Gujarat Mitul Petro Pharma Pvt. Ltd.,, Dist. Baroda. v. The ACIT., Circle-1(1),, Baroda

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE S/SHRI G. D. AGARWAL VP AND BHAVNESH SAINI JM) ITA NOS.1376 1377 AND 1378/AHD/2007 A. Y.: 1997-98 1998-99 AND 1999-2000 THE A. C. I. T. CIRCLE-1 (1) AAYAKAR BHAVAN RACE COURSE CIRCLE BARODA VS M/S. GUJARAT MITUL PETRO PHARMA PVT. LTD. BLOCK NO.75 SOKHADA MUKUT NAGAR ROAD SAVLI DIST. BARODA PA NO. AAACG 8521 B (APPELLANT) (RESPONDENT) C O NOS. 128 129 AND 130/AHD/2007 (IN ITA NO.1376 1377 AND 1378/AHD/2007) AND ITA NOS.1426 1669 1670 AND 1671/AHD/2007 A. Y.:1999-2000 1997-98 1998-99 AND 2002-03 M/S. GUJARAT MITUL PETRO PHARMA PVT. LTD. BLOCK NO.75 SOKHADA MUKUT NAGAR ROAD SAVLI DIST. BARODA PA NO. AAACG 8521 B VS THE A. C. I. T. CIRCLE-1 (1) AAYAKAR BHAVAN RACE COURSE CIRCLE BARODA (CROSS OBJECTOR/APPELLANT) (RESPONDENT) DEPARTMENT BY SHRI C. K. MISHRA DR ASSESSEE BY SHRI ANIL R. SHAH AR O R D E R PER BHAVNESH SAINI: ALL THE APPEALS BY THE ASSESSEE CROSS OBJECTIONS BY THE ASSESSEE AND THE DEPARTMENTAL APP EALS ARE DIRECTED AGAINST THE COMMON ORDER OF THE LEARNED CIT(A)-I B ARODA DATED 5 TH JANUARY 2007 FOR ASSESSMENT YEARS 1997-98 1998- 99 1999-2000 AND 2002-03. SINCE ALL THE ABOVE MATTERS WERE HEARD TOG ETHER THEREFORE WE DISPOSE OF THE SAME THROUGH THIS COMMON CONSOLIDATE D ORDER. ITA NOS. 1376 1377 AND 1377/AHD/2007 C.O. NOS.128 129 AND 130/AHD/2007 AND ITA NOS.1426 1669 1670 AND 1671/AHD/2007 GUJARAT MITUL PETRO PHARMA PVT. LTD. 2 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL AVAILABLE ON RECORD. 3. THE APPEALS IN ITA NOS. 1669 1670 AND IN ITA NO.1671/AHD/20007 ARE TIME BARRED BY 18(EIGHTEEN) D AYS. THE ASSESSEE IN THE APPLICATION FOR CONDONATION OF DELAY EXPLAIN ED THE DELAY IN FILING THE APPEALS BELATEDLY THAT IN THE ASSESSMENT YEAR 1 999-2000 THE APPEAL WAS FILED IN THE OFFICE OF THE TRIBUNAL BEARING APP EAL NO.1426/AHD/2007 AND BY MISTAKE AND OVERSIGHT THE ASSESSEE FILED THI S APPEAL FOR ALL THE ABOVE ASSESSMENT YEARS BECAUSE THE LEARNED CIT(A) P ASSED THE COMMON ORDER FOR ALL THE ASSESSMENT YEARS. THE ASSESSEE WA S INTIMATED OF THE MISTAKE IN FILING THE APPEAL AND WAS REQUIRED TO FI LE ALL THE APPEALS SEPARATELY. THE ASSESSEE IMMEDIATELY FILED THE APPE ALS SEPARATELY FOR ALL THE ASSESSMENT YEARS. IT WAS THEREFORE PRAYED THA T DUE TO LACK OF TECHNICAL KNOWLEDGE IN FILING SEPARATELY APPEALS FO R ALL THE ASSESSMENT YEARS THERE IS A NOMINAL DELAY OF 18(EIGHTEEN) DAYS IN FILING THE APPEALS. THE AFFIDAVIT OF GIRISH RAMNIKLAL SHAH DIRECTOR OF THE COMPANY IS FILED IN SUPPORT