT: (I) THE ASSESSEE HAS SURPLUS FUNDS OF ITS OWN FROM WHICH INTEREST FREE ADVANCE TO ITS SISTER CONCERN COULD HAVE BEEN MADE ; I.T.A. NO.59/COCH/2015 7 (II) THE ASSESSEE WAS ABLE TO ESTABLISH THAT THE L ONG TERM LOANS AVAILED BY THE ASSESSEE HAVE NOT BEEN DIVERTED FOR NON BUSINE SS PURPOSES AND WERE UTILIZED FOR PURCHASE OF CONTAINERS; (III) INTEREST FREE ADVANCE TO ITS SISTER CONCERN WAS MADE AS A MEASURE OF COMMERCIAL EXPEDIENCY. 12. OUR AFORESAID VIEW IS SUPPORTED BY THE JUDG MENT OF THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. RADICO KHAITAN LTD. ( 2005) 142 TAXMAN 681 WHEREIN IT WAS HELD AS UNDER: 17.2 IN THE CASE OF BOMBAY SAMACHAR LTD. (SUPRA), THE BOMBAY HIGH COURT HAS HELD AS FOLLOWS: AS WE HAVE ALREADY POINTED OUT, IT IS UNDISPUTED T HAT THE AMOUNTS BORROWED FROM OUTSIDERS ON WHICH INTEREST HAS BEEN PAID HAVE BEEN USED FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. IT APPEARS TO HAVE BEEN THE VIEW OF THE INCOME TAX OFFICER THAT IF THE ASSESSEE HAD COLLECTED THE OUTS TANDINGS WHICH WERE DUE TO IT FROM OTHERS, IT WOULD HAVE BEEN ABLE TO REDUCE ITS INDEB TEDNESS AND THUS SAVE A PART OF THE INTEREST WHICH IT HAD TO PAY ON ITS OWN BORROWI NGS. THE ASSESSEE, THEREFORE, WAS NOT JUSTIFIED IN ALLOWING ITS OUTSTANDINGS TO REMAI N WITHOUT CHARGING ANY INTEREST THEREON WHILE IT WAS PAYING INTEREST ON THE AMOUNTS BORROWED BY IT. TO THE EXTENT, THEREFORE, TO WHICH IT WOULD HAVE BEEN IN A POSITIO N TO COLLECT INTEREST ON THE OUTSTANDINGS DUE TO IT FROM OTHERS, IT COULD NOT BE PERMITTED T CLAIM INTEREST PAID BY IT TO OUTSIDERS. IN OUR OPINION THE VIEW TAKEN BY THE INCOME TAX OFFICER IS CLEARLY UNSUSTAINABLE. AS HAS BEEN POINTED OUT BY THE MADH YA PRADESH HIGH COURT IN RAM KRISHNA OIL MILLS VS. CIT (1958) 34 ITR 265 (MP) TH E ONLY CONDITIONS REQUIRED TO BE SATISFIED IN ORDER TO ENABLE THE ASSESSEE TO CLAIM A DEDUCTION IN RESPECT OF THE INTEREST U/S. 10(2)(III) ARE, FIRSTLY, THAT MONEY M UST HAVE BEEN BORROWED BY THE ASSESSEE; SECONDLY, IT MUST HAVE BEEN BORROWED FOR THE PURPOSE OF BUSINESS AND, THIRDLY, THE ASSESSEE MUST HAVE PAID INTEREST ON TH E SAID AMOUNT AND CLAIMED IT AS A DEDUCTION. IT IS NOT THE REQUIREMENT OF THE PROVISI ON THAT THE ASSESSEE MUST FURTHER SHOW THAT THE BORROWING OF THE CAPITAL WAS NECESSAR Y FOR THE BUSINESS SO THAT IF AT THE TIME OF BORROWING THE ASSESSEE HAD SUFFICIENT A MOUNT OF ITS OWN, THE DEDUCTION COULD NOT BE ALLOWED. SIMILARLY, THE MADRAS HIGH C OURT IN AINNA BAI HAJEE ISSA V. CIT (1964) 51 ITR 835 (MAD) HAS HELD THAT IN DECIDI NG WHETHER A CLAIM FOR INTEREST ON BORROWING CAN BE ALLOWED THE FACT THAT THE ASSES SEE HAD AMPLE RESOURCES AT ITS DISPOSAL AND NEED NOT HAVE BORROWED, IS NOT A RELEV ANT MATTER FOR CONSIDERATION. THE MATTER TO BE DECIDED IS WHETHER THE AMOUNT OF I NTEREST WAS PAID IN FACT IN RESPECT OF THE CAPITAL BORROWED FOR BUSINESS (P. 7 30) 17.3 IN THE CASE OF H.P. LOHIA (SITPRA), THE CALCUTTA HIGH COURT HAS HELD THAT THE ASSESSEE HAD BORROWED MONEY FOR ADVANCING LOANS TO TWO COMPANIES WHICH WERE WRITTEN OF AND, THEREFORE, HE WAS NOT RECEIVING ANY INTEREST ON THE LOANS ADVANCED TO THO SE TWO CONCERNS. IT, HOWEVER, DID NOT ABSOLVE HIM OF THE LIABILITY OF PAYING INTE REST TO HIS CREDITORS ON THE AMOUNT BORROWED BY HIM AND, THEREFORE, THERE WAS NO JUSTIF ICATION TO EXCLUDE INTEREST PAYABLE BY HIM ON ACCOUNT OF INTEREST NOT RECEIVABL E BY HIM, COULD HAVE BEEN DISALLOWED ON THE GROUND THAT THE AMOUNT ADVANCED B Y HIM WAS NOT FOR THE PURPOSES OF BUSINESS FOR WHICH THE LOAN WAS TAKEN B Y HIM. UNDER THE I.T.A. NO.59/COCH/2015 8 CIRCUMSTANCES, THERE WAS NO REASON FOR DISALLOWING THE INTEREST ON THE AMOUNT OF LOAN TAKEN BY THE ASSESSEE. 