M/S. SKYPACK SERVICE SPECIALISTS LTD., Mumbai V. THE DY CIT 8(3), Mumbai

ITA 8698/MUM/2004

• Counselvise Citation: 869819914 RSA 2004
• Duration Of Justice: 6 year(s) 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 18-05-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 02-12-2004
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Keywords: Capital asset; Business expenditure; Search and seizure; Deemed to accrue or arise in india; Cost of acquisition; Capital receipt
• Section: 43B; 37; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH J, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI J.SUDHAKAR R EDDY (A.M) ITA NO.8698/MUM/04(A.Y. 2001-02) SKYPAK SERVICE SPECIALISTS LTD. MAROL, ANDHERI (EAST), MUMBAI 400 059. PAN:AADCS 4819B (APPELLANT) VS. THE DCIT- 8(3), AAYKAR BHAVAN, MK ROAD, MUMBAI 20. (RESPONDENT) ITA NO.8890/MUM/2004(A.Y. 2001-02) THE DCIT- 8(3), AAYKAR BHAVAN, MK ROAD, MUMBAI 20. (APPELLANT) VS. SKYPAK SERVICE SPECIALISTS LTD. MAROL, ANDHERI (EAST), MUMBAI 400 059. PAN:AADCS 4819B (RESPONDENT) ASSESSEE BY : NONE REVENUE BY : SHRI S.K.SINGH ORDER PER N.V.VASUDEVAN, J.M, ITA NO.8698/M/04 IS AN APPEAL BY THE ASSESSEE WHIL E ITA NO.8890/M/04 IS AN APPEAL BY THE REVENUE. BOTH THE SE APPEALS ARE DIRECTED AGAINST THE ORDER OF CIT(A) XXIX, MUMBAI DATED 30/9 /04 RELATING TO ASSESSMENT YEAR 2001-02. THE GROUNDS RAISED BY THE ASSESSEE IN ITS APPEAL READ AS FOLLOWS: 1. THE COMMISSIONER OF INCOME TAX (APPEALS) XXIX [ HEREINAFTER REFERRED TO AS THE CIT(A)] ERRED IN HOLDING THAT TH E DEPUTY COMMISSIONER OF INCOME TAX 8(3), MUMBAI [HEREINAFTE R REFERRED TO AS ITA NO.8698&8890/M/04(A.Y. 2001-02)) 2 THE DCIT] WAS RIGHT IN DISALLOWING THE LOSS OF RS. 1,32,02,572/- ARISING ON THE ASSIGNMENT OF THE DEBT DUE FROM M/S. SKYPAK FISHERIES PRIVATE LIMITED FOR THE REASONS MENTIONED BY HIM IN THE ASSESSMENT ORDER. THE APPELLANTS SUBMIT IN VIEW OF THE SUBMIS SION MADE BEFORE CIT(APPEALS), HE OUGHT TO HAVE HELD THAT THE SAID L OSS HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY DURING THE COURSE O F AND FOR THE PURPOSES OF THEIR BUSINESS AND WAS THEREFORE ALLOWA BLE AS A BUSINESS DEDUCTION IN COMPUTING THEIR TOTAL INCOME. THE APP ELLANTS THEREFORE PRAY THAT THE DCIT BE DIRECTED TO ALLOW DEDUCTION I N RESPECT OF THE LOSS OF RS. 1,32,02,572/- IN COMPUTING THEIR TOTAL INCOM E FOR THE ABOVE YEAR. 2. THE CIT(A) ERRED IN HOLDING THAT THE DCIT WAS RI GHT IN DISALLOWING RS.9,20,053/- OUT OF INTEREST PAID BY THE APPELLANT S TO THEIR SISTER CONCERNS. THE APPELLANTS SUBMIT THAT THEY HAVE NOT MADE ANY INTEREST FREE LOANS TO THE SISTER CONCERNS AND THE AMOUNTS G IVEN TO THE SISTER CONCERNS ARE PURELY IN THE NATURE OF TRADE ADVANCES AND ARE NOT IN THE NATURE OF LOANS AND EVEN OTHERWISE THE AMOUNTS HAVE BEEN ADVANCED OUT OF THEIR OWN FUNDS AND NOT OUT OF BORROWED FUND S. THE APPELLANTS FURTHER SUBMIT THAT THE INTEREST PAID IS ON AMOUNTS BORROWED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THEIR BUSINESS AND THE CIT(A) OUGHT NOT TO HAVE HELD THAT THE DCIT WAS RIGHT IN DISALLO WING RS. 9,20,053/- OUT OF INTEREST PAID DURING THE YEAR. THE APPELLAN TS THEREFORE PRAY THAT THE DCIT BE DIRECTED TO DELETE THE DISALLOWANC E OF RS.9,20,053/- MADE BY HIM ON THIS ACCOUNT. 3. THE CIT(A) ERRED IN HOLDING THAT THE DCIT WAS RI GHT IN DISALLOWING ADVANCES WRITTEN OFF OF RS. 5,92,936 IN COMPUTING T HE APPELLANTS TOTAL INCOME FOR THE ABOVE YEAR. THE APPELLANTS SUBMIT T HAT THE ADVANCES GIVEN TO VARIOUS PARTIES ARE IN THE NATURE OF TRADE ADVANCES AND SINCE THE SAME COULD NOT BE RECOVERED IN SPITE OF EFFORTS MADE, THE SAME HAVE BEEN WRITTEN OFF AS BAD AND IRRECOVERABLE AND ARE THEREFORE ALLOWABLE AS A DEDUCTION UNDER SECTION 37 AND THE C IT(A) OUGHT NOT TO HAVE HELD THAT THE DCIT WAS RIGHT IN DISALLOWING TH E SAME UNDER SECTION 36(1)(VII) IN COMPUTING THEIR TOTAL INCOME FOR THE ABOVE YEAR. THE APPELLANTS THEREFORE PRAY THAT THE DCIT BE DIRE CTED TO DELETE THE ADDITION OF RS.5,92,936/- MADE BY HIM ON THIS ACCO UNT. 2. WHEN THE CASE WAS CALLED FOR HEARING NONE APPEA RED ON