OF THE SAME AVERMENTS. THE LEARNED COUNS EL FOR THE ASSESSEE SUBMITTED THAT THE DELAY IN FILING THE ABOVE APPEAL S MAY BE CONDONED. THE LEARNED DR DID NOT OBJECT TO THE SAME. ON CONSI DERATION OF THE ABOVE FACTS AND SUBMISSION OF THE PARTIES WE ARE OF THE VIEW THAT THE ASSESSEE HAS BEEN ABLE TO EXPLAIN THE DELAY DUE TO SUFFICIEN T CAUSE IN FILING THE APPEALS BEYOND THE PERIOD OF LIMITATION. THE EXPLAN ATION OF THE ASSESSEE IS ACCEPTED. WE ACCORDINGLY CONDONE THE DELAY IN FI LING THE ABOVE THREE APPEALS. 4. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE OUTS ET SUBMITTED THAT HE WOULD NOT BE PRESSING ALL THE ABOVE CROSS OBJECT IONS FILED FOR 3 ITA NOS. 1376 1377 AND 1377/AHD/2007 C.O. NOS.128 129 AND 130/AHD/2007 AND ITA NOS.1426 1669 1670 AND 1671/AHD/2007 GUJARAT MITUL PETRO PHARMA PVT. LTD. 3 ASSESSMENT YEARS I.E. ASSESSMENT YEAR 1997-98 1998 -99 AND 1999- 2000. ALL THE CROSS OBJECTIONS ARE ACCORDINGLY DISM ISSED AS WITHDRAWN. ITA NOS.1426 1669 1670 AND 1671/AHD/2007 ASSESSEES APPEAL 5. THE ASSESSEE FILED FOUR APPEALS FOR ALL THE ABOV E ASSESSMENT YEARS. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT HE WOULD NOT BE PRESSING THE APPLICATION FOR ADMISSION OF THE ADDIT IONAL GROUNDS OF APPEAL RAISED IN THE ASSESSMENT YEAR 1997-98 1998- 99 AND 1999-2000. ALL THE ADDITIONAL GROUNDS IN THE ABOVE APPEALS ARE ACCORDINGLY DISMISSED AS NOT PRESSED. 6. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO SUBMIT TED THAT HE WOULD NOT BE PRESSING GROUND NO. 1(A) IN ALL THE APPEALS CHALLENGING THE ADDITION U/S 35(D) OF THE IT ACT. WE ACCORDINGLY DI SMISS GROUND NO. 1(A) IN ALL THE APPEALS AS WITHDRAWN. 7. THE ASSESSEE IN ALL THE APPEALS ON GROUND NO. 1( B) CHALLENGED THE ADDITIONS IN DISALLOWING INTEREST CHARGE ON LOANS A ND ADVANCES TO DIRECTORS OF RS.53 210/- RS.81 786/- RS.51 040/- AND RS.36 906/- RESPECTIVELY IN ALL THE ASSESSMENT YEARS. THE ABOVE ADDITIONS HAVE BEEN MADE IN ALL THE FOUR ASSESSMENT YEARS. THE AO OBSER VED THAT THE ASSESSEE HAD ADVANCED LOAN TO THE DIRECTORS ON WHIC H NO INTEREST WAS CHARGED WHILE THE ASSESSEE HAS RAISED LOANS AND PAI D INTEREST ON THE SAME. THE AO REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY UNDER THESE CIRCUMSTANCES THE PROPORTIONATE INTEREST IN RESPEC T OF SUCH INTEREST FREE LOANS TO DIRECTORS BE NOT DISALLOWED. THE ASSESSEE EXPLAINED THAT AS A POLICY IT NEITHER CHARGED ANY INTEREST FROM THE DIR ECTORS NOR PAID INTEREST TO THEM ON LOANS/ADVANCES RECEIVED FROM THEM. IT WA S FURTHER EXPLAINED THAT THE COMPANY HAD ACCEPTED INTEREST FREE UNSECUR ED LOANS OF RS.30 45 000/- RS.33 