17.8 IN VIEW OF THE FINDINGS RECORDED BY THE TRIBU NAL THAT THE ASSESSEE COMPANY HAS SUFFICIENT FUND OTHER THAN THE BORROWED MONEY F OR GIVING THE AMOUNT IN QUESTION AS LOAN TO ITS SISTER CONCERN, WHICH FINDI NG HAS NOT BEEN SPECIFICALLY CHALLENGED IN THE PRESENT APPEAL, WE ARE OF THE CON SIDERED OPINION THAT THE CONDITIONS OF SECTION 36(1)(III) OF THE ACT HAVE BE EN COMPLIED WITH AND, THEREFORE, THE ASSESSEE-COMPANY WAS ENTITLED TO FULL ALLOWANCE OF THE AMOUNT OF INTEREST PAID BY IT ON BORROWED CAPITAL. MOREOVER, THE ASSESSING OFFICER HIMSELF HAD NOT ALLOWED THE PROPORTIONATE AMOUNT OF INTEREST ON THE AFORESA ID LOAN DURING THE RELEVANT ASSESSMENT YEAR WHEN THE SAID LOAN HAD BEEN ADVANCE D BY THE ASSESSEE COMPANY TO ITS SISTER CONCERN. THE TRIBUNAL HAS RIGHTLY DE LETED THE DISALLOWANCE OF PROPORTIONATE INTEREST ON THIS COUNT. IN VIEW THEREOF, GROUND NO. 3 RAISED BY THE ASSESSE E IS ALLOWED. 14. GROUND NO. 4 PERTAINS TO THE ADDITION OF RS.82,720/- ON ACCOUNT OF LATE PAYMENT OF EMPLOYEES CONTRIBUTION TO PF BY THE ASSE SSEE. THE ASSESSEE HAD DEPOSITED EMPLOYEES CONTRIBUTION TO PF COVERING MONTHS OF AUG UST, SEPTEMBER AND NOVEMBER, 2005 AMOUNTING TO RS. 87,720/- BEYOND THE DATE PRES CRIBED UNDER SECTION 36(1)(VA) OF THE ACT. THE LD. AR ARGUED THAT WHEN THE PAYMENT I S DELAYED AND THE SAME IS REMITTED WITH INTEREST/PENALTY, THERE IS A DEEMED EXTENSION OF THE DUE DATE OF PAYMENT. 15. THE CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THIS ISSUE. THE LD. DR RELIED ON THE ORDER OF THE LD. C IT(A). 16. WE HAVE HEARD THE RIVAL CONTENTIONS AND PER USED THE MATERIAL ON RECORD. THIS ISSUE IS SQUARELY COVERED AGAINST THE ASSESSEE BY T HE JUDGMENT OF THE HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. MERCHEM LTD. REPO RTED IN (2015) 61 TAXMAN.COM119(KER.). IN THE AFORESAID JUDGMENT, IT WAS HELD THAT THE DEDUCTION OF THE AMOUNT AS PROVIDED UNDER SECTION 36(1)(VA) CAN ONLY BE AVAILABLE IF THE AMOUNT SO RECEIVED FROM THE EMPLOYEE WAS PAID WITHIN THE DUE DATE. THE AFORESAID FINDINGS OF THE HONBLE HIGH COURT IN THE CASE OF CIT VS. MERCH EM LTD. (SUPRA) ARE EXTRACTED AS UNDER:- 18. ON A READIN G O F SEC . 36 ( I )(VA), W H A T WE F IND I S THAT A N Y S UM R E CEIVED BY I.T.A. NO.59/COCH/2015 9 TH E ASSESSEE F R O M HI S E M PL OY EE S T O W HICH TH E PR O VI S I O N S OF S UB- C L A U SE (X ) O F C L A U S E ( 2 4) OF SEC.2 APPLY WAS CRED I TED BY TH E A SS E SSE E T O TH E EMPL O YEES ' ACC O UNT IN THE REL E VANT FUND O R F UND S O N O R B E F O RE TH E DU E DAT E PR E S C RIB ED UND E R EXPLANATION I TO SEC . 36( I )(V A), I S ENTITLED T O DEDUCTI O N . ACC O RDIN G T O U S, IT THU S M EA N S TH AT S E C .36( I )(V A ) TAK ES CARE O F CO NTRIBUTI O N RE CE I V ED O N A CCO UNT O F TH E E MPL OYEES A ND C R EDI T E D BY THE ASS E SSE E T O TH E EMPL OY EE S' AC C O UNT IN THE REL EVA NT F UND O R FUND S O N OR BE F O R E TH E DU E D A T E AS P R OVIDE D UNDER THE RELEVANT S TATUTE AL O NE WILL BE ENTITLED T O GET DEDU C TI O N. IN THI S CO NT EX T , TH E D EF INI T I O N OF INCOME CONTAINED UNDER SEC . 2(24) (X) IS RELEVANT , WHICH READ THU S: ' AN Y SUM RECEIVED B Y THE ASSESSEE FROM HIS EMPLOYEES AS C O NTRIBUTION S T O A N Y PR OV IDENT FUND ON S UPERANNUATI O N FUND OR AN Y FUND SET UP UNDER THE PRO V ISI O N S O F THE E MPL OYEES' S T A T E IN S UR A NC E ACT , 1948 (34 OF 1948) , O R A N Y OTHER FUND F O R TH E WELFARE OF S UCH EMPL OY EE S.' 19. THEREFORE, INCOME OF THE ASSESSEE INCLUDED ANY SUM RECEIVED BY THE ASSESSEE FROM HIS EMPLOYEE AS CO NTRIBUTI O N T O AN Y PROVIDENT FUND O R S UPERANNUATI O N FUND O R FUND S SE T UP UND E R TH E P R OV I S I O N S OF TH E E MPL OY EE S' STATE IN S URANCE A C T , 1948 ( 34 O F 1 9 48 ) O R AN Y O THER F UND FO R TH E WE L FA R E O F S UCH E MPLO Y EE S. A CC O RDIN G T O U S, O N A RE A DIN G OF S E C .3 6 ( 1 )(VA) A L O N G W ITH SCC.2(24)(X), IT I S CA T EGO RI C A N D CLEAR THAT THE CONTRIBUTION RECEIVED B Y THE A SS E S SEE FR O M THE EMPL OY EE AL O NE W AS TREATED AS INC O M E FOR THE PURPO S E OF SE C.3 6 ( I ) ( V A) OF TH E A C T A ND TH E R E F O R E W E A R E O F TH E CONSIDERED OPINION T H A T THE A SS E SS EE WAS E NTITLED T O GE T DEDU C TI O N FO R TH E S UM R ECEIVE D B Y TH E ASSESSEE F R O M HI S E MPL OYEES TOWARDS CO NTRIBUT IO N T O TH E FUND O R F UND S SO M E NTI O N ED O NL Y IF TH E SA ID A M O UN T WAS CREDI T ED BY T HE ASS E SSE E ON O R B E F O RE TH E DUE D A T E T O THE EMPL OYEES A C CO UNT I N TH E REL EV ANT FUND A S PR OV I DE D UN DE R EXPLA N A TI O N 1 TO S EC . 