BEHALF OF THE ASSESSEE. NO ADJOURNMENT PETITION SEEKING ADJOURNM ENT OF THE CASE WAS ALSO FILED. THE ABOVE CONDUCT ON THE PART OF THE A SSESSEE SHOWS THAT IT IS NOT INTERESTED IN PROSECUTING THE APPEAL FILED BY IT. THEREFORE, FOLLOWING THE DECISION OF THE TRIBUNAL REPORTED IN THE CASE OF CIT VS. MULTIPLAN INDIA (P) ITA NO.8698&8890/M/04(A.Y. 2001-02)) 3 LTD.38 ITD 320 (DEL) AND THE DECISION OF THE HONB LE MADHYA PRADESH HIGH COURT IN THE CASE OF ESTATE OF LATE TUKOJIRAO HOLK AR VS. CWT, 223 ITR 480 (M.P) THE APPEAL FILED BY THE ASSESSEE IS DISMISS ED IN LIMINE. HOWEVER, IF THE ASSESSEE THROUGH PROPER APPLICATION CAN SATISFY THE TRIBUNAL FOR SUCH NON-APPEARANCE ON THE APPOINTED DATE, THE TRIBUNAL AT ITS DISCRETION MAY RECALL THIS ORDER. 3. NOW WE WILL TAKE UP ITA NO.8890/M/04, APPEAL BY THE REVENUE. GROUND NO.1 RAISED BY THE REVENUE READS AS FOLLOWS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) ERRED IN DELETING OF RS. 90,00,000/- TREATIN G IT AS A CAPITAL RECEIPT, WITHOUT APPRECIATING THE FACTS OF THE CAS E. 4. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF COURIER SERVICES. IN THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSI NG OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED A SUM OF RS. 1,32,02,572/- UNDER THE HEAD LOSS ON ASSIGNMENT OF DEBTS. THE ASSESSING OFFICER ALSO N OTICED THAT IN THE BALANCE SHEET OF THE ASSESSEE THE ASSESSEE HAS SHOWN A SUM OF RS. 90 LACS AS CAPITAL RESERVE. THE FACTS WITH REGARD TO THE CLAIM OF DED UCTION ON ACCOUNT OF LOSS ON ASSIGNMENT OF DEBTS AND A SUM OF RS. 90 LACS SH OWN AS CAPITAL RESERVE IN THE BALANCE SHEET ARISE OUT OF CONNECTED TRANSACTIO NS AND, THEREFORE, THE FACTS RELATING TO BOTH THE ADDITION ARE BEING NARRA TED. 5. THE FACTS WITH REGARD TO THE ASSESSEES CLAIM OF DEDUCTION ON ACCOUNT OF LOSS ON ASSIGNMENT OF DEBTS IS SUBJECT MATTER O F GROUND NO.1 OF ASSESSEES APPEAL. THE FACTS ARE AS FOLLOWS. 6. M/S. SKYPAK FISHERIES PRIVATE LIMITED, ONE OF TH E ASSESSEES GROUP COMPANIES HAS AVAILED OF A TERM LOAN OF RS. 180 LAC S FROM SCICI LIMITED DURING THE YEAR 1993-94. THE SAID LOAN HAS ALSO BE EN GUARANTEED BY THE ASSESSEE AS THEY WERE ONE OF THE CO-PROMOTERS OF M/ S. SKYPAK FISHERIES PRIVATE LIMITED. IN THE YEAR 1996, THE ASSESSEE W ERE IN NEED OF FUNDS FOR ITA NO.8698&8890/M/04(A.Y. 2001-02)) 4 EXPANSION OF THEIR BUSINESS AND THEREFORE APPROACHE D SCICI FOR A TERM LOAN OF RS. 120 LACS. SCICI AGREED TO GRANT THEM THIS L OAN ON THE CONDITION THAT THEY TOOK OVER THE OF OF RS. 180 LACS OF SKYPAK FIS HERIES LIMITED, WHICH THE LATTER HAD AVAILED IN THE YEAR 1993-94. THE ASSESS EE HAD ALREADY GUARANTEED THE REPAYMENT OF THE LOAN OF RS. 180 LACS. THE ASS ESSEE THEREFORE TOOK OVER THE LIABILITH OF RS. 180 LACS DUE TO SCICI BY SKYPA K FISHERIES LTD. THE TERM LOAN GRANTED BY SCICI TO THE ASSESSEE WAS ACCORDING LY ENHANCED TO RS. 300 LACS AND WAS SHOWN AS A LIABILITY AND CORRESPONDING LY RS. 180 LACS WAS SHOWN AS RECEIVABLE BY THE ASSESSEE FROM SKYPAK FIS HERIES LTD. 7. THE BUSINESS OF SKYPAK FISHERIES LIMITED HAD TAK EN A COMPLETE DOWN TURN ON ACCOUNT OF THE RECESSION IN JAPAN, WHO WERE THEIR MAIN CUSTOMERS AS ALSO ON ACCOUNT OF STRINGENT NON POLLUTION GUIDE LINES PRESCRIBED BY THE SUPREME COURT. SKYPAK FISHERIES LIMITED WAS THEREF ORE IN NO POSITION TO REPAY RS. 180 LACS DUE TO THE APPELLANTS. THE NETW ORTH OF SKYPAK FISHERIES PRIVATE LIMITED AS ON 31/3/2001 WAS NIL. ACCORDING TO THE ASSESSEE IT TOOK A BUSINESS DECISION TO ASSIGN THE DEBT OF RS. 180/- LACS DUE TO IT BY M/S. SKYPAK FISHERIES PRIVATE LIMITED TO TO DILIP HOL DINGS PVT. LTD. FOR RS.50 LACS. THE LOSS ON THIS ACCOUNT IS RS. 130 LACS. TH E SAME WAS CLAIMED AS A BUSINESS EXPENDITURE. IN THE ASSESSEES VIEW, S INCE THE LOSS HAD BEEN INCURRED DURING THE COURSE OF CARRYING ON THEIR BUS INESS, AND WAS WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSES OF THEIR BUSINESS IT SHOULD HAVE BEEN ALLOWED AS A DEDUCTION. THE AO DID NOT ACCEPT THE CLAIM OF THE ASSESSEE. ACCORDING TO HIM, THE ASSESSEE HAS TAKE N OVER THE ASSETS OF M/S. SKYPAK FISHERIES