80 000/- AND RS.13 74 000/- F ROM THE DIRECTORS ITA NOS. 1376 1377 AND 1377/AHD/2007 C.O. NOS.128 129 AND 130/AHD/2007 AND ITA NOS.1426 1669 1670 AND 1671/AHD/2007 GUJARAT MITUL PETRO PHARMA PVT. LTD. 4 IN THE ASSESSMENT YEAR 1997-98 1998-99 AND 2002-03 RESPECTIVELY. IT WAS THEREFORE ARGUED THAT THERE WAS NO JUSTIFICATI ON IN MAKING THE PROPORTIONATE DISALLOWANCE SINCE THE COMPANY NEITHE R PAID INTEREST TO THE DIRECTORS NOR RECEIVED ANY INTEREST FROM THE DI RECTORS. HOWEVER THE AO OBSERVED THAT THE ASSESSEE FAILED TO SHOW THAT L OANS ADVANCED TO THE DIRECTORS HAD BEEN GIVEN OUT OF ITS CAPITAL RESERVE ONLY AND NOT FROM INTEREST BEARING BORROWINGS. THE AO FURTHER OBSERVE D THAT THE OBJECTIVE OF THIS LOAN WAS NOT RELATED TO THE BUSINESS ACTIVI TY OF THE ASSESSEE COMPANY. HENCE HE HELD THAT PROPORTIONATE INTEREST OF LOAN AMOUNT WHICH WAS USED FOR OTHER THAN BUSINESS PURPOSES IS REQUIRED TO BE DISALLOWED. THE AO WORKED OUT THE DISALLOWANCE BY A PPLYING RATE OF INTEREST AT 15% ON THE LOAN AMOUNT ADVANCED TO THE DIRECTORS IN ALL THE YEARS WHICH WORKS OUT TO RS.53 210/- RS.81 786/- RS.51 040/- AND RS.36 360/- RESPECTIVELY IN THE YEARS INVOLVED IN T HE APPEALS. ADDITION WAS CHALLENGED BEFORE THE LEARNED CIT(A) AND SAME S UBMISSIONS WERE REITERATED AND IT WAS SUBMITTED THAT THE AO HAS SIM PLY OVERLOOKED THE FACTS THAT THE ASSESSEE COMPANY HAS ACCEPTED ADVANC ES FROM THE DIRECTORS IN THE THREE YEARS ON WHICH NO INTEREST H AS BEEN PAID. IT WAS ARGUED THAT THE AO HAS SELECTIVELY FOCUSED ON THE F ACT THAT THE ASSESSEE HAS NOT CHARGED INTEREST FROM THE DIRECTORS. IT WAS SUBMITTED THAT THE ASSESSEE WAS AN SSI UNIT AND AS PER THE BANKING NOR MS THE DEBIT EQUITY RATIO IN THE CASE OF SSI UNIT WAS ACCEPTABLE TO THE EXTENT OF 2.5 : 1 WHICH MEANS THAT AGAINST A LOAN OF RS.100/- THE SSI UNIT REQUIRES TO INVEST RS.40/-ONLY. IT WAS SUBMITTED THAT IN THIS CONTEXT IF THE AMOUNT OF INVESTMENT REQUIRED TO BE MADE BY THE ASSESSEE WAS WORKED OUT IN ALL THE FOUR YEARS FROM THE FIGURES ADOPTED BY THE AO IT WOULD BE SEEN THAT THE ASSESSEE HAD ADVANCED THE LOAN TO THE DIRECTORS PURELY OUT OF FREE RESERVES AND SURPLUS AVAILABLE WITH THE ASSESSEE CO MPANY. IT WAS THEREFORE SUBMITTED THAT NO DISALLOWANCE SHOULD BE MADE. THE LEARNED ITA NOS. 1376 1377 AND 1377/AHD/2007 C.O. NOS.128 129 AND 130/AHD/2007 AND ITA NOS.1426 1669 1670 AND 1671/AHD/2007 GUJARAT MITUL PETRO PHARMA PVT. LTD. 5 CIT(A) HOWEVER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DISMISSED THE APPEALS OF THE ASSESSEE ON THIS ISSUE AND ADDIT IONS WERE UPHELD. 8. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND RELIED UPON T HE FOLLOWING DECISIONS: (A) ORDER OF ITAT AHMEDABAD BENCH IN THE CASE OF SA HIBAG ENTREPRENEURS VS ITO 50 ITD 113 (AHD) - IN WHICH IT WAS HELD THAT IN THE ABSENCE OF NEXU S BETWEEN INTEREST BEARING LOANS TAKEN AND INTEREST FREE LOAN S GIVEN ASSESSEE WAS ENTITLED TO DEDUCTION OF INTEREST PAID BY IT IN TER MS OF SECTION 36(1) (III) OF ACT. (B) TORRENT FINANCIERS VS ACIT 73 TTJ 624 (AHD) - IN WHICH AHMEDABAD BENCH HELD THAT IF THE TOTAL INTEREST FREE ADVANCES INCLUDING THE DEBIT BALANCE OF THE PA RTNER OF THE ASSESSEE FIRM DO NOT EXCEED THE TOTAL INTEREST FREE FUNDS AV AILABLE WITH THE ASSESSEE NO INTEREST IS DISALLOWABLE ON ACCOUNT OF UTILIZATION OF FUNDS FOR NON-BUSINESS PURPOSES. ( C) GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD. VS DCIT 73 TTJ 787 (AHD) - IN WHICH AHMEDABAD BENCH HELD THAT SUFFICIENT FU NDS BEING AVAILABLE WITH THE ASSESSEE ON WHICH NO INTEREST WA S PAID AND THERE BEING NO EVIDENCE TO LINK THE INTEREST BEARING LOAN S OBTAINED BY THE ASSESSEE WITH INTEREST FREE FUNDS ADVANCED TO ITS A SSOCIATE CONCERN NO DISALLOWANCE U/S 36(1) (III) CAN BE MADE. 9. ON THE OTHER HAND THE LEARNED DR RELIED UPON TH E ORDERS OF THE AUTHORITIES BELOW. ITA NOS. 1376 1377 AND 1377/AHD/2007 C.O. NOS.128 129 AND 130/AHD/2007 AND ITA NOS.1426 1669 1670 AND 1671/AHD/2007 GUJARAT MITUL PETRO PHARMA PVT. LTD. 6 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND TH E MATERIALS AVAILABLE ON RECORD. THE ASSESSEE EXPLAINED THAT IT HAS ADVANCED LOAN TO THE DIRECTORS ON WHICH NO INTEREST WAS CHARGED AND SIMILARLY THE ASSESSEE RECEIVED LOANS/ADVANCES FROM THEM ON WHICH NO INTEREST IS PAID. THE ASSESSEE EXPLAINED THAT THE ASSESSEE COMP ANY HAD ACCEPTED INTEREST FREE UNSECURED LOANS OF RS.30 4 5000/- RS .33 80 000/- AND RS.13 74 000/- FROM THE DIRECTORS IN THE THREE ASSE SSMENT YEARS. THESE INTEREST FREE FUNDS WERE AVAILABLE WITH THE ASSESSE E FOR BUSINESS PURPOSE OR OTHERWISE ON WHICH NO INTEREST IS PAID. THE AVAI LABILITY OF THE ABOVE FUNDS IS VERY HUGE WITH THE ASSESSEE AS COMPARED TO THE SMALL LOANS ADVANCED TO THE DIRECTORS. THE AO HAS ALSO NOT BROU GHT ANY MATERIAL ON RECORD THAT THERE WAS ANY NEXUS BETWEEN THE INTERES T BEARING LOANS TAKEN AND INTEREST FREE LOANS GIVEN TO THE DIRECTOR S. SINCE HUGE INTEREST FREE FUNDS WERE AVAILABLE WITH THE ASSESSEE THEREF ORE THE CLAIM OF THE ASSESSEE THAT SMALL AMOUNT WAS GIVEN ON LOAN INTERE ST FREE TO THE DIRECTORS WOULD SHOW THAT THE ASSESSEE HAS NOT DIVE RTED INTEREST BEARING FUNDS FOR NON-BUSINESS PURPOSES. THE INTEREST FREE LOANS ADVANCED TO