36( I )(VA) OF THE ACT . ACCORDING T O US, S O FAR A S SEC . 43B (B) IS CONCERNED, IT TAKE S C A R E O F O NL Y THE CO NTRIBUTION PAYABLE BY THE EMPLOYER / ASSESSEE TO THE RESPECTIVE FUND . TH E REF O RE , IN THAT C IR C UM S T A N CES S E C. 36 ( 1) ( V A) AND SEC . 43B ( B ) O PER A TE IN DIFFERENT FIELD S I.E . THE F O RMER TAK ES CA R E OF E MPL OYEE'S CO NTRIBUTI O N AND THE LATTER EMPL OY ER 'S C O NTRIBUTI O N. TH E A S SE SSEE WAS E NTITL E D T O GE T T H E BEN EFI T OF DEDUCTION UNDER SEC . 43B ( B ) AS PR O VIDED UNDER THE PR O VIS O THERET O O NL Y W ITH R EGA RD T O THE P O RTI O N OF TH E A M O UNT PAID BY THE EMPLO Y ER T O THE CONTRIBUTORY FUND . SUCH AN UND E R S T A NDING OF SE C . 43 B I S FURTHER EX EMPLIFIED B Y THE PHRASEOLO GY U S ED IN THE PR O VIS O, WHICH READS THU S: ' PR OV ID E D THAT N O THIN G C O NT A IN E D IN THI S SE C TI O N S H A LL A PPL Y IN R E L A TI O N T O A N Y SU M W H IC H IS A CTUALL Y PAID B Y THE ASS E SSEE O N O R B E F O R E THE DUE D A TE A PPLIC A BL E I N HI S CASE FO R F URNI S HI NG TH E RETURN O F IN CO ME UND E R S UB- SE CTI O N (I ) OF S EC T I O N 1 39 IN R ES P E CT O F TH E PR EV I O U S YEAR IN W HI C H THE LI A BILIT Y T O P AY S U C H S UM WAS IN C URR E D AS A F O R ESA ID A ND TH E EV I DE N CE OF S U CH P AYMEN T I S FURNI S H ED BY TH E ASSESSEE A L O N G W ITH S U C H R E TURN .' F URTH E R , IN EX PLAN A TI O N I T O S EC . 43 B A L SO TH E PHRA SEO L OGY U S ED P E R S U A D E U S T O TH INK TH A T SEC. -43B CAN BE A PPLI E D T O THE C O NTRIBUTI O N PA Y ABL E B Y TH E A S S E SS EE A S A N EMPL OY ER, WHICH R E AD S THU S: FOR THE REM O VAL OF DOUBT S, IT I S HEREB Y DECLARED TH A T WH E RE A D E DUCTI O N I N R ES P EC T OF A N Y SUM REFERRED TO IN C L AUSE (A) OR CLAUSE (B) OF THIS SECTION IS ALLOWED IN C O MPUTING TH E INC O M E REFERR E D TO IN SECTION 28 O F THE PRE V I O US Y EAR ( BEING A PREVIOUS Y EAR REL E VANT T O TH E A SSESS MENT YE A) CO MMENCING O N THE IST D AY O F APRIL , 1 9 8 3 O R A N Y EA RLIER ASSESS MENT Y E A R ) IN W HI C H T H E LI A BILIT Y TO PAY SUCH SUM W A S INCURR ED B Y T HE ASSESS EE, TH E ASSESS EE S HALL N O T B E E NTITL ED T O ANY DE DU C TI ON UNDER THIS SECTION IN RESPECT OF S UCH S UM IN C O MPUTIN G TH E INCOM E O F TH E PR EV I O U S YEA R IN W HICH THE SUM IS ACTUALLY PAID B Y HIM . ' T H E R E F O RE , A C CO RDIN G T O U S, S INC E THE R ES P O ND E NT H AS A DMITT E DL Y N O T P A ID TH E D ED U C T IO N SO MA D E W ITHI N THE DUE D A TE A S PR O VIDED UND E R SE C.3 6( I )(VA), TH E R ES P O ND E NT WAS N O T E NTITL ED T O GE T D ED U C TI O N O R TH E AM O UNT S DEDUCTED THER E UN D ER FO R A ND O N BEH A L F OF TH E E MPL OY E ES . 20. IN V I EW O F TH E R E LI A N C E PL ACE D B Y V AR IO U S HI G H CO UR TS IN 'ALOM EXTRUSIONS' (SUPRA ), TO ARRIVE A T A CO N C LU S I O N TH A T TH E ASSESS EE S TH E R E IN WER E L IA BL E T O P AY B O TH THE EMPL OYEES AS WE LL AS E MPL OYE R ' S CO NTRIBUTI O N O N O R BEF O RE FILIN G O F RETURN UND E R SEC. 1 39( I ) O NL Y, WE TH O U G HT T H A T IF 'ALOM EX TRU S I O N S' (S UPRA) I S DISCUS S ED IN DETAIL ; TH E QUE S TION R A I SE D IN THI S CASE CA N B E M ADE C L EA R . IN PA R AG RAPH 3 O F THE SA ID JUD G M E NT , THE QUE S TI O N CO N S ID E RED WAS FOR MUL A T E D AS FO LL OWS: '3 . A S H O RT QU ES T IO N W H IC H AR I SES FO R DETERM IN AT I O N I N TH I S B A T C H OF CIVI L APPEAL S I S WHE TH ER O M ISSION (DELETI O N ) OF T HE S ECOND PROVI SO T O S EC T ION 43B O F T HE I NC O ME - TAX ACT . 