ACIT, Faridabad v. M/s. A.R. Industries Pvt. Ltd, Faridabad

I.T.A. NO. 263/DEL/10 1/6 IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A NEW DELHI) BEFORE SHRI R.P. TOLANI JUDICIAL MEMBER AND SHRI A.K. GARODIA ACCOUNTANT MEMBER I.T.A. NO.263 /DEL/2010 ASSESSMENT YEAR : 2006-07 ACIT A.R. INDUSTRIES PVT. LTD. CIRCLE-II BLOCK 1-B 14/6 MATHURA ROAD CGO COMPLEX FARIDABAD. FARIDABAD. V. (APPELLANT) (RESPONDENT) PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO.AABCA AABCA AABCA AABCA- -- -5358 5358 5358 5358- -- -D DD D APPELLANT BY : SHRI B. KISHORE SR. DR RESPONDENT BY : NONE. ORDER PER A.K. GARODIA AM: THIS IS REVENUE'S APPEAL FILED AGAINST THE ORDER OF LD CIT(A) FARIDABAD DATED 25.11.2009 FOR ASSESSMENT YEAR 2006-07. 2. GROUND NO.1 OF THE APPEAL IS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITIO N OF `.11 49 647/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF LATE DEPOSIT OF EMPLOYEES CONTRIBUTION TO PF & ESI DISREGAR DING THE FACT THAT THE PAYMENTS WERE MADE BEYOND THE DUE DATE S AND WERE THEREFORE NOT ALLOWABLE U/S 36(1)(VA) AND WER E TO BE . I.T.A. NO.263/DEL/10 2/6 TREATED AS INCOME U/S 2(24)(X) OF THE INCOME TAX ACT 1961 IN CONTRAVENTION OF THE DECISION IN THE CASE OF CIT V. P AMWI TISSUES LTD. 215 CTR 150 (BOM.). 3. LD DR OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER W HEREAS LD AR OF THE ASSESSEE SUPPORTED THE ORDER OF LD CIT(A). HE DRAWN OUR ATTENTION TO PAGE NO.12 OF THE ORDER OF LD CIT(A) A ND POINTED OUT THAT THE DATE OF DEPOSIT OF ESI HAS BEEN NOTED BY THE LD C IT(A) ON THIS PAGE OF HIS ORDER AS PER WHICH THE LAST DATE OF PAYMENT IS 5.7.2006 WHEREAS THE DUE DATE OF FILING OF RETURN OF INCOME IN THE P RESENT CASE WAS 30.11.2006 AND HENCE THE ENTIRE PAYMENT WAS MADE BY THE ASSESSEE BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME A ND INCIDENTALLY THE ACTUAL DATE OF FILING OF RETURN OF INCOME WAS ALSO 30 .11.2006. IT IS ALSO POINTED OUT BY HIM THAT UNDER THESE FACTS THIS ISSUE IS NOW COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF HON'BLE DELHI HIGH COURT RENDERED IN THE CASE OF CIT V. P.M. ELECTRONICS LTD. AS REPORTED IN 313 ITR 161. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GONE TH ROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT ADMITTED LY THE ENTIRE PAYMENT OF PF & ESI WAS MADE BY THE ASSESSEE BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME AND HENCE AS PER THIS JU DGMENT OF HON'BLE DELHI HIGH COURT RENDERED IN THE CASE OF P.M. ELECTR ONICS LTD. (SUPRA) NO DISALLOWANCE CAN BE MADE EITHER ON ACCOUNT OF EMP LOYEES CONTRIBUTION OR ON ACCOUNT OF EMPLOYERS CONTRIBUTIO N. WE THEREFORE FIND NO REASON TO INTERFERE IN THE ORDER OF LD CIT(A ) ON THIS ISSUE. GROUND NO.1 OF THE REVENUE IS REJECTED. 