THE DIRECTORS DO NOT EXCEED TOTAL INTEREST FREE FUNDS A VAILABLE WITH THE ASSESSEE. THEREFORE NO INTEREST WAS DISALLOWABLE O N ACCOUNT OF UTILIZATION OF FUNDS FOR NON-BUSINESS PURPOSES. IT MAY ALSO BE NOTED HERE THAT THE AO HAS CHARGED INTEREST @ 15% ON THE LOANS GIVEN TO THE DIRECTORS FOR THE PURPOSE OF MAKING THE DISALLOWANC E U/S 36(1) (III) OF THE IT ACT. THE HONBLE GAUHATI HIGH COURT IN THE CASE OF B AND A PLANTATIONS & INDUSTRIES LTD. REPORTED IN 244 ITR 2 2 (GAU) HELD THAT THERE IS NO PROVISIONS IN THE INCOME TAX ACT EMPOWE RING THE INCOME TAX OFFICER TO INCLUDE ANY INCOME OF THE ASSESSEE INTE REST WHICH WAS NOT DUE OR COLLECTED. HONBLE SUPREME COURT IN THE CASE OF CIT VS RAMAN (A)& CO. 67 ITR 11 (SC) HELD THAT LAW DOES NOT OBLIGES ON TRADER TO MAKE MAXIMUM PROFIT. THE DECISIONS CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE APPLIES TO THE CASE OF THE ASSESSEE. CONSI DERING THE FACTS AND ITA NOS. 1376 1377 AND 1377/AHD/2007 C.O. NOS.128 129 AND 130/AHD/2007 AND ITA NOS.1426 1669 1670 AND 1671/AHD/2007 GUJARAT MITUL PETRO PHARMA PVT. LTD. 7 CIRCUMSTANCES AND THE DISCUSSIONS ABOVE WE DO NOT FIND IT TO BE A FIT CASE TO MAKE THE ADDITION ON ACCOUNT OF DISALLOWANC E OF INTEREST U/S 36(1) (III) OF THE IT ACT. WE ACCORDINGLY SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE ALL THE ADDITIONS IN A LL THE ASSESSMENT YEARS. AS A RESULT THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 11. AS A RESULT ALL THE APPEALS OF THE ASSESSEE AR E PARTLY ALLOWED. ITA NOS. 1376 1377 AND 1378/AHD/2007 (REVENUES APPEAL) 12. THE REVENUE IN ALL THREE APPEALS CHALLENGED THE DELETION OF ADDITIONS IN RESPECT OF SALES TAX OF RS.6 44 550/- RS.6 24 849/- AND RS.16 35 663/- IN ASSESSMENT YEAR 1997-98 1998-99 AND 1999-2000 RESPECTIVELY COLLECTED BY THE ASSESSEE DURING THE Y EAR NOT ACTUALLY PAID IN TERMS OF SECTION 43B OF THE IT ACT. THE FACTS OF TH E CASE ARE THAT THE ASSESSEE DID NOT INCLUDE THE AMOUNT OF SALES TAX CO LLECTED TO THE TOTAL INCOME THOUGH IT HAD NOT BEEN PAID TO THE GOVERNMEN T. THE ASSESSEE EXPLAINED THAT SAME HAD NOT BEEN DONE ON ACCOUNT OF SALES TAX DEFERMENT SCHEME. THE ASSESSEE PRODUCED THE RELEVAN T CERTIFICATE FROM THE SALES TAX DEPARTMENT. THE AO OBSERVED FROM THIS THAT THE CERTIFICATE WAS RECEIVED IN 1999 BUT IT RELATED TO IT EFFECTIVE FROM DECEMBER 1992 TO DECEMBER 2001. THE AO OBSERVED THAT FOR ADMISSIBILI TY OF THE CLAIM ON ACCOUNT OF SALES TAX DEFERMENT THE ASSESSEE SHOULD HAVE THE CERTIFICATE BEFORE FILING OF THE RETURN. IN THE INSTANT CASE TH E CERTIFICATE WAS ISSUED IN THE YEAR 1999 AND AS PER THE