1961 BY T H E FI N ANCE AC T 2003 O P ERATED WITH EFFECT FROM 1 S T APRI L . 2004 O R WHET H ER IT O PER A TED RE TR OSPEC T IVELY W ITH E F FEC T FRO M 1S T A PR I I . 1988 ? '. 21 . T H E R EFO R E, T H E QU ES TI O N TH A T WAS CO N S ID ERED I N ALOM EX T RUSIONS' CASE' WAS WHET H ER O M ISSIO N OF SECO ND PR OV IS O T O SE C . 43B O F TH E I.T.A. NO.59/COCH/2015 11 IN CO ME TAX AC T B Y T H E F IN A N CE AC T , 2003 O P ERA T ED WITH EFFECT FROM 1S T APRIL , 2004 OR R E TR OS PECTIV E L Y WITH EFFE C T F R O M 1 S T A PRIL , 1 9 88. T H E R EFO R E, TH E QU E S T IO N R A I SED IN THI S APPEAL HA S NOTHIN G TO DO WITH THE QUESTI O N CO N S IDER E D IN TH E S AID D EC I S I O N . IT I S T RU E TH AT SEC . 2 (24 , (X) AS W ELL AS SEC . 36 ( I ) ( VA ) WERE DI S CUSS E D IN P ARAG RAPH S 10 A ND II OF TH E S AID J UD G M EN T . B U T I T WAS FOR TH E SO L E PURP OS E OF UNDER S T A NDIN G THE SC H E M E OF THE I NC OME TAX A C T , 1 96 1 AS I T EXISTED PR IO R T O 1 ST A PRIL , 1 984 A ND AS IT S T OO D A FT E R I S T APRIL , 1 9 8 4. AFTE R DI SC U SS IN G TH E AFO R ESA ID PR OV I S I O N S AN D SEC . 43 B THE A P EX CO URT H E LD IN P A R AG R A PH 14 OF T HE J UD G M E N T AS FOL L OWS : ' 1 4. ON RE ADIN G T H E A B OVE PR OVIS I O N S , I T BECO M ES CLEA R T H AT THE ASSESSEE( S ) - EMPLO YER ) WOU LD BE E NTITL E D TO D E DU CT I O N O NL Y IF TH E CO NTRIBU TIO N STA ND S CRE DIT E D O N OR BEFORE T H E D U E DATE GIVE N IN THE PR OV ID E NT FUND AC T . H OWEVE R , TH E SECO N D PR OV I SO O N CE AGA IN C R EA T ED FURTH ER DI FF I C UL TIES. IN MANY O F TH E C O MPANI ES, FINANCI A L YEA R E NDED O N 3 1 S T M A R C H , W HI C H D I D NO T COI N C ID E W ITH TH E ACCO UNTING PERI O D O R R .P.F.C. FO R EXA MPL E, I N M ANY CA S E TH E T IM E T O M AKE CO NT RI B U TI ON T O R . P .F . C ENDED AF T E R DU E D A T E OF F ILIN G OR RE TU RNS. T H ER E F O RE, TH E I ND U S T R Y ONCE AGAIN MA D E REPRE S EN T A T ION T O TH E M INI S TR Y O F F IN ANCE A ND TA KIN G COG N IZA N CE OF TH IS D I FF I C UL TY, TH E PAR L IAM E NT IN S ERTED O N E MORE A M E NDM E NT VI D E F IN A N CE AC T 2003 , W H ICH, AS S T A T E D A B OVE, CAME I N T O F O RCE W.E.F . I S T APRIL 2004. IN O TH E R WO RD S, A FT E R I S T A PR I L , 2004 , TWO C H A N GES WE R E MADE, NA M E L Y, DELETION O F THE SECOND PR OVISO A ND F URTH E R A M E NDM E NT I N THE F I RST PR OV I SO , Q U O T E D A B OVE. B Y T H E FINA N CE ACT 2003, T H E A M E ND ME NT M A D E IN TH E F IR ST PR OV I SO EQU A T E D IN T E RM S OF TH E B E N EFI T OF DE DU CTIO N OF TAX, DUTY, CESS A ND FEE O N TH E O N E H A ND W ITH CO NTRIBUTI O N S TO E MPL OYEES ; PR OV ID E N T F UN D , S U PERA N N U ATION F UN D O N E O TH E R WE LF A RE F UNDS ON THE O THE R . H O W EVER , TH E FIN A N CE AC T , 2 0 03, B RIN GI N G A B O UT T HIS UN I F ORMITY CA M E INT O F O RCE W. E .F. I S T APRIL , 2 004 . 22. THEREFO R E , O N A READI N G OF T H E AFORE-EXTRACTED PO RT ION OF T H E JUDGMEN T , IT I S C L EAR T HA T THE APEX COURT HAD CONSIDE R ED ONLY THE QUE S TI O N RELA T IN G TO T HE EFF E CT OF THE AMENDMENT SO MADE A ND FOUND THAT A M ENDME NT WAS CURATIVE IN NAT U RE AND T HEREFORE THAT I T OPE R ATED R E TR OSPEC T IVELY FR O M 1 S T A PRIL . 1988 . 23. T H E R EAF T ER, IN PA R AG R A PH 1 5 OF TH E J UD G M ENT, IT WAS H E LD TH A T T H E A M ENDME NT S WERE B R OUG HT ABOUT U ND ER TH E FI N A N CE AC T , 198 3 FO R TH E PURP OSE OF E N S URIN G TH A T TH E RE L AXA T IO N / IN CE N T I VE WAS REST RI C T ED O NL Y T O T AX, DUT Y, CESS A ND F EE UND E R SEC . 