PVT. LTD. AND SOLD THE SAME IN ORD ER TO INCUR LOSS. THE AO WAS ALSO OF THE VIEW THAT THE INTENTION OF THIS TRA NSACTION OF TAKING OVER THE ASSETS AND SELLING IT AT A LOWER VALUE WAS MADE SOL ELY WITH THE INTENTION OF AVOIDING TAX AND THEREFORE HE RELIED ON THE DECI SION OF THE SUPREME COURT IN THE CASE OF MC. DOWELL & CO. (154 ITR 148). IN THIS REGARD THE AO ALSO HELD THAT THE ASSESSEE HAS NOT TAKEN OVER ANY ASSET S OR SOLD THE SAME BUT ITA NO.8698&8890/M/04(A.Y. 2001-02)) 5 MERELY ASSIGNED THE DEBT OF RS.180 LACS TO M/S. DIL IP HOLDINGS PRIVATE LIMITED FOR RS. 50 LACS. 8. WE HAVE ALREADY SEEN THAT THE ASSESSEE TOOK OVER THE LIABILITY OF M/S. SKYPACK FISHERIES PRIVATE LIMITED OF RS. 180/- LACS PAYABLE TO SCICI AND FURTHER AVAILED OF A LOAN OF RS. 120 LACS IN THE Y EAR 1996. DURING THE YEAR ENDED 31/3/2001, THE ASSESSEE ENTERED INTO A ONE TIME SETTLEMENT OF THE LOAN AVAILED FROM ICICI OF RS. 300 LACS. IN VIEW O F THE AMNESTY BEING EXTENDED TO DEFAULTING CREDITORS BY FINANCIAL INSTI TUTIONS, SCICI HAS SETTLED THE ENTIRE ISSUE OF PAYMENT OF THIS LOAN AND THE I NTEREST ON THE CONDITION THAT THE ASSESSEE REPAY RS. 210 LACS. THUS SCICI H AD WAIVED A SUM OF RS. 90 LACS DUE ON THE PRINCIPAL LOAN OF RS.300 LACS. THE ACCRUED INTEREST OF RS. 130 LACS HAS BEEN CREDITED TO THE PROFIT & LOSS ACC OUNT AND THE REMISSION IN THE LOAN HAS BEEN CREDITED TO THE RESERVES. THE AS SESSEE CONTENDED THAT THE PROVISIONS OF SECTION 41(1) WILL BE APPLICABLE WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN ANY ASSESSMENT YEAR IN R ESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY AND THE ASSESSEE H AS OBTAINED IN ANY SUBSEQUENT YEAR SOME BENEFIT ON ACCOUNT OF THE REMI SSION OF CESSION OF SUCH TRADING LIABILITY. ACCORDINGLY, IN THE ASSESSEES VIEW THE PROVISIONS OF SECTION 41(1) WOULD BE APPLICABLE WHERE BOTH OF THE FOLLOWI NG CONDITIONS WERE SATISFIED.: I) AN ALLOWANCE OR DEDUCTION HAD BEEN ALLOWED IN A NY ASSESSMENT YEAR FOR AN EXPENDITURE OR TRADING LIABILITY AND II) THERE WAS A CESSION OR REMISSION OF SUCH TRADI NG LIABILITY IN THE SUBSEQUENT YEAR. ACCORDING TO THE ASSESSEE, UNLESS BOTH THE CONDITI ONS WERE SATISFIED, THE PROVISION OF SECTION 41(1) WERE NOT APPLICABLE. TH E ASSESSEE SUBMITTED THAT THERE WAS CEASATION OF LIABILITY TO REPAY THE LOAN TO THE EXTENT OF RS. 90 LACS BUT SINCE NO DEDUCTION HAD BEEN ALLOWED IN RESPECT OF THIS LOAN IN THE PRIOR YEARS, THE AMOUNT OF RS. 90 LACS WOULD NOT BE LIAB LE FOR TAX AS THE PROVISIONS ITA NO.8698&8890/M/04(A.Y. 2001-02)) 6 OF SECTION 41(1) WOULD NOT BE APPLICABLE. THE ASSES SEE HAS THEREFORE, CONTENDED THAT THE AMOUNT OF RS. 90 LACS WAS NOT LI ABLE FOR TAX. THE AO DID NOT ACCEPT THE CLAIM. HE HELD THAT THE ASSESSEE GOT THE BENEFIT OF ONE TIME SETTLEMENT OF RS. 90 LACS. ON THE ONE HAND THE ASS ESSEE BORROWED LOANS FOR THE PURPOSE OF BUSINESS AND USED THEM TO MEET EXPEN SES AND ON THE OTHER HAND ON WAIVER OF LOAN, THE BENEFIT IS NOT OFFERED TO HAVE TAX. ACCORDING TO HIM THE WHOLE SET OF TRANSACTIONS NEEDS TO BE SEEN TOGETHER. ACCORDING TO HIM THE INTENT OF THE ASSESSEE WAS TO REDUCE TAX AN D THEREFORE THE BENEFIT OF WAIVER OF RS. 90 LACS WAS BROUGHT TO TAX BY THE AO. THE AO ALSO HELD THAT THIS GAIN OF RS.90 LACS WAS PART OF THE DEAL OF WA IVER OF INTEREST OF RS.1,32,02,572/- WHICH WAS CLAIMED AS LOSS ON ASSIG NMENT OF DEBTS. 9. ON APPEAL BY THE ASSESSEE ON THE ISSUE OF ALLOWI NG DEDUCTION ON ACCOUNT OF LOSS INCURRED ON ASSIGNMENT OF DEBT THE CIT(A) HELD AS FOLLOWS: BEFORE ALLOWING DEDUCTION OF AN EXPENDITURE U/S. 3 7(1), IT HAS TO BE SEEN WHETHER ANY CLAIM MADE AT ALL IS IN THE NATUR E OF AN EXPENDITURE. APPELLANT HAS ASSIGNED THE DEBT OF RS. 182 LACS FOR RS. 50 LACS. THERE WAS NO OBLIGATION ON THE PART OF THE APPELLANT TO A SSIGN SUCH DEBT AND THAT TOO A SISTER CONCERN. IT IS NOT UNDERSTANDABL E AS TO WHAT BENEFIT HAS ACCRUED TO THE APPELLANT BY ASSIGNING THE DEBT EXCEPT INCURRING THE LOSS OF RS. 132 LACS. APPELLANT IS NOT IN THE BUSINESS OF FINANCING, RAISING AND ADVANCING THE LOANS AND OF ASSIGNING TH E DEBTS AND, THEREFORE, THE LOSS OF ASSIGNING OF A TRANSACTION O F A DEBT TO A SISTER CONCERN, IN MY OPINION, CANNOT BE SAID TO BE AN EX PENDITURE AT THE FIRST INSTANCE ITSELF AND SECONDLY, CANNOT BE SAID AND EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. THEREFORE, EVEN WITHOUT THE APPLICABILITY OF DECIS ION OF THE HONBLE SUPREME COURT IN THE CASE OF MC. DOWELL, LOSS OF RS . 