CERTIFICATE THE LIMIT WAS RS.6 00 000/- ONLY AND THE LIMIT WAS RAISED TO RS.24 00 000/- THROUGH THE CERTIFICATE ISSUED BY THE SALES TAX DEPARTMENT IN 2004 ONLY. FROM THES E FACTS THE AO OBSERVED THAT BEFORE THE ISSUANCE OF THE CERTIFICAT E BY THE SALES TAX AUTHORITY IT CANNOT BE INFERRED THAT THE ASSESSEE HAD OBTAINED THE BENEFIT OF CONVERTING THE SALES TAX LIABILITY INTO LOAN UNDER THE SALES TAX ITA NOS. 1376 1377 AND 1377/AHD/2007 C.O. NOS.128 129 AND 130/AHD/2007 AND ITA NOS.1426 1669 1670 AND 1671/AHD/2007 GUJARAT MITUL PETRO PHARMA PVT. LTD. 8 DEFERMENT SCHEME. HENCE THE AMOUNT OF SALES TAX CL AIMED TO HAVE BEEN DEFERRED WAS NOT ALLOWED U/S 43B PARTICULARLY WITH REFERENCE TO BOARD CIRCULAR NO. 674 DATED 29 TH DECEMBER 1993. IT WAS FURTHER OBSERVED THAT AS PER THE CIRCULAR THE AMOUNT OF SALES TAX L IABILITY CONVERTED INTO LOANS WAS TO BE ALLOWED AS DEDUCTION IN THE ASSESSM ENT FOR THE PREVIOUS YEAR IN WHICH CONVERSION WAS PERMITTED BY THE GOVER NMENT ORDER. IN THIS CASE THE CERTIFICATE WAS ISSUED BY THE COMPETENT A UTHORITY IN THE FINANCIAL YEAR 1999-200. UNDER THE CIRCUMSTANCES T HE SALES TAX COLLECTED IN THE ASSESSMENT YEAR 1997-98 TO 1999-2000 WAS ADD ED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 13. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT U/S 47 (4) OF THE GUJARAT SALES TAX ACT SALES TAX DEFERRED UNDER THE SCHEME SHALL BE DEEMED TO HAVE BEEN PAID IN THE YEAR IN WHICH THE S AID AMOUNT IS TREATED AS LOAN BY ISSUE OF THE CERTIFICATE BY THE SALES TA X AUTHORITIES. THE AO WHILE ACCEPTING THE FACT THAT THE ASSESSEE WAS ENTI TLED TO CLAIM THE BENEFIT AS PER THE CERTIFICATE ISSUED BY THE COMPET ENT AUTHORITIES DENIED THE CLAIM ON THE GROUND THAT DEDUCTION SHALL BE D EEMED TO HAVE BEEN MADE IN THE FINANCIAL YEAR 1999-2000. THE ASSESSEE EXPLAINED THAT AS PER THE AO THE ALLOWANCE CAN BE GIVEN IN THE FINANC IAL YEAR 2000-01 AS THE CERTIFICATE ACKNOWLEDGING CONVERSION OF LOAN WA S ISSUED ON 21-7-1999 AND THEREFORE THE SAME CAN BE DEEMED TO BE PAID IN THE FINANCIAL YEAR 1998-99. THE ASSESSEE SUBMITTED THAT THE AO HAS PLACED RELIA NCE ON EARLIER CIRCULAR IGNORING BOARD CIRCULAR NO.496 ISSUED IN T HIS REGARD IN WHICH IT WAS EXPLAINED THAT SECTION 43B OF THE IT ACT INTRODUCED BY THE FINANCE ACT 1983 PROVIDES INTER ALIA THAT DEDUCTION IN RESPECT OF ANY SUM PAYABLE BY THE ASSESSEE BY WAY OF TAX OR DUTY UNDER ANY LAW FO R THE TIME BEING IN FORCE SHALL BE ALLOWED IN THE PREVIOUS YEAR IN WHIC H SUCH SUM IS ACTUALLY PAID IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED. SINCE THE INTRODUCTION OF THIS PR OVISION