4 3 B IN O RD E R T O E N S UR E TH A T IT DID N O T A PPL Y T O CO N T RIBUT IO N S T O LA B O UR WE L FA R E F UND S. I.T.A. NO.59/COCH/2015 12 F URTH ER , IT WAS HE LD TH A T T H E REA S O N AP P EA R S T O BE T HA T THE EMP L OY ER S S H O ULD N O T SIT : O N THE CO LL EC T E D CO N T RI B UTI O N S A N D DEPRIVE THE WORK M EN O F TH E RIGH T FU L BEN E F IT S UNDER S O CIAL WE L FARE LEGIS L A TI O N S B Y D E L AY IN G PA Y M E N T OF CO NTR I BU TIONS TO TH E WE L FA R E FU N DS. IT WAS A L S O HE L D T HAT CONSEQUENT TO THE IMP LE MENT A T IO N PR O BLEM S OF TH E SECO ND P ROV I SO T O SEC . 4 3 B R ES UL TE D I N E N AC TM E N T OF FINA N CE ACT 2003 , DEL E TIN G TH E SECO ND PR OV I SO A ND B R IN G IN G A B OUT U NI FO RMIT Y I N TH E F IR S T PR OV I SO BY EQ U A TIN G TAX D UT Y, C E SS AND FEE W ITH C O NTRIBUTI O N S TO WE L FA R E F UND S AND TH E R EFO RE T H E F IN A N CE AC T , 2003 W HI CH WA S M A D E APPLIC A BLE B Y TH E PARLI A M E NT O NL Y WIT H EFFEC T FR O M I S T A PRIL , 2004 WO UL D B ECOME C U RA TI VE IN N A TURE A ND HENCE IT WO ULD APPL Y R E TR OS P EC TI VE L Y F R O M A PRIL , 1 988. 24. S O A L SO , THE LE A RN E D C O UN SE L FO R TH E A SSESSEE CO NT E NT E D TH A T S IN CE SEC . 43 B CO MM E N C E S ' WI TH A NON O B S T A NT E C L A U S E , EX PL A NATI O N I T O SEC.36( I )(VA) WAS EXC LUD E D . BUT I N ALOM EX T RUS I ONS ' CASE ' (S U PRA) THE AP EX COU RT H A D H E LD TH A T TH E UND E RL Y I NG OBJEC T OF TH E N O N -O B S T A NT E C L AUSE W AS T O D I S A LL O W DED U CT I O N S C L AI M E D M E R E L Y BY M AKI N G T HE BO O K ENTRY U NDER MERCANTI L E SYS TEM O F ACC O U NTING TH E R E FORE , THE CONTENTI O N OF THE LEARNED COUNSEL FOR THE A S SESSEE THAT SINCE SEC . 4 3 B C O MMENCES W ITH , N O N-OBSTANTE CLAUSE , SEC . 36( I ) (VA) STOOD EXCLUDED, CANN O T BE SUSTAINED . A C C O RDIN G T O U S , THE F INDIN G OF THE APEX COURT TOWARDS THE LATTER PART OF PARAGRAPH 15 MAKE S THE I NTENTI O N A ND PURP OSE B E HIND TH E A M E NDMENT BR O UGHT ABOUT T O SEC . 43B CLEAR AND IT READ S THU S: ACC O RDIN G L Y, W E ' H O LD TH A T F IN A NCE ACT , 2003 W I L L O P E R A T E R E TR OS P E CTI VE L Y W.E.F . IS T A PRIL 19 88 (WHEN THE FIRST PR O VI SO S T OO D IN S ERTED ). L AS TL Y, WE MA Y P O INT O UT THE H A RD S H IP A N D TH E IN V IDI O U S DI S CRIMINATION WHICH W O ULD BE CAUSED T O THE ASS E SSEE ( S) IF THE C ONTENTI O N OF ' T H E D EPA RTM E NT I S TO BE ACCEPTED THAT FINANCE ACT, 2003, TO THE ABO VE EXT E NT, O PERATED PR O SP E CTI VE L Y. TAKE A N EX AMPL E - IN THE PRESENT CASE , THE RE S PONDENTS HAVE DEP OS ITED THE CONTRIBUTI O NS WITH TH E R . P . F .C AFTER 3 1 ST MARCH (END OF ACCOUNTING Y EAR) BUT BEFORE FILING O F THE RETURN S UNDER THE I T ACT A ND THE DATE OF PAYMENT FALLS AFTER THE DUE DATE UNDER THE EMPLO YEES' PROVIDENT FUND ACT , THEY WILL BE DENIED DEDUCTION FOR ALL TIMES . IN VIEW OF THE SECOND PROVISO , WHICH STOOD ON TH E S TATUT E B O OK AT THE RELEVANT TIME , EACH OF SUCH ASSESSEE(S) WOULD NOT BE ENTITLED TO D EDUCTION UNDER S E C . 43B O F THE ACT F O R ALL TIMES . THE Y WOULD LOSE THE BENEFIT I.T.A. NO.59/COCH/2015 13 OF D E DUCTION EVEN IN THE Y E A R O F ACC O UNT IN WHICH THE Y PA Y THE C O NTRIBUTI O N S T O THE WELF A RE FUND S, W HEREA S A D EFA ULT E R W H O FA IL S T O PA Y THE C O NTRIBUTION TO THE WELF A R E F UND RIGHT UP T O IST APRIL , 2 004 A ND W H O P AYS TH E CO NTRI B UTI O N A LTER IST APRIL , 2004 , WOULD G ET THE B E NEFIT O F DEDUCTI O N UNDER S E C . 