132 LACS CANNOT E ALLOWED AS DEDUCTION AS THE SAME AT THE FIRST INSTA NCE CANNOT BE SAID AN EXPENDITURE AND SECONDLY IF AT ALL IT IS AN EXP ENDITURE IT IS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. EVEN IF IT IS PRESUMED, THOUGH NOT ADMITTED, THAT THIS EXPENDI TURE IS A LOSS TO THE APPELLANT IT AT BEST CAN BE TERMED AS A CAPITAL LOSS. IT IS PERTINENT TO STATE HERE THAT THE APPELLANT COMPANY HAS MADE A ONE TIME SETTLEMENT WITH SCICI NOW ICICI AND HAS OBTAINED BE NEFIT OF RS. 90 LACS BY WAY OF WAIVER OF ITS LOAN. APPELLANT HAS C LAIMED THE SAME AS A ITA NO.8698&8890/M/04(A.Y. 2001-02)) 7 CAPITAL RECEIPT THOUGH THE AO HAS TREATED IT AS AP PELLANTS INCOME, WHICH HAS BEEN CONTESTED BY THE APPELLANT SEPARATEL Y IN GROUND OF APPEAL NO.2. IT IS SURPRISING AND RATHER INTRIGUI NG TO LEARN THAT WHILE APPELLANT COMPANY HAS CLAIMED DEDUCTION OF LOSS ON ASSIGNMENT OF DEBT AT RS.132 LACS OUT OF THE LOAN OF RS. 300 LAKH S AS BUSINESS EXPENDITURE THE COMPANY HAS CLAIMED RS. 90 LAKHS AR ISING ON THE SETTLEMENT OF LOAN OF RS. 300 LAKHS AS A CAPITAL RE CEIPT. IN OTHER WORDS, APPELLANT COMPANY HAS GIVEN TWO DIFFERENT T REATMENT TO THE INCOME AND LOSS ARISING OUT OF THE SAME SOURCE OF F UNDS OF RS. 300 LACS. IN FACT, IT IS RELEVANT TO STATE HERE THAT A GAINST THE ADDITION OF RS. 90 LACS MADE BY THE AO, APPELLANT HAS STATED THAT S AID AMOUNT OF RS.90 LACS WOULD NOT PARTAKE THE CHARACTER INCOME BUT IS A CAPITAL RECEIPT. IF THE AMOUNT OF RS.90 LACS IS A CAPITAL RECEIPT, I AM AFRAID LOSS OF RS. 132 LACS ARISING ON THE ASSIGNMENT OF D EBT OUT OF SAME AMOUNT OF LOAN CANNOT PARTAKE THE CHARACTER OF ALLO WABLE BUSINESS EXPENDITURE / LOSS. IN VIEW OF THE ABOVE DISCUSSIO N, IT APPEARS THAT THE APPELLANT COMPANY ALONGWITH ITS TWO SISTER CONCERNS NAMELY SKYPAK FISHERIES PRIVATE LIMITED AND M/S. DILIP HOLDINGS P RIVATE LIMITED AND PROBABLY WITH THE IMPLICIT CONSENT OF SCICI USED TH E AFORESAID SET OF TRANSACTIONS AS A DEVICE GIVING IT A DECORATE COVER TO TAKE OVER THE LOSS AND / OR LIABILITY OF M/S. SKYPAK FISHERIES PRIVATE LIMITED TO REDUCE ITS TAXABLE INCOME. 10 WITH REGARD TO SOME OF RS. 90 LACS WHICH WAS TR EATED AS INCOME CHARGEABLE TO TAX BY THE ASSESSING OFFICER THE CIT( A) HELD AS FOLLOWS: AS REGARDS ADDITION OF RS.90 LACS, CONTENTIONS OF THE APPELLANT ARE ACCEPTABLE. APPELLANT HAS STATED THAT THE AMOUNT O F RS. 90 LACS IS NOT IN THE NATURE OF TRADING LIABILITY AND NO DEDUCTION HAS BEEN CLAIMED/ ALLOWED IN RESPECT OF THIS LOAN IN THE EARLIER ASSE SSMENT YEARS AND, THEREFORE, SAME CANNOT BE HELD LIABLE TO TAX U/S. 4 1(1) OF THE ACT. AS ALREADY SAID, PROVISIONS OF SECTION 41(1) WILL BE A PPLICABLE WHERE (A) AN ALLOWANCE OR DEDUCTION HAS BEEN ALLOWED IN ANY ASSE SSMENT YEAR FOR AN EXPENDITURE OR TRADING LIABILITY (B) THERE WAS A CESSATION OR REMISSION O SUCH TRADING LIABILITY IN THE SUBSEQUEN T YEARS. THOUGH THERE WAS A CESSATION OF THE LIABILITY TO THE EXTEN T OF RS. 90 LAKHS BUT THE SAME HAS NOT BEEN CLAIMED AND ALLOWED AS AN ALL OWANCE OR A DEDUCTION IN ANY ASSESSMENT YEAR AS AN EXPENDITURE OR A TRADING LIABILITY. AR / APPELLANT HAS RELIED UPON VARIOUS CASE LAWS MENTIONED ABOVE IN WHICH IT HAS BEEN HELD THAT WAIVER OF LOAN OR WRITING BACK OF LOAN WOULD NOT BE THE PROFITS CHARGEABLE TO TAX U/S . 41(1) AND WOULD CLEARLY BE A CAPITAL RECEIPT NOT LIABLE TO TAX. I N MY OPINION AND KEEPING IN VIEW VARIOUS CASE LAWS RELIED UPON BY TH E APPELLANT, THE ITA NO.8698&8890/M/04(A.Y. 2001-02)) 8 AMOUNT OF RS. 90 LACS REPRESENT CAPITAL RECEIPT NOT LIABLE TO TAX. ACCORDINGLY, ADDITION OF RS. 90 LAKHS IS DELETED. 11. AGGRIEVED BY THE ORDER OF THE CIT(A) HOLDING TH AT THE SUM OF RS. 90 LACS SHOWN AS CAPITAL RESERVE IN THE BALANCE SHEET IS A CAPITAL RECEIPT NOT CHARGEABLE TO TAX THE REVENUE HAS RAISED GROUND NO. 1 BEFORE THE TRIBUNAL. 