THE ASSESSEE ITA NOS. 1376 1377 AND 1377/AHD/2007 C.O. NOS.128 129 AND 130/AHD/2007 AND ITA NOS.1426 1669 1670 AND 1671/AHD/2007 GUJARAT MITUL PETRO PHARMA PVT. LTD. 9 WHO COLLECTED SALES TAX BUT HAD NOT PAID THE AMOUNT TO THE GOVERNMENT DURING THE PREVIOUS YEAR UNDER THE DEFERRAL SCHEME PROVIDED BY THE STATE GOVERNMENT ARE NOT ENTITLED TO THE BENEFIT OF DEDUCTION FROM THEIR INCOME. REPRESENTATIONS HAVE BEEN RECEIVED THAT THE CASES OF DIFFERED SALES TAX PROVISION SHOULD BE EXCLUDED FROM THE PUR VIEW OF SECTION 43B OF THE IT ACT AND THE MATER HAS BEEN EXAMINED AND IT W AS OPINED THAT IF THE STATE GOVERNMENT MAKES AN AMENDMENT IN THE GUJARAT SALES TAX ACT THE SAME SHALL BE TREATED AS ACTUALLY PAID SUCH A DEEMING PROVISION WILL MEET REQUIREMENT OF SECTION 43B OF THE IT ACT. THE BOARD DECIDED THAT WHERE AMENDMENTS ARE MADE IN SALES TAX LAW ON THESE LINES THE STATUTORY LIABILITY SHALL BE TREATED TO HAVE BEEN D ISCHARGED FOR THE PURPOSE OF SECTION 43B OF THE IT ACT. THE ASSESSEE THEREFORE CLARIFIED THAT RELEVANT AMENDMENT HAD BEEN CARRIED OUT IN THE GUJARAT SALES TAX ACT. THE HONBLE GUJARAT HIGH COURT NOTED THIS IN THE CA SE OF CIT VS SHREE TALAL TALUKA SAHAKARI KHAND UDYOG MANDLI 259 ITR 2 1 (GUJ) AND IN THE CASE OF CIT VS BHAGWATI AUTOCAST LTD. [2003] 261 I TR 481 (GUJ) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. IT WAS ARGUED THAT NO DISALLOWANCE COULD BE MADE CONSIDERING THE FACT THAT APPROPRIATE AMENDMENTS HAVE BEEN CARRIED OUT IN THE GUJARAT SALES TAX ACT. SO T HE CASE OF THE ASSESSEE IS COVERED BY CIRCULAR NO.496 ISSUED LATTER ON AND DECISIONS OF THE HONBLE GUJARAT HIGH COURT. THE LEARNED CIT(A) ACCE PTED THE SUBMISSIONS OF THE ASSESSEE AND NOTED THAT SALES TA X LIABILITY UNDER THE DEFERMENT SCHEME IS CLEARLY ALLOWABLE AS PER THE LA TER CBDT CIRCULAR AMENDMENT MADE IN THE SALES TAX ACT AND AS PER THE DECISIONS OF THE HONBLE GUJARAT HIGH COURT THE ASSESSEE IS ENTITLED TO DEDUCTION. ADDITIONS WERE ACCORDINGLY DELETED AND THE APPEALS OF THE ASSESSEE WERE ACCORDINGLY ALLOWED. ITA NOS. 1376 1377 AND 1377/AHD/2007 C.O. NOS.128 129 AND 130/AHD/2007 AND ITA NOS.1426 1669 1670 AND 1671/AHD/2007 GUJARAT MITUL PETRO PHARMA PVT. LTD. 10 14. THE LEARNED DR RELIED UPON THE ORDER OF THE AO. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE ASSESSEE REITERAT ED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. 