4 3 B O F TH E AC T . ' AC C O RD I N G T O U S, IT I S THU S CLE A R THAT TH E D EC I S I O N R E ND E RED B Y TH E A P EX C O URT IN ALOM EX TRUSI O NS ' (SU PR A ) D I D N O T C O N S ID E R TH E QUE S TI O N I N VO L VE D IN T HI S CASE. 25 . S O A L SO. I N P A R AG R A PH 16 OF TH E JU D G M E NT S U PRA, TH E A P EX CO U RT H AD Q UOTED WITH APPROVAL THE J UD G M E NT I N C O M MI S SI O N ER OF I NCO M E TAXV. V J H GOTLA L ( 1 985) 1 56 1 T R 323 (SC) W HI CH READ TH US: ' WE S H O ULD FIND O UT TH E INTENTI O N FR O M THE L A N G U AGE U SE D B Y TH E L EG I S L A TUR E A N D I F S TRICT LITER AL C O N S TRUCTI O N LEAD S T O AN AB S URD R ES ULT , I . E . A RE S ULT N O T INTEND E D T O BE S UBSE RVED B Y TH E OB J EC T OF THE L E GI S LATI O N F O UND IN THE M A NNER INDICATED BEF O RE , THEN IF AN O THER C O N S TRU C TI O N I S POSS IBLE A P PEA R FROM STRICT LITERAL C O NSTRUCTI O N , THEN THAT C O N S TRUCTION S H O ULD B E PREFERR E D T O TH E S TRI C T LI TE R AL C ONSTRUCTI O N. TH O U G H E QUIT Y AND TAXATI O N A R E O FT E N S TRAN GE R S, A TTEMPT S S H O ULD B E MA D E THAT TH ES E DO N O T REMAIN ALWAYS S O AND IF A CONSTRUCTION RESULT S IN EQUIT Y RATHER TH A N IN INJU S TIC E, THEN S UCH CONSTRUCTI O N SHOULD BE PREFERRED TO THE LITERAL CONSTRUCTION . ' 26. THEREFORE , IN OUR VIEW , WHEN SE C . 43B A S IT S T OO D PRIOR T O THE AM E NDM E NT A ND S E C .3 6(1)(VA)) EX PL A NATI O N I THERET O R L W S E C .2( 24 ) (X ) ARE C O N S IDER E D T OG ETHER , IT I S CLEAR TH A T TH EY O P E R A TE IN DIFF E R E N T F IE LD S. S O F A R AS THE E MPL OYEE'S CO NTRIBUTI O N R ECEIVE D I S CO N CE RN E D, IT S H O ULD H AVE BEE N PAI D ON OR B EFO R E TH E DU E D A T E PR ESC RI BE D U ND E R TH E R E L EVA NT S T A TUT ES. T H E N AGA IN T H E L EARNED CO U N S E L CO NT EN D ED TH A T O N A R EA DIN G OF SEC . 4 3 B (B), A N Y S UM ' P AYA BL E BY TH E ASSESSEE AS AN EMPLOYE R ' BY WAY CO NTRIBUTI ON T O A N Y P ROV ID E NT F UND M EA NT P AY M E NT O F BO TH E MPL OYEES CO NTRIBUTI O N A N D E MPL OYE R 'S CO NTR I BUTI O N B Y THE E MPL OYE R A ND TH E R EFO RE TH E ASSESSEE WAS E NTITL ED T O P AY B O TH CO NTR IBUT I ONS T OGE T HER ON O R B EFO R E THE F I LIN G OF TH E R E TURN UNDER S EC. 1 39( I ) OF THE AC T . WE ARE UN AB L E T O ACCE PT TH E SAID CON T EN TI O N A D VA NC E D BY TH E L EA RN E D COU N SE L . I F SUCH A CON T E NT IO N IS ACCEP T ED , T HA T WO UL D MAKE SEC .36(1) (VA) AND TH E EX PL A N A TI O N THERE T O O TI OSE . I.T.A. NO.59/COCH/2015 14 ACCO RD I N G T O U S, T H E R E WAS NO INDICA T ION IN SEC.43B AS IT ' STOO D PRI O R T O THE AM E NDM E NT A ND TH E REAFT E R A L SO T O D EFAC E S E C.36( I )(VA) A ND THE EX PL A N A TI O N TH ERE TO F R O M THE INC O ME TA X ACT . T HU S, IT MEAN S TH A T B O TH PR OV I S I O N S AR E O PER A TI VE A ND TH E CO NTRIBUTI O N S H AVE T O BE PAID IN ACCORDANCE W ITH THE M A NDATE C O NT A INED UND E R SE C.3 6 (1)(VA) AND EX PL A N A TI O N TH E RET O A ND UNDER SEC . 43B, RESPECTIVEL Y. 27. S O FAR A S THE DECI S I O N S CIT E D B Y TH E LEARN E D CO UN S EL F O R TH E ASSESSEE R E F ER R E D T O IN PA R AG R A PH 1 5 OF THI S JUDGMENT WERE C O NC E RN E D , IT I S TRUE THAT IN TH E SA ID J UD G M E NT S, TH E HI G H CO URT S WE R E CO N S I DE RIN G TH E QUESTION O F REMITTANCE O F TH E CO NTRIBUTI O N S R E CEIV E D F R O M THE E MPL OY E E AS W ELL AS TH E E MPL OYE R A N D H E LD THAT THE CONTRIBUTIONS R E CEIVED FROM THE EMPL O YEE WERE AL S O LIABLE T O B E P A ID T O TH E RE S P E CTIV E S TATUT O R Y AUTHORITIE S UNDER THE PF AND ESI A C T O N O R B E F O RE TH E FILIN G O F RETURN UND E R SEC. 1 39( I ) W AS ALO NE S UFFICI E NT T O BE E LI G IBLE F O R DEDUCTION . F O R TH E RE ASO N S S TATED, WE A RE UN A BL E T O S U BSC RIB E T O TH E VIE W S EXPRE S SED B Y THE HI G H CO URT S I N TH E D E CI S I O N S C IT E D S U PRA B Y TH E L EA R NED CO UN SE L FO R TH E AS S E S SEE . THAT APART, WE ARE REMINDED OR THE JUDGMENT OR THE HON'B LE APEX COURT IN P AD M A S UN DARA RAO AND OTHERS V . STATE OF T.N . AND OTHERS [(2002) 3 SCC 533] PARAGRAPH 9 WHICH R E AD S AS F O LL OWS: 'IT IS ALSO A SETTLED PROPOSITION OF LAW THAT COURT S SHOULD NOT PLACE RELIANCE O N D E CI S I O NS WITH O UT DISCUSSING AS TO HOW THE FACTUAL SITUATI O N FITS IN WITH THE FACT SITUATI O N O F THE D E CI S I O N O N WHI C H RELIANCE I S PLACED . THERE I S ALWA Y S PERIL IN TRE A TIN G THE W O RD S O F A S P EE CH O R J UD G M E NT A S TH O U G H THEY ARE WORD S IN A LEGI S LATIVE ENACTMENT AND IT I S T O B E R E M E MB E R E D TH A T JUDI C I A L UTT E R A N CES A R E MADE IN THE SE TTING O F TH E F A CT S O F A P A RTI C UL A R C A SE SA ID L OR D M O RRI S IN ' H ARR IN G T ON V . BRITI S H RAILW AYS B O ARD '. CIRCUM S TANTIAL FLEXIB I LIT Y, O NE ADDITI O N A L O R D IF F E R E NT FACT M AY M AKE A WO RLD O F DIFFEREN C E BET WE EN CONCLU S I O N S IN TWO C A S E S. ' 28. WE ARE ALSO CONSCIOUS OF THE FACT THAT IF THE INTENTION OF A PARTICULAR PROVISIONS OF STATUTE CAN BE GATHERED FR OM THE LANGUAGE USED B Y THE LEGI S L A TION , THEN WE AR E B O UND T O A BIDE B Y TH E L A N G U AG E U SE D THEREIN IN ORDER TO ASCERTAIN THE INTENTION. WE ARE ALSO O F THE O PINI O N TH A T THERE W AS A CLEAR L OG IC BEHIND SEC.36( I )(VA) AND EXPLANATION THERETO SINCE THE LEGISLATU RE INTENDED THAT THE AM O UNT RECEIVED TOWARDS CONTRIBUTION OF THE EMPLOYEE W AS I.T.A. NO.59/COCH/2015 15 MONEY BELONGING TO THE EMPLOYEE AND THE ASSE SSEE WA S NOT ENTITLED TO UTILIZE THE SAID FUND AND ENRICH HIMSEL F . SO ALSO , B O TH THE PROVISIONS S UPRA W ILL C O -E X I S T HARM O NIOUSL Y WITH O UT DISTURBING EACH O THER. THEREF O RE , THE DI S TINCTI O N DR AW N T O CR E DIT TH E A M O UNT OF THE EMPL OY ER AND TH E EMPLO Y EE WA S WITH A C L EA R O BJ E CTI V E AN D THER E I S N O ILL EGA L ITY OR O TH E R L EGA L INFIRMIT Y IN C LA S SIF Y IN G THE C O NTRIBUTI O N S O F E MPL OY EE S A ND EMPL OYE R IN TH E M A TT E R O F C R E DITIN G TH E S AM E T O THE APPROPRIATE STATUT O R Y AUTH O RITIES . 29. IN THAT VIEW O F THE M A TTER , WE AR E OF THE CO N S ID E RED O PINI O N THAT TH E V I EW TAK E N B Y TH E TRIBUN A L WHICH AFFIRMED THE D E CISI O N O F THE I S T APP E LL A TE AUTH O RIT Y TH A T THE RE S P O ND E NT WAS E NTITL E D T O G ET DEDUCTION O F ' THE CO NTRIBUTI O N S R ECE I VE D FR O M TH E E MPL OY EE S IF PAID O N O R B E F O R E TH E F ILIN G OF TH E RETURN UNDER SEC . 1 39 (I) WA S N O T C O RRECT . WE A R E IN C LIN E D T O AG R E E W ITH TH E JUD G M EN T O R TH E GUJ A R A T HIGH CO URT IN 'G UJ AR AT S TAT E R OAD T RA N S P O RT CO RP O RA/I O N 'S CASE (S U P R A). WE ARE A L SO OF TH E O PINI O N TH A T TH E JUDGM E NT S O F THE O TH E R HIGH C OURT S R E F E RRED T O B Y THE LEARNED CO UN SE L F O R TH E R ES P O NDENT D O N O T L AY DOWN THE LAW CORRECTL Y. 30. LEARN E D COUN S EL F O R THE RE S P O ND E NT HA S A L SO C O NTEND E D THAT W H E N T WO V I EWS ARE P OS S I B L E. O N E I N FAV O UR O F THE A SSESS EE S H A LL BE A DOPTED A ND O UR A TTENTI O N WAS DR AW N T O TH E DEC I S I O N S IN ' C OMMI SS IONER OF IN CO ME-TAX V . PODAR C EM E NT PVT . LTD. A ND OTH E R S ' [ ( 1997 ) 2 2 6 I T R 62 5] , 'M ONI S H MAH E SHW A RI V. A SS T . C OMMIS S ION E R OF INCOM E TAX AND ANOTH E R ' [(2007 ) 289 ITR 341 (SC)] A ND IND O R E CO NSTRU C TION P . LTD. V. CO MMI S SIONER OF INCOME-TA X ' [(2007) 289 ITR 341] A ND CA NV ASS ED F O R THE SA ID PR O P O SITI O N . BUT SINCE WE ARE OF THE C LEAR OPINI O N THAT THE A SS E SS EE WA S ENTITL E D T O G ET THE DEDUCT IO N O F THE AM O UNTS A S PR O VID E D UNDER S EC . 36 ( I ) ( V A ) O NL Y IF TH E A M O UNT S SO R ECE I VE D FR O M TH E EMPL OY EE WAS PAID W ITHIN TH E DU E D A T E AS PR OV ID E D UND E R TH E R ELEVA NT S T A TUT E. WE DO N O T THINK T H A T T H I S I S A C ASE T O W HI C H S UCH A PRIN C IPL E I S A PPLI CA BL E . 