12. WE HAVE HEARD THE SUBMISSIONS OF THE LD. D.R, W HO REITERATED THE STAND OF THE AO AS REFLECTED IN THE ORDER OF ASSESS MENT. HE FURTHER RELIED ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN TH E CASE OF SOLID CONTAINERS LTD. VS. DCIT [308 ITR 417] WHERE IT WAS HELD THAT WAIVER OF LOAN WHICH WAS TAKEN FOR TRADING ACTIVITIES WAS TAXABLE AS INCOME. HE ALSO SUBMITTED THAT THE CLAIM OF THE ASSESSEE HAS TO BE VIEWED IN THE LIGHT OF HIS ACTION IN ASSIGNING THE DEBT PAYABLE BY M/S. MALABA R FISHERIES PRIVATE LIMITED AND CLAIMING ON LOSS ON SUCH ASSIGNMENT AND SIMULTANEOUSLY ALSO CLAIMING THE BENEFIT OF REMISSION OF LIABILITY BY S CICI AS CAPITAL RECEIPT NOT CHARGEABLE TO TAX. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE JURISDICTIONAL HIGH COURT IN THE CASE OF MAHINDRA & MAHINDRA LTD., 261 ITR 501 (BOMBAY) HAD TO DEAL WITH A CASE WHERE THERE WAS WAIVER OF LOAN AND THE QUESTION AS TO WHETHER THE SAME WAS CHARGEABLE TO TAX EITHER U/S. 41(1) OR U/S. 28 (IV) OF THE ACT. THE HONBLE COURT FOUND THAT LOAN HAD BEE N BORROWED FOR THE PURCHASE OF CAPITAL ASSETS. THEREFORE, THE HONBL E COURT HELD THAT SECTION 28(I) WHICH PROVIDES THAT THE PROFITS AND GAINS OF ANY BUSINESS OR PROFESSION WHICH WAS CARRIED ON BY THE ASSESSEE AT ANY TIME DU RING THE PREVIOUS YEAR OR SEC. 28(IV) WHICH PROVIDES THAT THE VALUE OF ANY BE NEFIT OR PERQUISITE, WHETHER CONVERTIBLE INTO MONEY OR NOT, ARISING FROM BUSINESS OR THE EXERCISE OF A PROFESSION, WAS NOT ATTRACTED. THE HONBLE CO URT ALSO HELD THAT IN ORDER TO APPLY SECTION 41(1), AN ASSESSEE SHOULD HAVE OBT AINED A DEDUCTION IN THE ITA NO.8698&8890/M/04(A.Y. 2001-02)) 9 ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDI TURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE. THE ASSESSEE HAD NOT OBT AINED SUCH ALLOWANCE OR DEDUCTION IN RESPECT OF EXPENDITURE OR TRADING LIAB ILITY. THE ASSESSEE HAD PAID INTEREST AT 6 PER CENT OVER A PERIOD OF TEN YE ARS ON RS. 57,74,064. IN RESPECT OF THAT INTEREST, THE ASSESSEE NEVER GOT DE DUCTION UNDER SECTION 36(1)(III) OR SECTION 37. IN THE CIRCUMSTANCES, SE CTION 41(1) OF THE ACT WAS NOT APPLICABLE. SECONDLY, EVEN ASSUMING THAT THE A SSESSEE HAD GOT DEDUCTION ON ALLOWANCE SECTION 41(1) WAS NOT APPLIC ABLE BECAUSE SUCH DEDUCTION WAS NOT IN RESPECT OF LOSS, EXPENDITURE O R TRADING LIABILITY. LASTLY, THE TOOLING CONSTITUTED CAPITAL ASSETS AND NOT STOC K-IN-TRADE. THEREFORE, TAKING INTO ACCOUNT ALL THE ABOVE FACTS, SECTION 41 (1) OF THE ACT WAS NOT APPLICABLE. THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF SOLID CONTAINERS (SUPRA) HAD TO DEAL WITH A CASE OF WAIVER OF LOAN A ND TAXABILITY OF BENEFIT RECEIVED BY THE ASSESSEE ON ACCOUNT OF SUCH WAIVER. AFTER CONSIDERING THE EARLIER RULING IN THE CASE OF MAHINDRA & MAHINDRA ( SUPRA), THE HONBLE COURT HELD THAT WHERE THE RESULTANT BENEFIT TO AN ASSESSE E IS WAIVER OF LOAN TAKEN FOR TRADING ACTIVITY, THE SAME WOULD BE TAXABLE. I N BOTH THE DECISION THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F CIT VS. T.V.SUNDARAM IYENGAR & SONS (222 ITR 344](SC) WAS ALSO CONSIDERE D. 14. IN THE PRESENT CASE WE HAVE SEEN THE ORDER OF T HE ASSESSING OFFICER AND FIND THAT THE PURPOSE FOR WHICH THE TERM LOAN WAS AVAILED BY SKYPAK FISHERIES PVT. LTD. IS NOT KNOWN. IT WAS THE CONT ENTION OF THE LD. D.R THAT BOTH THESE TRANSACTION NAMELY THE LOSS ON ACCOUNT O F ASSIGNMENT OF DEBTS AND BENEFIT AS A RESULT OF ONE TIME SETTLEMENT HAV E TO BE VIEWED TOGETHER. WE HAVE CONSIDERED HIS SUBMISSIONS AND ARE OF THE V IEW THAT THE CONTENTION OF THE LD. D.R REQUIRES EXAMINATION BY THE ASSESSIN G OFFICER AFRESH. IN THIS REGARD WE ARE OF THE VIEW THAT AN EXAMINATION OF TH E PURPOSE FOR WHICH THE LOAN WERE AVAILED BY SKYPAK FISHERIES PRIVATE LIM ITED OR THE LOAN AVAILED BY THE ASSESSEE IN 1996 OF RS. 120 CRORES FROM SCICI NEED TO BE SEEN AS TO WHETHER THEY WERE FOR CAPITAL PURPOSE OR REVENUE PU RPOSE. TO THE EXTENT ITA NO.8698&8890/M/04(A.Y. 2001-02)) 10 THE AFORESAID BORROWINGS ARE TOWARDS MEETING TRADIN G LIABILITY ITS REMISSION WOULD GIVEN RISE TO INCOME CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE, IN VIEW OF THE DECISION OF THE HONBLE BOMBAY HIGH COU RT IN THE CASE OF SOLID CONTAINERS (SUPRA). WE THEREFORE, REMAND THIS IS SUE TO THE ASSESSING OFFICER FOR FRESH CONSIDERATION ON THE LINES INDICA TED ABOVE. THUS GROUND NO.1 RAISED BY THE REVENUE IS TREATED AS ALLOWED FO R STATISTICAL PURPOSES. 