15. WE DO NOT FIND ANY MERIT IN THE DEPARTMENTAL AP PEALS ON THIS ISSUE. IT IS NOT IN DISPUTE THAT THE ASSESSEE PRODU CED THE RELEVANT CERTIFICATE FROM SALES TAX DEPARTMENT ALLOWING DEFE RMENT OF THE SALES TAX UNDER THE SCHEME. THE CLAIM OF THE ASSESSEE WAS REJ ECTED BECAUSE THE CERTIFICATE WAS ISSUED LATER ON BY THE SALES TAX DE PARTMENT. THE AO RELIED UPON THE CIRCULAR BUT AS PER THE LATER CIRCULAR OF THE BOARD THE ASSESSEE WAS ENTITLED TO THE DEDUCTION U/S 43B OF THE IT ACT ON ACCOUNT OF OPTION FOR SALES TAX DEFERMENT SCHEME. WHENEVER THE ASSESS EE WOULD OPT FOR DEFERMENT OF THE SALES TAX IT HAS TO APPLY TO THE CONCERN DEPARTMENT AND THEY WOULD TAKE SOMETIME TO COMPLETE THE FORMALITIE S BEFORE ISSUING CERTIFICATE TO THE ASSESSEE. ULTIMATELY THE ASSESS EE IS ENTITLED FOR DEDUCTION BECAUSE THE CERTIFICATE IS ISSUED IN FAVO UR OF THE ASSESSEE. THE DECISIONS RELIED UPON BY THE ASSESSEE BEFORE THE LE ARNED CIT(A) CLEARLY SUPPORT THE CASE OF THE ASSESSEE. IN THESE DECISION S THE HONBLE GUJARAT HIGH COURT CONSIDERED THE LATER CIRCULAR NO.496 REL IED UPON BY THE ASSESSEE AND HELD THAT THE ASSESSEE WAS ENTITLED TO THE BENEFIT OF CIRCULAR AFTER THAT DATE AND THE AMOUNT OF UNPAID SALES TAX NOT TO BE DISALLOWED. SAME VIEW IS TAKEN BY HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS GOODLUCK SILICATE INDUSTRIES (P) LTD. 134 TAXMAN 71 5 IN WHICH IT WAS HELD THAT SINCE THE RESOLUTION ISSUED BY THE STATE GOVERNMEN T EARLIER WAS MADE EFFECTIVE FROM 1983 THE ASSESSEE S CASE AS COVERED BY THE SAID RESOLUTION AND AMENDMENT MADE T HEREAFTER ON 24 TH MARCH 1988 IS CLARIFICATORY IN NATURE. WE ARE T HEREFORE OF T HE VIEW THAT THE TRIBUNAL WAS RIGHT IN DELETING THE ADDITION MADE BY THE ITO INVOKING THE PROVISIONS OF SECTION 43B I N RESPECT OF UNPAID SALES TAX LIABILITY. WE THEREFORE ANSWER T HIS QUESTION IN ITA NOS. 1376 1377 AND 1377/AHD/2007 C.O. NOS.128 129 AND 130/AHD/2007 AND ITA NOS.1426 1669 1670 AND 1671/AHD/2007 GUJARAT MITUL PETRO PHARMA PVT. LTD. 11 THE AFFIRMATIVE I.E. IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THIS REFERENCE IS ACCORDINGLY DISPOSED OF WITH NO ORDER AS TO COSTS. 16. IN THIS VIEW OF THE MATTER WE DO NOT FIND IT T O BE A FIT CASE FOR INTERFERENCE. WE ACCORDINGLY CONFIRM THE FINDINGS O F THE LEARNED CIT(A) AND DISMISS THIS GROUND OF APPEAL OF THE REVENUE IN ALL THE APPEALS. 17. AS A RESULT ALL THE DEPARTMENTAL APPEALS ARE D ISMISSED. 18. IN THE RESULT ALL THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ALL THE CROSS OBJECTIONS OF THE ASSESSEE ARE DISMISSED. ALL THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED ON 13-04-2010 SD/- SD/- (G. D. AGARWAL) VICE PRESIDENT (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 13- 04-2010 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR ITAT AHMEDABAD