31 . THE RE FO R E, THE QU ES TI O N S OF L AW R AIS ED B Y TH E R EV ENU E I S A N SW E RE D A FFIRMATI VE L Y IN FAVO UR O F ' TH E R EVE NU E. IN TH E F AC T S AND CIR C UM S T A N C E S O F TH E C A S E , W E SE T AS ID E TH E OR D E R O F ' TH E TRIBUN AL IN ITA NO.8/2014 D A TED 09. 05 . 2014 SO F A R AS THE QU ES TI O N S RAI SE D HEREIN A R E C O NC ER NED AND R ES T O R E TH E O RD E R OF TH E ASS E SS IN G OFFICER . ACC O RDINGL Y , THE APP E AL I S ALL O W E D . I.T.A. NO.59/COCH/2015 16 17. SUBSEQUENTLY, THE ITAT, COCHIN BENCH IN T HE CASE OF M/S. KALYAN SILKS TRICHUR (P) LTD. VS. JCIT IN I.T.A. NOS. 461& 462/COCH/2015 VIDE ITS ORDER DATED 29 TH OCTOBER, 2015, BY FOLLOWING THE JUDGMENT OF HONB LE KERALA HIGH COURT IN THE CASE OF MERCHEM LTD. (SUPR A) DISMISSED THE APPEAL OF THE ASSESSEE ON THE IDENTICAL ISSUE. IN VIEW THEREOF, GROUND NO. 4 RAISED BY THE ASSESSEE IS DISMISSED. 18. GROUND NO. 5 PERTAINS TO THE COMPUTATION O F LONG TERM CAPITAL GAIN AMOUNTING TO RS.5,91,829/-. THE ASSESSEE HAD DECLA RED CAPITAL GAINS OF RS.100,755/-RECEIVED ON SALE OF MUTUAL FUNDS. ACCO RDING TO THE ASSESSING OFFICER, THE ASSESSEE WHILE TAKING THE INDEXED THE COST OF ACQUISITION AT A VALUE OF RS.50 LAKHS, DID NOT REDUCE THE INTEREST T O THIS INVESTMENT. AFTER REDUCING THE INDEXED COST OF ACQUISITION BY THE PRO PORTIONATE INTEREST, THE ASSESSING OFFICER WENT ON TO REWORK THE CAPITAL GAI N AT RS.5,91,829/-. 19. THE LD. AR SUBMITTED THAT THE ACT DOES NOT GIV E ANY RIGHT TO THE AO TO REDUCE THE COST OF INVESTMENT. IT WAS FURTHER A RGUED BY THE LD. AR THAT THE PROPORTIONATE INTEREST CAN NEVER REDUCE TH E COST OF INVESTMENT AND IT OUGHT TO HAVE ADDED TO THE COST OF INVESTMEN T. THE COST OF INVESTMENT IS ENTIRELY OUT OF THE FUNDS AVAILABLE W ITH THE ASSESSEE AND THE I.T.A. NO.59/COCH/2015 17 INDEXED COST HAS BEEN CALCULATED ON THE ACTUAL INVE STMENT MADE BY THE ASSESSEE. 20. ON THE OTHER HAND, THE LD. DR RELIED ON TH E ORDER OF THE LD. CIT(A). 21. WE HAVE HEARD THE RIVAL CONTENTIONS AND P ERUSED THE MATERIAL ON RECORD. THE ACTION OF THE ASSESSING OFFICER IN RED UCING THE COST OF INVESTMENT BY PROPORTIONATE INTEREST AND RE-WORKING THE LONG TERM CAPITAL GAIN IS BEYOND THE PURVIEW OF THE ACT. SUCH REDUCT ION OF COST OF INVESTMENT IS NOT PERMISSIBLE AND NOT PROVIDED IN T HE ACT. WE ARE IN AGREEMENT WITH THE SUBMISSION MADE BY THE LD. AR. ACCORDINGLY, WE ALLOW GROUND NO. 5 OF THE ASSESSEE. 22. GROUND NO. 6 PERTAINS TO THE INTEREST CHAR GED UNDER SECTION 234A OF THE ACT AMOUNTING TO RS.544,926/- THE LD. AR SU BMITTED THAT THE RETURN OF INCOME WAS FILED WITHIN THE TIME PROVIDED BY THE ASSESSING OFFICER AND THEREFORE, THE PROVISIONS OF SECTION 23 4A ARE NOT APPLICABLE TO THE ASSESSEES CASE. 23. THE CLAIM FOR EXEMPTION MADE BY THE ASSESSEE REQUIRES TO BE EXAMINED BY THE DEPARTMENT. ACCORDINGLY, THE ASSES SING OFFICER IS I.T.A. NO.59/COCH/2015 18 DIRECTED TO EXAMINE THE ISSUE IN ACCORDANCE WITH LA W WITH RESPECT TO THE APPLICABILITY OF THE PROVISIONS OF SECTION 234A OF THE ACT IN THE CASE OF THE ASSESSEE. ACCORDINGLY, GROUND NO. 6 OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 20. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN I.T.A. NO. 59/COCH/2015 IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 19-11-2015. SD/- SD/- (GEORGE GEORGE K.) (B.P. JAIN) JUDICIAL MEMBER ACC OUNTANT MEMBER PLACE: KOCHI DATED: 19TH NOVEMBER, 2015 GJ COPY TO: 1. M/S. NORTRANS MARINE SERVICE PVT. LTD., XIV/396, TRANS ASIA CORPORATE PARK, SEAPORT AIRPORT ROAD, CHITTETHUKARA, KAKKANAD, KOCH I-37. 2. THE JOINT COMMISSIONER OF INCOME-TAX(OSD), CIRCL E-4(1), ERNAKULAM. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-II, KOCH I. 4. THE COMMISSIONER OF INCOME-TAX, KOCHI. 5. D.R., I.T.A.T.,COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T., COC HIN