15. GROUND NO.2 RAISED BY THE REVENUE READS AS FOLL OWS: 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF LONG TERM CAPITAL LOSS AMOUNTING TO RS. 60,33,353/- WITHOUT APPRECIATING T HE FACTS OF THE CASE. 16. THE ABOVE GROUND IS AGAINST DISALLOWING LONG TE RM CAPITAL LOSS OF RS. 60,33,553/- ARISING ON THE TRANSFER OF 36480 EQUITY SHARES OF RS. 100/- EACH OF M/S.SKYPAK FISHERIES PRIVATE LIMITED. DURING THE YEAR, ASSESSEE HAS HELD 36480 SHARES OF RS. 100/- EACH OF M/S. SKYPAK FISHERIES PRIVATE LIMITED. THESE SHARES WERE PURCHASED IN THE YEAR 1 993-94. DURING THE YEAR APPELLANT COMPANY HAS SOLD THESE SHARES AT RS. 1 PE R SHARE TO DILIP HOLDINGS PVT. LTD. AND HAS CLAIMED LONG TERM CAPITAL LOSS OF RS. 60,33,553/- AS UNDER: PURCHASE COST (1993) 36480 SHARE S@100 = 36,48,000 INDEXED COST 406 X 36,48,000 = 60,74,033 ------------------- 244 LESS: SALE PRICE 36480 SHARES @ RS.1 PER SHA RE = 36,480 ------ --- LONG TERM CAPITAL L OSS: (-) 60,33,553 THE AO ASKED THE ASSESSEE TO EXPLAIN AND FURNISH TH E BREAK-UP VALUE OF THE SHARE OF M/S. SKYPAK FISHERIES PRIVATE LIMITED. AS SESSEE SUBMITTED BEFORE THE AO THAT THE ABOVE PRICE WAS ARRIVED AT AFTER CO NSIDERING NET WORTH OF M/S. SKYPAK FISHERIES PRIVATE LIMITED AND POOR PERF ORMANCE DURING THE LAST SEVERAL YEARS. HOWEVER, AO WAS NOT SATISFIED WITH THE AFORESAID EXPLANATION OF THE ASSESSEE. THE AO HELD THAT THIS TRANSACTI ON OF SALE OF SHARES OF M/S. ITA NO.8698&8890/M/04(A.Y. 2001-02)) 11 SKYPAK FISHERIES PRIVATE LIMITED IS AN EXTENSION OF THE ELABORATE PLAN OF THE ASSESSEE TO BOOK THE LOSSES OF M/S. SKYPAK FISH ERIES PVT. LTD. THE ASSESSEE COMPANY HAS SHOWN SALE OF SHARES OF M/S. S KYPAK FISHERIES PRIVATE LIMITED, A CLOSELY HELD COMPANY WHOSE 100% SHARE HO LDING ARE HELD BY THE DIRECTORS OF THE ASSESSEE COMPANY AND IS NAMED AFTE R ONE OF THE DIRECTORS SHRI DILIP M. KULKARNI. THE ASSESSEE HAS ENTERED I NTO CIRCULAR TRANSACTIONS AMONG THE RELATED ENTITIES, WITH A GAME PLAN TO RED UCE ITS TAXABLE INCOME. IN VIEW OF THE ABOVE AND RELYING ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MC DOWELL AND COMPANY (154 ITR 148 (SC)], AO DISALLOWED THE LOSS OF RS. 60,33,553/-. 17. BEFORE CIT(A), THE ASSESSEE SUBMITTED THAT I T HAD TRANSFERRED THE SHARES AT A VALUE DETERMINED ON THE BASIS OF THE NE T WORTH OF THE COMPANY. THE NET WORTH OF THE COMPANY AS ON 31/3/2000 WAS A NEGATIVE OF RS.72.83. COPY OF THE BALANCE SHEET EVIDENCING THIS FACT WAS ALSO FILED. THE ASSESSEE HAD ALSO FURNISHED A CERTIFICATE FROM THE CHARTERED ACCOUNTANT CERTIFYING THAT THE NET WORTH OF SKYPAK FISHERIES LTD. IS RS. 72.83. IT WAS SUBMITTED THAT THE AO DID BRING ANY MATERIAL ON RECORD TO PRO VE THAT THE SALE VALUE IS NOT THE CORRECT VALUE OF THE SHARES. THE ASSESS EE THEREFORE PRAYED THAT THE DCIT BE DIRECTED TO ALLOW LONG TERM CAPITAL LOSS OF RS. 60,33,533/-. 18. THE CIT(A) OBSERVED AS UNDER: I HAVE CONSIDERED THE SUBMISSION MADE BY THE AR / APPELLANT. IT IS SEEN THAT THE APPELLANT DURING THE YEAR HAS INC URRED LONG TERM CAPITAL LOSS OF RS.60,33,533/- ON THE SALE OF SHARE S OF M/S. SKYPAK FISHERIES PRIVATE LIMITED. HOWEVER, AO HAS DISALLO WED THE SAME ON THE GROUND THAT THE ABOVE LOSS HAS BEEN INCURRED BY THE APPELLANT COMPANY IN ITS SCHEME OF REDUCING TAX. I AM AFRAID THE AFORESAID CONTENTION OF THE AO TO DISALLOW LOSS IS NOT TENABL E. APPELLANT HAD HELD 36480 SHARES OF RS. 100/- EACH OF M/S. SKYPAK FISHERIES PRIVATE LIMITED. M/S. SKYPAK FISHERIES PRIVATE LIMITED HAS A NEGATIVE NET WORTH AS IS EVIDENT FROM THE BALANCE SHEET FOR THE YEAR ENDED 31/3/2000 AND CERTIFICATE OF THE CA, COPY OF WHICH HAS BEEN