5. GROUND NO.2 OF THE APPEAL IS AS UNDER:- WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE LD CIT(A) WAS RIGHT IN LAW AND ON FACTS IN DELETING THE ADDITION OF . I.T.A. NO.263/DEL/10 3/6 `.18 21 494/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF NOTIONAL INTEREST ON THE MONEY ADVANCED BY THE ASSESSEE TO ITS SISTER CONCERN WITHOUT CHARGING ANY INTEREST CONTRARY TO THE JUDGMENT OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V. ABHISHEK INDUSTGRIES LTD. AS REPORTED IN 286 ITR 1 (P&H). 6. BRIEF FACTS ARE THAT IT IS NOTED BY THE ASSESSING OFFI CER IN THE ASSESSMENT ORDER THAT THE ASSESSEE COMPANY HAS GIVEN ADVANCE TO M/S PRECISION CASTINGS AGAINST PURCHASE OF PROPERTY SITUA TED AT 14/5 MATHURA ROAD FARIDABAD. IT IS FURTHER NOTED BY THE ASSESSING OFFICER THAT THE ADVANCE PAYMENTS WERE MADE FROM TIME TO TIM E AND AT THE CLOSE OF THE YEAR A SUM OF `.230.28 LAKHS WAS RECOVERA BLE FROM THAT PARTY AGAINST THE OPENING BALANCE OF `.105.62 LAKHS A S ON 1.4.2005. IT IS NOTED BY THE ASSESSING OFFICER THAT AS PER THE ASSESSEE SINCE THE ASSESSEE COMPANY COULD NOT ARRANGE TO MAKE ENTIRE PAYME NT FOR THE PURCHASE OF THIS PROPERTY THE AMOUNT IS STILL LYING AS ADVANCE IN THE BOOKS OF THE ASSESSEE COMPANY. THIS SUBMISSION OF THE ASSESSEE IS ALSO NOTED BY THE ASSESSING OFFICER THAT THIS IS BECAUSE M/ S PRECISON CASTINGS HAD PROVIDED THE COLLATERAL SECURITY TO THE B ANKER OF THE ASSESSEE COMPANY I.E. STATE BANK OF INDIA SIB BRANCH FARIDABAD AGAINST LOANS AND HAVE DEPOSITED THE TITLE DEEDS FOR T HE CREDIT FACILITY OF `.300 LAKHS FROM THIS BANK. THE ASSESSING OFFICER HAS M ADE REFERENCE TO THE JUDGMENT OF HON'BLE PUNJAB & HARY ANA HIGH COURT RENDERED IN THE CASE OF CIT V. ABSHISHEK INDUSTRIES PVT. LTD. AS REPORTED IN 286 ITR 1 AND HE MADE DISALLOWANCE OF `. 18 21 494/- ON ACCOUNT ON INTEREST ON OUTSTANDING AMOUNT OF ADVANCES RECEIVABLE BY THE ASSESSEE FROM THAT PARTY. BEING AGGRIEVED THE ASSESSE E CARRIED THE MATTER IN APPEAL BEFORE LD CIT (A) WHO HAS DELET ED THIS DISALLOWANCE AND NOW THE REVENUE IS IN APPEAL BEFORE US. 7. LD DR OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER W HEREAS LD AR OF THE ASSESSEE SUPPORTED THE ORDER OF LD CIT(A). . I.T.A. NO.263/DEL/10 4/6 8. WE HAVE HEARD THE SUBMISSIONS OF THE LD DR OF THE RE VENUE AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD AND THE JUDGMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT RENDERED IN THE CASE OF ABHISHEK INDUSTRIES (SUPRA) FOLLOWED BY THE ASSESSING OFFI CER. FIRST OF ALL WE WOULD LIKE TO POINT OUT THAT THE ADVANCES IN QUESTION WERE GIVEN BY THE ASSESSEE COMPANY IN FINANCIAL YEAR 2004-05 AND 2 005-06 AND IT IS THE CLAIM OF THE ASSESSEE THAT THESE ADVANCES WERE GIV EN FOR THE PURPOSE OF PURCHASING THE PROPERTY WHICH WAS BEING USED BY THE ASSESSEE COMPANY FOR ITS BUSINESS PURPOSES ALTHOUGH AGAINST TH E PAYMENT OF RENT FOR THE SAME. IN THE COURSE OF HEARI NG BEFORE US A QUERY WAS RAISED BY THE BENCH AS TO WHEN THE PROPERT Y WAS REGISTERED IN THE NAME OF THE ASSESSEE COMPANY BUT THE LD AR OF TH E ASSESSEE WAS NOT AWARE ABOUT THIS VITAL FACT. ANY AGREEMENT F OR PURCHASE OF PROPERTY IS ALSO NOT MADE AVAILABLE BEFORE US AND THER E IS NO COMMENT OF THE AUTHORITIES BELOW ON THIS ASPECT AS TO WHETHER A NY AGREEMENT FOR PURCHASE OF PROPERTY WAS PRODUCED BY THE ASSESSEE BEF ORE THEM. IN THE ABSENCE OF ANY AGREEMENT FOR PURCHASE OF PROPERTY AND THE DETAILS REGARDING ACTUAL PURCHASE ETC. IT IS NOT POSSIBLE TO A CCEPT THAT THESE ADVANCES WERE GIVEN BY THE ASSESSEE AGAINST PURCHASE OF PR OPERTY. IN THE CASE OF CIT V. ABISHEHK INDUSTRIES (SUPRA) IT HAS B EEN HELD BY THE HON'BLE PUNJAB & HARYANA HIGH COURT I.E. THE JURISDI CTIONAL HIGH COURT IN THE PRESENT CASE THAT ONCE IT IS BORNE OUT FROM THE RECORD THAT THE ASSESSEE HAS BORROWED CERTAIN FUNDS ON WHICH LIABILITY TO PAY INTEREST IS BEING INCURRED AND ON THE OTHER HAND CERTAIN AMO UNT HAD BEEN ADVANCED TO SISTER CONCERN OR OTHERS WITHOUT CHARGING ANY INTEREST AND WITHOUT ANY BUSINESS PURPOSE THE INTEREST TO THE EX TENT OF ADVANCE MADE WITHOUT CHARGING ANY INTEREST IS TO BE D ISALLOWED U/S 36(1)(III) OF THE INCOME TAX ACT 1961. IN THE PRESE NT CASE ALSO THE ASSESSEE HAS BORROWED FUNDS ON WHICH THE ASSESSEE HAS INCURRE D THE LIABILITY TO PAY INTEREST. THE FUNDS TO THE EXTENT OF `.230.28 LAKHS WERE TRANSFERRED BY THE ASSESSEE TO ITS SISTER CONCERN M/S PRECISI ON CASTINGS . I.T.A. NO.263/DEL/10 5/6 WITHOUT INTEREST. THE ASSESSEE HAS NOT BEEN ABLE TO SHOW ANY BUSINESS PURPOSE OF SUCH ADVANCE GIVEN TO THE SISTER CONCERN BE CAUSE THE ASSESSEE HAS NOT PRODUCED ANY AGREEMENT FOR PURCHASE OF P ROPERTY AS HAS BEEN CLAIMED BY THE ASSESSEE AND EVEN TILL DATE NO SUCH PURCHASE OF PROPERTY HAS ACTUALLY TAKEN PLACE BECAUSE NO PURCH ASE DEED HAS BEEN PRODUCED BEFORE US SHOWING THAT THERE IS ANY PUR CHASE OF PROPERTY BY THE ASSESSEE COMPANY FROM ITS SISTER CONCERN AND THE ADVANCES IN QUESTION WERE ADJUSTED AGAINST SUCH PURCHASE PRICE OF THE PROPERTY. IT IS ALSO NOT SHOWN TO US THAT THE ACTUAL R ENTAL VALUE OF THE PROPERTY IN QUESTION BEING USED BY THE ASSESSEE IS HIGHER AND BECAUSE OF THESE INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE COMP ANY TO THE SISTER CONCERN M/S PRECISION CASTINGS THEY ARE CHARGING L ESSER AMOUNT OF RENT. HENCE IT IS SEEN THAT NO BUSINESS PURPOSE COUL D BE SHOWN BY THE ASSESSEE FOR GIVING THESE INTEREST FREE ADVANCES. ONE MORE EXPLANATION HAS BEEN GIVEN BY THE ASSESSEE BEFORE THE A UTHORITIES BELOW REGARDING BUSINESS PURPOSE OF THESE ADVANCES AND TH IS ARGUMENT IS THAT THE PROPERTY IN QUESTION WAS PROVIDED BY THE ASSESSEES SISTER CONCERN M/S PRECISION CASTINGS AS A COLLATERA L SECURITY TO THE BANKER OF THE ASSESSEE COMPANY TO ENABLE THE ASSES SEE TO HAVE CREDIT FACILITY OF `.300 LAKHS FROM THAT BANK. THIS ALSO CANNOT BE ACCEPTED AS BUSINESS PURPOSES FOR ADVANCING OF INTEREST F REE LOAN/ADVANCES TO A SISTER CONCERN BECAUSE BORROWING FRO M BANK IS AGAINST PAYMENT OF INTEREST AND AGAINST THE BORROWING OF `.300 LAKHS FROM BANK THE ASSESSEE HAS GIVEN INTEREST FREE ADVANCES TO SISTER CONCERN OF `.230.28 LAKHS AND HENCE A SUBSTANTIAL POR TION OF THE CREDIT LIMIT FROM BANK ON INTEREST HAS BEEN GIVEN AS INTEREST FREE ADVANCE AND THEREFORE SUCH INTEREST FREE ADVANCES CANNOT BE A CCEPTED AS FOR BUSINESS PURPOSE BECAUSE IF THE ASSESSEE GIVE INTEREST FREE A DVANCE OF `.230 LAKHS IT CANNOT BE FOR THE PURPOSE OF TAKING INTEREST BEARING LOAN FROM THE BANK TO THE EXTENT OF `.300 LAKHS BECAUSE IN STEAD OF GIVING INTEREST FREE ADVANCE TO SISTER CONCERN THE ASSESSEE COUL D HAVE KEPT . I.T.A. NO.263/DEL/10 6/6 THIS AMOUNT WITH BANK ON INTEREST AND SUCH DEPOSIT IN BANK COULD HAVE BEEN USED AS SECURITY FOR BANK LOAN. OTHERWISE THIS INT EREST FREE ADVANCE GIVEN BY THE ASSESSEE COULD HAVE BEEN USED BY TH E ASSESSEE FOR OWN BUSINESS PURPOSE AND AS A RESULT THERE WOULD NO T HAVE ANY NECESSITY TO BORROW INTEREST BEARING LOAN FROM BANK. U NDER THESE FACTS WE ARE OF THE CONSIDERED OPINION THAT THIS ISSUE IS COVE RED AGAINST THE ASSESSEE BY THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT RENDERED IN THE CASE OF ABISHEK INDUSTRIES PVT. LTD. (SUPRA) AND RESPECTFULLY FOLLOWING THE SAME THIS ISSUE IS DECIDED AGAINST THE ASSE SSEE. THE ORDER OF LD CIT(A) IS REVERSED AND THAT OF THE ASSESSING OFFICER IS RESTORED. THIS GROUND OF THE REVENUE IS ALLOWED. 9. IN THE RESULT THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. 10. ORDER PRONOUNCED IN THE OPEN COURT ON THE DAY O F 11TH FEBRUARY 2011. SD/- SD/- (R.P. TOLANI) (A.K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 11 .2.2011. HMS COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)- NEW DELHI. 5. THE DR ITAT LOKNAYAK BHAWAN KHAN MARKET NEW DEL HI. TRUE COPY. BY ORDER (ITAT NEW DELHI).