FILED ON PAGE 170 OF THE PAPER BOOK. IN THE AFORESAID CERTI FICATE, M/S. GS NAYAK AND COMPANY, CAS HAVE CERTIFIED THAT THE VALU E OF EACH SHARE OF ITA NO.8698&8890/M/04(A.Y. 2001-02)) 12 M/S. SKYPAK FISHERIES PRIVATE LIMITED IS ON 31/3/20 00 IS NEGATIVE AT RS.72.83. THOUGH IN THE AFORESAID WORKING, CA HAS NOT CONSIDERED EXPENDITURE DURING THE CONSTRUCTION PERIOD AT RS. 1 ,46,78,826/- WHILE VALUING THE EQUITY SHARES FOR THE REASON THAT THE S AME IS CARRIED FORWARD FOR LAST SO MAY YEARS AND IS NOT PRODUCTIVE . EVEN IF SAME IS CONSIDERED COMPANY CONTINUES TO HAVE NEGATIVE WORT H. IT IS IN THIS BACKGROUND THAT THE APPELLANT HAS SOLD ITS SHARES A T RS.1/- AND I FIND NO ILLEGALITY IN THE AFORESAID TRANSACTION. APPELL ANT HAS PURCHASED AND SOLD THE SHARES KEEPING IN VIEW THE BUSINESS CONSID ERATION. APPELLANT AND FOR THAT MATTER ANY ASSESSEE IS FREE TO TAKE IT S DECISIONS OF COURSE WITHIN THE FOUR CORNERS OF LAW TO FURTHER ITS BUSIN ESS INTEREST BEST SUITED TO HIM. AFORESAID TRANSACTION, IN MY OPINIO N, CANNOT BE TAINTED WITH ILLEGALITY AND TERMED AS ILLEGITIMATE AND, THE REFORE, LONG TERM CAPITAL LOSS OF RS.60,33,533/- IS ALLOWABLE TO THE ASSESSEE. AOS RELIANCE ON THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF MC DOWELL IS NOT JUSTIFIED. M/S. SKYPAK FISHERIES PVT.LTD. HAD NEGATIVE WORTH AND, THEREFORE, VALUE OF ITS SHARE H AD CRASHED. IN THE LIGHT OF ABOVE DISCUSSION, I AM OF THE OPINION THA T APPELLANT HAS ENTERED INTO A LEGAL AND GENUINE TRANSACTION AND, THEREFORE, LONG TERM CAPITAL LOSS OF RS.60,33,533/- CANNOT BE DISALLOWED . AO IS ACCORDINGLY DIRECTED TO ALLOW THE LONG TERM CAPITAL LOSS OF RS. 60,33,533/-. 19. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. D R WHO RELIED ON THE ORDER OF THE ASSESSING OFFICER. IN OUR VIEW , THE CIT(A) HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE. THE COMPANY M/S. SKYPAK FISHERIES PVT. LTD. HAD A NEGATIVE WORTH AS ON 31/3/2000. IT IS NOT D ISPUTED THAT THE TRANSACTION OF SALE AND PURCHASE WAS NOT GENUINE. IN THESE CIRCUMSTANCES IT IS THE ASSESSEES DISCRETION TO SELL THE SHARES. T HE ASSESSING OFFICER CANNOT SIT IN THE ARM CHAIR OF AN ASSESSEE AND DECIDE AS T O WHEN HE HAS TO TRANSFER A CAPITAL ASSET WHEN THE TRANSACTION IS WITHIN THE FRAME WORK OF LAW. THE VALUATION AS ON DATE OF SALE HAS BEEN DULY CERTIFIE D BY CHARTERED ACCOUNTANT. IN THESE CIRCUMSTANCES WE ARE OF THE VIEW THAT CIT( A) WAS JUSTIFIED IN ALLOWING THE LOSS CLAIMED BY THE ASSESSEE. WE, THE REFORE, CONFIRM THE ORDER OF THE CIT(A) AND DISMISS THE GROUND NO.2 RAISED BY THE REVENUE. 20. GROUND NO.3 RAISED BY THE REVENUE READS AS FOLL OWS: ITA NO.8698&8890/M/04(A.Y. 2001-02)) 13 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS. 2, 28,060/- BEING EMPLOYEES CONTRIBUTION TOWARDS PF U/S. 43B, WITHOUT APPEARING THE FACTS OF THE CASE. 21. THE AO DISALLOWED A SUM OF RS. 2,28,060 BEING E MPLOYEES CONTRIBUTION TOWARDS PF PAID BEYOND THE GRACE PERIO D AS ACCORDING TO HIM THE SAME IS NOT ALLOWABLE AND IS TREATED AS DEEMED INCOME UNDER SECTION 2(24)(X) R.W.S. 36(1)(VA). THE CIT(A) ACCEPTED THE SUBMISSION OF THE ASSESSEE THAT THE DUE DATE FOR PAYMENT OF CONTRIBUTION TO PR OVIDENT FUND IS 20 TH OF EACH SUCCEEDING MONTH SINCE 5 DAYS GRACE PERIOD IS PROVIDED VIDE CIRCULAR NO.E-11/28 (14B AMENDMENT) 73 DATED 24/10/1973 THE CLAIM FOR DEDUCTION SHOULD BE ALLOWED. THE ASSESSEE RELIED ON THE FOLL OWING DECISIONS IN SUPPORT OF ITS CLAIM:- A) CIT VS. SHRI GANAPAPTHY MILLS CO. LTD. (234 IT R 879) B) HUNSUR PLYWOOD WORKS LTD. VS. DCIT (54 ITD 394) C) MODERN STEEL IND. VS. ASSTT. CIT (DEL) (65 TTJ 357) D) CIT VS. SALEM CO-OP. SPINNING MILLS LTD. (258 I TR 360) THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE ACCE PTING THE ABOVE SUBMISSIONS. AGAINST THE ORDER OF THE CIT(A), THE REVENUE HAS RAISED GROUND NO.3. 22. WE HAVE HEARD THE SUBMISSION OF THE LEARNED D. R. WHO RELIED ON THE ORDER OF THE AO. IN CIT VS. AIMIL LIMITED , THE HONBLE DELHI HIGH COURT IN ITA NO.1063 OF 2006 ITA NO.755 OF 2008 ITA NO.203 O F 2009 ITA NO.1214/2008 WITH ITA NO.1246/2008 ITA NO.50/2009 I TA NO.78/2009 JUDGMENT DATED DECEMBER 23, 2009 HAD TO DEAL WITH A CASE OF DISALLOWANCE U/S. 36(1)(VA) OF THE ACT. THE HONBLE COURT DISCU SSED THE PROVISIONS OF S.2 (24) (X) WHICH PROVIDES THAT AMOUNTS RECEIVED BY AN ASSESSEE FROM EMPLOYEES TOWARDS PF CONTRIBUTIONS ETC. SHALL BE INCOME AND S.36 (1)(VA) WHICH PROVIDES THAT IF SUCH SUMS ARE CONTRIBUTED TO THE E MPLOYEES ACCOUNT IN THE ITA NO.8698&8890/M/04(A.Y. 2001-02)) 14 RELEVANT FUND ON OR BEFORE THE DUE DATE SPECIFIED I N THE PF ETC. LEGISLATION, THE ASSESSEE SHALL BE ENTITLED TO A DEDUCTION. THE COURT ALSO NOTICED THAT THE SECOND PROVISO TO S. 43B(B) PROVIDED THAT ANY S UM PAID BY THE ASSESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTION TO ANY PROVID ENT FUND ETC. SHALL BE ALLOWED AS A DEDUCTION ONLY IF PAID ON OR BEFORE TH E DUE DATE SPECIFIED IN 36(1)(VI). AFTER THE OMISSION OF THE SECOND PROVIS O W.E.F. 1.4.2004, THE DEDUCTION IS ALLOWABLE UNDER THE FIRST PROVISO IF T HE PAYMENT IS MADE ON OR BEFORE THE DUE DATE FOR FURNISHING THE RETURN OF IN COME. THE HONBLE COURT ALSO NOTICED THAT IN ALOM EXTRUSIONS 319 ITR 306(SC), THE DELETION OF THE SECOND PROVISO HAS BEEN HELD TO BE WITH RETROSPECTI VE EFFECT. THE HIGH COURT HAD TO CONSIDER WHETHER THE BENEFIT OF S. 43B CAN B E EXTENDED TO EMPLOYEES CONTRIBUTION AS WELL WHICH ARE PAID AFTER THE DUE D ATE UNDER THE PF LAW BUT BEFORE THE DUE DATE FOR FILING THE RETURN. THE HON BLE COURT HELD THAT: (I) THOUGH THE REVENUE HAS ARGUED THAT A DISTINCTI ON IS TO BE MADE BETWEEN EMPLOYERS CONTRIBUTION AND EMPLOYEES C ONTRIBUTION AND THAT EMPLOYEES CONTRIBUTION BEING IN THE NATURE OF TRUST MONEY IN THE HANDS OF THE ASSESSEE CANNOT BE ALLOWED AS A DEDUCT ION IF NOT PAID ON OR BEFORE THE DUE DATE SPECIFIED IN THE PF ETC. LAW , THE SCHEME OF THE ACT IS THAT EMPLOYEES CONTRIBUTION IS TREATED AS I NCOME U/S. 2(24) (X) ON RECEIPT BY THE ASSESSEE AND ALLOWED AS DEDUCT ION U/S.36(1) (VA) ON MAKING DEPOSIT WITH THE CONCERNED AUTHORITIES. S. 43B (B) STIPULATES THAT SUCH DEDUCTION WOULD BE PERMISSIBLE ONLY ON ACTUAL PAYMENT; (II) THE QUESTION AS TO WHEN ACTUAL PAYMENT SHOULD BE MADE IS ANSWERED BY VINAY CEMENTS 213 CTR 268 WHERE THE DELETION OF THE SECOND PROVISO TO S. 43B W.E.F. 1.4.2004 WAS HELD APPLICABLE TO EARLIER YEARS AS WELL. AS THE DELETION OF THE 2 ND PROVISO IS RETROSPECTIVE, THE CASE HAS TO BE GOVERNED BY THE FIRST PROVISO. ITA NO.8698&8890/M/04(A.Y. 2001-02)) 15 (III) IF THE EMPLOYEES CONTRIBUTION IS NOT DEPOSI TED BY THE DUE DATE PRESCRIBED UNDER THE 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 TH E PROVIDENT FUND ACT AS WELL AS THE ESI ACT. THEREFORE, THE ACT PERMITS THE EMPLOYER TO MAKE THE DEPOSIT WITH SOME DELAYS, SUBJECT TO THE A FORESAID CONSEQUENCES. IN SO FAR AS THE INCOME-TAX ACT IS C ONCERNED , THE ASSESSEE CAN GET THE BENEFIT IF THE ACTUAL PAYMENT IS MADE BEFORE THE RETURN IS FILED, AS PER THE PRINCIPLE LAID DOWN IN VINAY CEMENT. 23. IN VIEW OF THE ABOVE SAID DECISION OF THE HON BLE DELHI HIGH COURT, WE HOLD THAT THE CIT(A) WAS JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE ON ACCOUNT OF EMPLOYEES CONTRIBUTION PAID ON OR BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME AS DEDUCTION. 24. IN THE RESULT, APPEAL BY THE REVENUE IS TREATE D AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 25. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS DI SMISSED AND THE APPEAL BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL P URPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON TH E 31 ST DAY OF MAY, 2011. SD/- SD/- (J.SUDHAKAR REDDY ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 31ST MAY.2011 COPY TO: 1. THE ASSESSEE 2. THE REVENUE 3. TH E CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RJ BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.8698&8890/M/04(A.Y. 2001-02)) 16 ITA NO.8698&8890/M/04(A.Y. 2001-02)) 17 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 18/5/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 19/5/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER