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Income Tax Appellate Tribunal, ALLAHABAD BENCH, ALLAHABAD
Before: SHRIVIJAY PAL RAO & SHRI RAMIT KOCHAR
PER SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER:
This appeal, filed by Revenue , being ITA No.227/ALLD/2016, is directed against an appellate order dated 05.07.2016in Appeal No.62/JCIT/Asstt./SR/Alld/2000-01passed by learnedCommissioner of Income Tax (Appeals), Allahabad (hereinafter called "theCIT(A)"),for assessment year(ay):1997-98, the appellate proceedingshad arisen before learned CIT(A) from the assessment order dated 31.01.2000 passed by the learned Assessing Officer (hereinafter called “ the AO”)
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited u/s 143(3) of the Income-tax Act,1961(hereinafter called “ the Act”).We have heard both the parties through Video Conferencing mode through Virtual Court. 2. The Revenue has raised following grounds of appeal in memo of appeal filed with the Income Tax Appellate Tribunal, Allahabad, U.P.(hereinafter called “the tribunal”), in ITA no. 227/Alld/2016 for ay:1997-98, as under:- “ 1. That the Ld. CIT(A) has erred on facts and in the law in deleting the disallowance of Rs. 92,00,536/- on a/c of expenses relating to earlier years, without appreciating the Assessing officer’s observation that the expenses will be allowable in the year when such liability has been quantified or paid. 2. That the Ld. CIT(A) has erred on facts and in law in deleting the disallowance of Rs. 94,93,016/- on a/c of interest accrued and due, without appreciating the Assessing officer’s finding that the assessee did not file any proof of payment. 3. That the Ld. CIT(A) has erred in deleting the disallowance of Rs. 46,39,150/- on a/c of interest payable on loans, without properly appreciating the facts and law. 4. That the Ld. CIT(A) has erred in deleting the disallowance of Rs. 39,000/- on a/c of unclaimed deposits/loan and Rs. 1049/- on a/c of interest thereon, without properly appreciating the facts and law. 5. That the Ld. CIT(A) has erred in deleting the addition of Rs. 48,172/- without appreciating the Assessing Office’s finding that no proof regarding such payment had been filed with the return of income filed by the assessee. 6. That the Ld. CIT(A) has erred on facts and in the law in deleting the disallowance of Rs. 91,508/- on a/c of P.F. / E.P.F of the employees of the company, by merely reproducing the assessee’s submissions and without discussing the issue raised by the Assessing officer. 7. The Ld. CIT(A) has erred in the law in deleting the disallowance of Rs. 1,042/- on a/c of payment of Dinners Club, without properly appreciating the facts of the case. 8. That the Ld. CIT(A) has erred on facts and in the law in deleting the disallowance of Rs. 49,310/- on a/c of short income credited in P&L a/c, by merely reproducing the assessee’s submissions and without discussing the issue raised by the Assessing Officer.
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited 9. That the ld. CIT(A) has erred on facts and in the law in deleting the disallowance of Rs. 18,333/- on a/c of entertainment expenses. 10. That the ld. CIT(A) has erred in deleting the additions made by the Assessing Officer by simply relying upon the submissions of the assessee without examining and analyzing the facts of the case. 11. Any other ground that the appellant craves to add/amend at the time of hearing.”
The brief facts of the case are that the assesseeis in business of running a Sugar Mill . The assessee company filed its return of income showing total loss of Rs. 10,96,53,570/- , on 28th November, 1997along with its audited accounts and tax audit report u/s. 44AB of the 1961 Act, which return of income was later revisedby assessee on 29th December, 1998, revising its total loss to Rs. 11,64,07,400/-. The case of the assessee was selected by Revenue for framing scrutiny assessment under Section 143(3) read with Section 143(2) of the 1961 Act. 4. Before we proceed further to adjudicate the appeal on the merits of the issues raised by Revenue in its appeal concerning deletion of all the additions by ld. CIT(A) on merits, such additions were earlier made by AO in its assessment year, it will be important firstly to deal with an interesting ground number 10 raised by Revenue wherein Revenue has contended that ld. CIT(A) has erred in deleting all the additions as were made by the AO by simply relying upon the submissions of the assessee without examining and analyzing the facts of the case. The ground no. 10 raised by Revenue in its appeal filed with tribunal is reproduced hereunder once again at the cost of repetition:- “ 10. That the ld. CIT(A) has erred in deleting the additions made by the Assessing Officer by simply relying upon the submissions of the assessee without examining and analyzing the facts of the case.”
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited We have carefully gone through the appellate order dated 05.07.2016 passed by ld. CIT(A) on all the issues adjudicated by ld. CIT(A) on merits of the issue , and found substance in the ground raised by Revenue. We have reproduced in the succeeding para’s of this order, the operative part of decision of ld. CIT(A) on all the issues on merits and have observed that cryptic, un-reasoned and non-speaking order is passed by ld. CIT(A) without investigating into the facts of the case wherein merely submissions as were made by the assessee before ld. CIT(A) were accepted in to-to by ld. CIT(A) , and the appeal of the assessee stood decided in favour of the assessee , without recording reasons based on facts and law which went into decision making process of ld. CIT(A). It is very important that in appellate order which is passed by ld. CIT(A) , all the facts for and against the assessee must have been considered by ld. CIT(A) with due care and a clear finding in a manner which would clearly indicate what was the issue before ld. CIT(A) for determination, what was the evidence pro and contra in regard to each one of them and what are the findings reached by ld. CIT(A) on the evidence on the record before it are brought on record in the order passed by ld. CIT(A). It becomes all the more important as the powers of ld. CIT(A) is co-terminus with the power of the AO, which include power of enhancement, and hence it become all the more important for the ld. CIT(A) to give detailed findings and reasons for passing its appellate order. Reference is drawn to the provisions of Section 251(1)(a) of the 1961 Act. Thus, the ld. CIT(A) is duty bound under law to give reasons for its conclusion. It is the duty and obligation of ld. CIT(A) under law to record reasons while disposing of the appeal before it. It is pertinent to mention that in all appellate orders, recording of reasons and passing of speaking order is meant to serve the wider principles of justice that justice must not only be done but also appear to have been done as well. Thus, recording of reasons and passing of speaking order is an essential requisite of principles of natural justice, which is part of one of the fundamentals of sound administration justice delivery system, to make known that there is a proper and due application of mind to the issues before ld. CIT(A). Thus, recording of reasons and passing of speaking order in an appeal adjudicated by ld. CIT(A) is an essential attribute of judicial and judicious disposal of appeal before it, and which is the only indication to know about the manner and quality of exercise undertaken by ld. CIT(A) , as also the fact that ld. CIT(A) had really applied the mind in arriving at the decision . Thus, the reasons and passing of speaking order is at the heartbeat of
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited every conclusion and it introduces clarity in the order and the reasons substitutes subjectivity by objectivity. Since, the appellate order passed by ld. CIT(A) is amenable to challenge at higher judicial forum viz. ITAT, absence of reasons renders the order indefensible and unsustainable in the eyes of law. Thus, recording of reasons and passing of speaking order by ld. CIT(A) will ensure transparency and fairness in decision making, and will also at the same time avoid arbitrariness in arriving at decision by ld. CIT(A). Moreover , if reasons are recorded and speaking order is passed by ld. CIT(A), then the aggrieved party will also come to know why the decision has gone against it and what weighed in the mind of ld. CIT(A) while adjudicating the issue against it, so that the aggrieved party can set up its defense at higher appellate forum. Recording of reasons and passing of speaking order is also of utmost importance for higher judicial forum viz. ITAT to know what weigh in the mind of ld. CIT(A) while adjudicating an issue . It will also enable the higher judicial forum to know what evidences were considered by ld. CIT(A) while adjudicating anissue whether relevant and material evidences were considered appropriately or not given due weight and whether irrelevant and extraneous material and evidences weigh in the mind of ld. CIT(A) while adjudicating an issue before it. Reference is drawn to decision of Hon’ble Apex Court in the case of Kranti Associates Private Limited v. Masood Ahmed Khan & Ors. – (2010) 9 SCC 496, wherein Hon’ble Supreme Court after considering number of judgments summarized at para 51 the law on the point , which is reproduced hereunder: “51. Summarizing the above discussion, this Court holds: a. In India the judicial trend has always been to record reasons, even in administrative decisions, if such decisions affect anyone prejudicially. b. A quasi-judicial authority must record reasons in support of its conclusions. c. Insistence on recording of reasons is meant to serve the wider principle of justice that justice must not only be done it must also appear to be done as well. d. Recording of reasons also operates as a valid restraint on any possible arbitrary exercise of judicial and quasi-judicial or even administrative power. e. Reasons reassure that discretion has been exercised by the decision maker on relevant grounds and by disregarding extraneous considerations.
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited f. Reasons have virtually become as indispensable a component of a decision making process as observing principles of natural justice by judicial, quasi-judicial and even by administrative bodies. g. Reasons facilitate the process of judicial review by superior Courts. h. The ongoing judicial trend in all countries committed to rule of law and constitutional governance is in favour of reasoned decisions based on relevant facts. This is virtually the life blood of judicial decision making justifying the principle that reason is the soul of justice. i. Judicial or even quasi-judicial opinions these days can be as different as the judges and authorities who deliver them. All these decisions serve one common purpose which is to demonstrate by reason that the relevant factors have been objectively considered. This is important for sustaining the litigants' faith in the justice delivery system. j. Insistence on reason is a requirement for both judicial accountability and transparency. k. If a Judge or a quasi-judicial authority is not candid enough about his/her decision making process then it is impossible to know whether the person deciding is faithful to the doctrine of precedent or to principles of incrementalism. l. Reasons in support of decisions must be cogent, clear and succinct. A pretence of reasons or `rubber-stamp reasons' is not to be equated with a valid decision making process. m. It cannot be doubted that transparency is the sine qua non of restraint on abuse of judicial powers. Transparency in decision making not only makes the judges and decision makers less prone to errors but also makes them subject to broader scrutiny. (See David Shapiro in Defence of Judicial Candor (1987) 100 Harward Law Review 731-737). n. Since the requirement to record reasons emanates from the broad doctrine of fairness in decision making, the said requirement is now virtually a component of human rights and was considered part of Strasbourg Jurisprudence. See (1994) 19 EHRR 553, at 562 para 29 and Anya vs. University of Oxford, 2001 EWCA Civ 405, wherein the Court referred to Article 6 of European Convention of Human Rights which requires, "adequate and intelligent reasons must be given for judicial decisions". o. In all common law jurisdictions judgments play a vital role in setting up precedents for the future. Therefore, for development of law, requirement of giving reasons for the decision is of the essence and is virtually a part of "Due Process".”
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited Thus, on careful analysis of the appellate order dated 05.07.2016 passed by ld. CIT(A)(operating decision part of ld.CIT(A) appellate order reproduced in subsequent para’s of this order) , we have observed that ld. CIT(A) has passed a cryptic, non- speaking and un-reasoned order wherein he has merely accepted the submissions as were made by the assessee before it and proceeded to decide all the issues in favour of the assessee, without independently investigating facts and evidences relatable to these issue and without making any further enquiry as to truthfulness of the submissions made by the assessee, which renders the appellate order passed by ld. CIT(A) unsustainable and indefensible in the eyes of the law , and in our considered view Revenue has rightly raised this ground number 10 , as serious prejudice is caused to Revenue by the appellate order dated 05.07.2016 passed by ld. CIT(A) which is a cryptic, non-speaking and un-reasoned order. 4. Coming to merits of the issues, during the course of assessment proceedings , the AO observed that the assessee had originally returned business loss of Rs. 1,62,09,439/- for the year under consideration , while in the revised return of income, the assessee had claimed business loss of Rs. 2,54,35,899/-. It was observed by the AO that the loss was enhanced by assessee mainly due to claim of “Liability of Cane Price payable not provided for in accounts claimed in accordance with the case law of M/s. Kedarnath Jute Mills Vs. C.I.T. (82 ITR, 363(SC)” , amounting to Rs. 92,00,537/- . The assessee furnished explanation giving details/break-up of claim amount of Rs. 92,00,537/- as under: “1. Cost of Cane for season 96-97 (15.11.1996 to 23.2.1997) on 11,35,201 Quintals @Rs 8 per quintal. Rs.90,81,606/- 2. Being amount of interest on cash credit a/c short charged in 96-97 debited by State Bank of India . Rs. 91,430/- 3. Being amount of arrear rent paid to Mrs. Hamida Khawaja for the months from May, 1996 to March’ 1997 @ Rs. 2500 per month. Rs 27,500/- _________________
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited Rs. 92,00,536/-
The assessee submittedbefore the AO vide reply dated 31.01.2000, as under : “Since the above amount has been debited in our books of A/c in the financial year 1997-98 under the Head “Exp. Relating to earlier year” and the same has been added to the Company’s income vide I.T. Return Asst. year 1997-98, we have claimed the same in the year under assessment in accordance with the case law of M/s Kedarnath Jute Mills V. CIT-82 ITR 363(SC).” The AO observed from the certificate furnished by Auditor dated 15.12.1998 filed along with Revised Return of income that it only certifies that Rs. 92,00,536/- shown as expenses relating to earlier years in the Tax Audit Report of 1997-98 relates to accounting year 1996-97 and the same were not accounted for in the accounts of the financial year 1996-97. The AO observed from the details furnished by the assessee that for such a huge payment of cost of cane @ Rs. 8/- per quintal on total cane of 11,35,201 quintals have been ignored by the company while accounting for purchases and other liabilities. The AO observed that decision of Hon’ble Apex Court in the case of Kedarnath Jute Manufacturing Company Limited(supra) has no applicability as this decision was rendered by Hon’ble Apex Court when tax-audit u/s 44AB was not introduced. The AO was of the view that if any such lapses had taken place, the auditors should have removed the defect before submitting the prescribed report/audited accounts. The AO further observed that despite assessee company aware of its liability towards purchase of 11,35,201 quintal of cane payable to the cane growers, and that there would be a liability to that effect, the assessee company even did not reported said liability in “Notes on Accounts” which are part of the Audited Annual Report. Hence, the AO rejected the claim of the liability, as was made by assessee in revised return of income filed with Revenue for ay: 1997-98 , and held that the same shall be allowable in the year when such liability was quantified or paid, vide assessment order dated 31.01.2000 passed by AO u/s. 143(3) of the 1961 Act.
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited 4.2 The assessee being aggrieved by the aforesaid disallowance of Rs. 92,00,536/- made by the AO filed first appeal with Ld. CIT (A) , and submitted that the State advised price of cane for the private sector factories in the UP for the cane year 1996-97 (Oct. 1996 to Sep. 1997) had been fixed at Rs. 70/- per quintal which was payable in two installments i.e. Rs. 62/- per quintal at the time of purchase itself and balanceRs. 8/- per quintal was deferred for payment towards the close of the season. The assessee enclosed rate chart before ld. CIT(A) (paper book / page 71 to 73) . The assessee submitted before learned CIT(A) that during the period of 15th Nov.,1996 to 23rd Feb, 1997, the company had purchased 11,35,200.85 quintals of cane for which payments were duly accounted for in books of accounts for the financial year 1996-97 @ Rs. 62/- per quintal, but however, no provision was made in the books of accounts for the balance purchase price calculated @ Rs. 8/- per quintal which was payable at the end of the seasoni.e. September, 1997 . It was submitted that provision for payment of arrear of cane price amounting to Rs. 90,81,606.80 which was calculated @ Rs. 8 per quintal for 11,35,200.85 quintal of cane purchased up-to 23.02.1997 was made in the books of accounts of the company on 30.11.1997 by voucher number 961( paper book/page 74). It was further submitted by assessee that a sum of Rs. 91,430/- on account of interest short charged by SBI on cash credit account of the company during the financial year 1996-97 was debited by the State Bank of India in companies account in the next financial year viz. 1997-98 . It was submitted that based on the debit entry , the amount of interest short charged by SBI was accounted for in the books of accounts of the company for the year ended 31.03.1998. Thirdly, the assessee submitted before ld. CIT(A) that a sum of Rs. 27,500/- on account of rent payable to one Mrs. Hamida Khwaja for the period May , 1996 to March, 1997 had been paid in subsequent year. It was submitted that no provision for payment of rent was made by the assessee in its books of accounts for the financial year 1996-97. It was also submitted by assessee before ld. CIT(A) that while finalizing the companies accounts for the financial year ended March, 1998 , the auditors had classified these liabilities as expenses relating to 9
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited earlier years , as could be verified from Annexure D-2 (page 86/paper book) which is part of the tax-audit report in form No. 3CD for the year ended 31.03.1998(Page 75 to 89/paper book) . It was submitted by assessee before ld. CIT(A) that based on the auditors report , the aforesaid expenses were excluded in computing the taxable income of the assessee for ay:1998-98 . It was submitted by assessee before ld. CIT(A) that the assessee is following mercantile system of accounting and the aforesaid liabilities were incurred for the previous year relevant to ay:1997-98 and hence the same were claimed as allowable deductions while computing taxable income for ay: 1997-98, by relying on the decision of Hon’ble Supreme Court in the case of Kedar NathJute Manufacturing Co. LTD.(supra),in the revised return of income filed by assessee with Revenue on 29.12.1998, albeit the same was not provided for in the books of accounts of the assessee for financial year 1996-97. It was also submitted by assessee before ld. CIT(A) that these are legitimate business expenses of the assessee company for ay:1997-98 even though the same were not provided for in the books of accounts of the assessee company for the financial year 1996-97, and ld. AO erred in disallowing the same by erroneously holding that these expenses will be allowed in the year when such liability has been quantified or paid. Without prejudice and in alternative , the assessee company submitted before ld. CIT(A) that in case ld. CIT(A) holds that these expenses are not allowable for ay: 1997-98, then claim of the assessee should be allowed in the subsequent ay:1998-99, for which also the appeal is pending before ld. CIT(A). 4.3. The Ld. CIT(A) allowed the claim for deduction of the assessee, to the tune of Rs. 92,00,536/- , by deleting the addition as was made by the AO , vide appellate order dated 05.07.2016, by holding as under: “2.2 Decision Since the assessee is maintaining its accounts on mercantile basis, the assessee was entitled to claim the expenditure incurred during the year even if paid in later years. In this case, the liability to pay Rs.
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited 92,00,536/- had been incurred during the year, though was payable after the end of the financial year. It is not the case of the A.O. that such a claim of expenditure was totally untenable or was bogus or was contingent disability. In this view of the matter, the assessee company was entitled to the impugned deduction as it was maintained its books of account on mercantile basis . Addition so made is , therefore, deleted.” 4.4 Aggrieved by the decision of ld. CIT(A) allowing the aforesaid claim of the assessee for deduction of Rs. 92,00,536/- , the Revenue has come in appeal before tribunal. the Ld. Sr. DR opened arguments before the Bench and it was submitted that these expenses to the tune of Rs. 92.01 lacs were not claimed in the original return of income filedby assessee with Revenue under Section 139(1) of the 1961 Act . It was submitted by ld. Sr. DR that these expenses were claimed only in the revised return of income filed by the assessee , and claim is made that these expenses pertain to year under consideration. Our attention was drawn to para 4 of the assessment order passed by AO. It was submitted that claim is made that the rate of cane was enhanced in the year under consideration . It was also submitted by ld. Sr. DR that books of accounts of the assessee were audited under Companies Act as well tax-audit was conducted for financial year 1996-97, but these expenses were not accounted for by assessee in its book of accounts nor these expenses were certified by tax auditors conducting tax- audit u/s 44AB of the 1961 Act, and hence the AO rightly disallowed these expenses. Our attention was drawn to the Assessment order passed by the AO. Our attention was also drawn to Page No. 74 of the paper book, wherein voucher dated 30.11.1997 for Rs. 90,81,606.80 is placed and it was submitted that the assessee is claiming that this representcane price difference @ Rs. 8/- per quintal , and it is reflected in the said voucher, that the said cane price difference is claimed for purchases made from 15.11.1996 to 23.02.1997. Our attention was drawn to page 86 of the paper book, which is part of tax-audit report for accounting year 1997-98(ay:1998-99), wherein the tax-auditor has certified the expenses relating to precious year , as under:
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited “Expenses Relating to Previous year Voucher Particulars Amounts Reference JV-2284/ C/o Cane Season 1996-97(15.11.96 to 31.3.1998 23.2.97) @ Rs. 8.00 per qtl. debited to 90,81,606.80 P&L Account. JV-266/ Being amount of Interest on Cash Credit 30.09.97 Account short charged in 1996-97 debited 91,430.00 by SBI. Being Amount of arrear rent paid to JV- 442A/Mrs. Hamida khwaja for the months from 27,500.00 31.3.98 May’96 to March’07 @Rs. 2500/- per month ----------------------- Total: 92,00,536.80 -----------------------“
It was submitted by ld. Sr. DR that the books of accounts for ay:1997-98 were already closed and adopted in AGM. It was submitted that claim of these expenses were made by the assessee in revised return of income filed with the department. It was a contingent liability for the year under consideration viz. ay: 1997-98. It was submitted that the assessee has to recast its accounts for ay: 1997-98 under the Companies Act before claiming these expenses under the 1961 Act.
4.5 .The Ld. Counsel for the assessee submitted that the liability for the cane wasRs. 70/- per quintal , out of which Rs 62/- was paid at the time of purchase of cane before the end of the year , while the balance liability @ Rs. 8/- per quintal was paid in the subsequent year. It was submitted by ld. Counsel for the assessee that the assessee is following mercantile system of accounting , and the assessee has rightly revised its return of income. It was submitted by ld. Counsel for the assessee that reliance was rightly placed by assessee on decision of Hon’ble Supreme Court in case of Kedar Nath Jute Manufacturing Company Limited (supra). Our attention was drawn by ld. Counsel for the assessee to page no. 67 of paper book , wherein the revised computation of 12
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited income for ay: 1997-98 is placed , and it was submitted that Rs. 92,00,537/- was claimed as liability of cane price not provided in books of accounts by relying on Hon’ble Supreme Court decision in the case of Kedar Nath Jute Manufacturing Company Limited(supra) . It was submitted that these expenses pertain to previous year 1996-97 , which were not provided in the books of account for the year under consideration viz. financial year 1996-97 , while the same were accounted for in the books of accounts for the financial year 1997-98 . It was submitted by ld. Counsel for the assessee that there is no tax effect by claiming the said expenses in the year under consideration as these expenses were not claimed in the subsequent year. The ld. Counsel for the assessee prayed that order passed by ld. CIT(A) be upheld.
4.6 The Ld. Sr. DR submitted in rebuttal that there are expenses also on account of interest on loans as well rent expenses which were claimed in this year although they were booked in the books of accounts for the subsequent year. The ld. DR submitted that the assessee did not claimed these expenses in original return of income, but the same were claimed in revised return of income. The Ld. DR also submitted that the decision of Hon’ble Supreme Court in the case of Kedar Nath Jute MFG. Co. LTD.(supra)is not applicable to the facts of the instant case, as to said decision was rendered in context of the sale tax liability while presently, we are concerned with the trading liability.
4.7 We have considered rival contentions and perused the material on record. We have observed that the assessee is engaged in the business of running Sugar Mill. The assessee filed its return of income u/s 139(1) on 28.11.1997 , wherein assessee claimed business loss of Rs.1,62,09,439/- . The aforesaid return of income was revised by assessee on 29.12.1998 , wherein business loss of Rs. 2,54,35,899/- was claimed. The enhancement of business loss was due to following expenses claimed for the year under consideration , which were not provided in the audited books of accounts for 13
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited financial year 1996-97 and also not claimed as deduction in the return of income originally filed u/s 139(1) of the 1961 Act for ay:1997-98 on 28.11.1997, but were claimed for the first time in the revised return of income filed by assessee on 29.12.1998 for ay:1997-98: “1. Cost of Cane for season 96-97 (15.11.1996 to 23.2.1997) on 11,35,201 Quintals @Rs 8 per quintal. Rs.90,81,606/- 2. Being amount of interest on cash credit a/c short charged in 96-97 debited by State Bank of India . Rs. 91,430/- 3. Being amount of arrear rent paid to Mrs. Hamida Khawaja for the months from May, 1996 to March’ 1997 @ Rs. 2500 per month. Rs 27,500/- _________________ Rs. 92,00,536/-
The tax-auditor while issuing audit report u/s 44AB of the 1961 Act for the financial year 1998-98 (ay:1998-99) has certified these expenses as prior period expenses being related to previous year , as detailed hereunder vide audit report:
“Expenses Relating to Previous year Voucher Particulars Amounts Reference JV-2284/ C/o Cane Season 1996-97(15.11.96 to 31.3.1998 23.2.97) @ Rs. 8.00 per qtl. debited to 90,81,606.80 P&L Account. JV-266/ Being amount of Interest on Cash Credit 30.09.97 Account short charged in 1996-97 debited 91,430.00 by SBI. Being Amount of arrear rent paid to JV- 442A/Mrs. Hamida khwaja for the months from 27,500.00 31.3.98 May’96 to March’07 @Rs. 2500/- per month ----------------------- Total: 92,00,536.80 -----------------------“
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited The said tax-audit report is placed in paper book filed by assessee and is placed on record in file(refer pb/page 86). The AO rejected the claim of the assessee for deduction of aforesaid expenses because in the opinion of AO once no deduction is claimed in the audited accounts both under the Companies Act(assessee is a company) as well in tax-audit under the 1961 Act for financial year 1996-97 , the assessee cannot claim the same in the return of income filed for ay:1997-98. Further, as per AO the assessee must have been very well aware of the liability for sugarcane purchased for the financial year 1996-97 and still the said sum is not accounted for by the assessee in its books of accounts as well there is no mention in the notes to audited accounts of such liability , which as per AO the assessee is now quantifying on purchases of 11,35,201 quintals of sugarcane claimed to be purchased @Rs. 8 per quintal. As per the AO said liability shall be allowable when quantified or paid. The assessee filed first appeal with ld. CIT(A) being aggrieved by the decision of the AO and the appeal stood allowed by ld. CIT(A), by holding as under:
“2.2 Decision Since the assessee is maintaining its accounts on mercantile basis, the assessee was entitled to claim the expenditure incurred during the year even if paid in later years. In this case, the liability to pay Rs. 92,00,536/- had been incurred during the year, though was payable after the end of the financial year. It is not the case of the A.O. that such a claim of expenditure was totally untenable or was bogus or was contingent disability. In this view of the matter, the assessee company was entitled to the impugned deduction as it was maintained its books of account on mercantile basis . Addition so made is , therefore, deleted.” Once the additions were made by the AO, it was incumbent on ld. CIT(A) to have investigated the facts by looking into books of accounts and other relevant material , before allowing the deduction on account of additional liability which the assessee is now claiming on sugarcane purchase of 11,35,201 quintal up-to 23.02.1997, for season 1996-97 @ Rs. 8 per quintal and which the assessee is claiming that it was liable to pay 15
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited at the close of the season. The assessee had claimed that sugarcane was purchased @ Rs. 70/- per quintal for seasons 1996-97, as per state advised rates for the year 1996- 97, of which Rs. 62/- per quintal was payable at the time of purchase of sugarcane , while Rs. 8/- per quintal was payable at the close of season. The assessee did not provided for this liability of Rs. 8/- per quintal in its audited books of accounts for the year 1996-97 nor it claimed the said deduction in its return of income originally filed u/s 139(1) of the 1961 Act, and the said claim of deduction was filed for the first time by assessee through revised return of income. For relying on state advised price of sugarcane for the financial year 1996-97, the assessee has placed on record comparative rate chart of state advised cane prices announced by various States(page 71-73), but copy of notification / order issued by U.P. State Government notifying sugarcane purchase rate @Rs 70 per quintal is not filed by assessee and is not available on record. Even, there is no mention of the year in the said comparative chart of State advised cane prices filed by the assessee. We have observed from “Reports of the Commission for agricultural Costs and Prices for the Crops Sown during 1998-99 Season” of Department of Agricultural and Co-operation , Ministry of Agriculture. Government of India, that the Minimum Support Price of Sugarcane for season 1996-97 was Rs. 45.90 per quintal linked to recovery of 8.5% (placed on record in file) . There were also premium stipulated for higher recoveries. It is for the assessee to have brought on record copy of notification/order of the U.P. State Government directing/mandating that State Advised price for U.P. for 1996-97 season was Rs. 70/- per quintal which is compulsorily payable by the Sugar Mills , of which Rs. 62/- per quintal was payable on purchase and Rs. 8/- per quintal was payable on the close of season , and to prove that it was a bonafide mistake committed by assessee in not providing for such liability @ Rs. 8 per quintal in its books of accounts for financial year 1996-97 . No enquiry whatsoever was made by ld. CIT(A) to investigate facts and unravel truth, and simply on assertions made by assessee , the claim of the assessee for deduction of additional liability of Rs. 90,81,606.80 was allowed by ld. CIT(A) towards 16
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited additional liability for purchase of sugar cane for season 196-97 .Proceeding further, now coming to the audited books of accounts of the assessee for the financial year 1996-97 , In the notes to accounts to audited financial statements for 1996-97, it is stipulated in Note No. 15 which is additional information as required under paragraphs 3, 4C and 4D of Part II of Schedule VI to the Companies Act,1956 (page 28/29 paper book) , wherein details of Raw Material Consumed is given as under:
RAW MATERIAL CONSUMED: (a) Sugarcane Qtls. 17,37,103 Value/Rs.12,46,84,200 (5,55,100) (4,38,10,023)
Under the same schedule , in the details of opening and closing stock, there is no mention of any stock of sugarcane held by the assessee , at the beginning as also at the close of the year. Further, in the details of quantities lost in process or found short , the loss on account of sugarcane is stated for the year under consideration to be Rs. Nil. Now, as per details of sugarcane consumption for the financial year 1996-97 as culled out from the audited accounts for the financial year 1996-97(impugned ay:1997-98 under consideration) as above, the consumption of sugarcane reflected is 17,37,103 quintals and the corresponding value shown is Rs. 12,46,84,200, which gives average price of Rs. 71.77 per quintal which is provided in the audited accounts of the assessee for financial year 1996-97, while the assessee is claiming that it had provided Rs. 62/- per quintal in its books of accounts for financial year 1996-97 for sugarcane purchased for season 1996-97, while Rs. 8/- per quintal was inadvertently left over which was entered in its books of accounts for financial year 1997-98, and later on which was claimed as deduction by assessee for ay:1997-98(fy:1996-97) by filing revised return of income filed with Revenue for ay:1997-98 on 29.12.1998. Thus, these huge inconsistencies/anamolies in submissions of the assessee before the authorities vis-a- vis facts reflected in its audited books of accounts , ought to have triggered 17
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited investigation and enquiry by ld. CIT(A) before allowing the aforesaid claim. Further, ld. CIT(A) ought to have verified whether sugarcane purchase tax was paid on the entire amount claimed to be state advised purchase price of sugarcane and the persons to whom and when such payments were made in discharge of its liability for purchase of sugarcane. The powers of ld. CIT(A) are co-terminus with powers of the AO. The ld. CIT(A) also ought to have looked into the fact that the said amount of deduction which is provided in the audited accounts of financial year 1997-98 , is not claimed as deduction while filing return of income for ay:1998-99 to avoid duplication of claim of deduction. All this aspects were never looked into by ld. CIT(A) before granting relief to the assessee as there are no observations whatsoever on these critical issues and merely cryptic, unreasoned and non speaking order is passed by ld. CIT(A) , and hence the appellate order passed by ld. CIT(A) on this issue cannot be sustained and we are inclined to set aside and restore this issue back to the file of ld. CIT(A) for fresh adjudication on merits in accordance with law , and ld. CIT(A) is directed to pass reasoned and speaking order. Further, it is also observed that the assessee has set up a claim of deduction of Rent of Rs. 27,500/- in the year under consideration which was not provided in the books of accounts of the year under consideration viz. fy: 1996-97, and which was claimed to be debited in the books of accounts for subsequent year viz. fy:1997-98, and claimed as deduction for ay:1997-98 by filing revised return of income with Revenue on 29.12.1998 . We have observed that there is no discussions whatsoever by ld. CIT(A) on this issue in its order and he has merely accepted the contentions of the assessee. There is no investigation of facts by ld. CIT(A) as to the premises in connection with which Rent was paid and whether the said premises was used wholly and exclusively for the purposes of business of the assessee. Further, there is no evidence whatsoever available on record on this issue to give any conclusive finding by us on this issue. The powers of ld. CIT(A) are co-terminus with powers of the AO. These aspects were never looked into by ld. CIT(A) , and hence the appellate order passed by ld. CIT(A) on this issue cannot be sustained and we are inclined to set aside 18
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited and restore this issue back to the file of ld. CIT(A) for fresh adjudication on merits in accordance with law , and ld. CIT(A) is directed to pass reasoned and speaking order. Further, it is observed that interest debited by SBI in subsequent year while pertaining to the year under consideration as claimed by assessee to the tune of Rs. 91,430/- was claimed by filing revised return of income. The said amount was not provided by assessee in its books of accounts for the financial year 1996-97 under consideration and which was claimed to be debited in the books of accounts for subsequent year viz. fy:1997-98, and claimed as deduction for ay:1997-98 by filing revised return of income with Revenue on 29.12.1998 . We have observed that there is no discussions by ld. CIT(A) on this issue in his order and he has merely accepted the contentions of the assessee. There is no investigation of facts by ld. CIT(A) as to when the interest was debited by SBI, and whether the said loans were used for regular business of the assessee and whether there was compliance of Section 43B. Further, there is no evidence whatsoever available on record on this issue to give any conclusive finding by us on this issue. These aspects were never looked into by ld. CIT(A) , and hence the appellate order passed by ld. CIT(A) on this issue cannot be sustained and we are inclined to set aside and restore this issue back to the file of ld. CIT(A) for fresh adjudication on merits in accordance with law , and ld. CIT(A) is directed to pass reasoned and speaking order. Needless to say that ld. CIT(A) shall give proper opportunity of being heard to the assessee in set aside remand proceedings and evidences/explanations submitted by the assessee in its defense shall be admitted by ld. CIT(A) and adjudicated on merits in accordance with law . We order accordingly.
5.The second issue agitated by Revenue in this appeal concerns itself with the disallowance of an amount of Rs. 94,93,016/- by the AO towards interest accrued and due which was reflected in the Balance-Sheet of the assessee company, by invoking provisions of Section 43B of the 1961 Act, which disallowance stood deleted by ld. CIT(A).The AO observed from the Balance Sheet at S.No. 3 under “loan” , that the
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited assessee is provided term loan by Government of Uttar Pradesh. The AO observed that no proof of payment is filed by the assessee with respect to interest accrued and due shown to be payable on these loans raised from State Government, thus by invoking the provisions of Section 43B, the AO disallowed the said amount of Rs. 94,93,016/- and added the same to income of the assessee, vide assessment order dated 31.01.2000 passed by AO u/s 143(3) of the 1961 Act.
5.2 Aggrieved by assessment framed by the AO wherein said amount of Rs. 94,93,016/- stood added to income of the assessee, the assesse filed first appeal with Ld. CIT(A). It was submitted by assessee before ld. CIT(A) that the assessee had been sanctioned term loan of Rs. 3 crore by State Government as Rehabilitation package under BIFR(page 95 to 98 of paper book). it was submitted that assessee follows mercantile system of accounting and the assessee was not able to pay interest due on the said loan, and a provision of Rs 94,93,016/- was made in the books of accounts of the company for payment of interest on said term loan It was submitted by assessee before ld. CIT(A) that as the provision was made towards payment of interest to State Government, the same is outside the purview of Section 43B of the 1961 Act, as in the opinion of the assessee provisions of Section 43B as it stood for relevant assessment year in statute is for interest payable to Banks, Financial Institutions, and not to Government. Thus, prayers were made by assessee before ld. CIT(A) to delete the said addition as was made by AO to the income of the assessee.
5.3 The Ld. CIT accepted the contentions of the assessee and ordered the deletion of disallowance as was made by the AO , by holding as under, vide appellate order dated 05.07.2016: “ 3.2 Decision I agree with the assessee’s contention that interest payment to the government was not covered u/s 43B of the 1961 Act. Accordingly, this addition so made is deleted.” 20
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited
5.4Aggrieved by the decision of ld. CIT(A) deleting the additions to the tune of Rs. 94,93,016/- as was made by AO towards unpaid interest accrued and due, the Revenue has come in appeal before the tribunal.The ld. Sr. DR submitted that there was accrued and due interest to the tune of Rs. 94,93016/- which was payable to loans raised from Government of Uttar Pradesh , against which no proof of payment is submitted by the assessee and since these loans were not paid as provided u/s 43B, the AO has rightly made the additions. Our attention was drawn to para 5 of the assessment order passed by the AO . The ld. Sr. DR drew our attention to page 33 of paper book, , wherein Schedule 3-Loan , attached to Balance sheet is placed. Our attention was also drawn to page 67/paper book by Ld. Sr. DR and It was submitted that the assessee has itself disallowed interest provided and remaining unpaid on Sugar Development fund by invoking provision of Section 43B, but interest accrued and due on State Government Loan was not disallowed by assessee. Thus, ld. Sr. DR submitted that the assessee erred in not disallowing the interest accrued and due on State Government Loans . Prayers were made to uphold the assessment order passed by AO on this issue.
5.5The Ld. Counsel for the assessee, on the other hand, submitted that section 43B has no application to the loan raised from Government. Our attention was drawn by ld. Counsel for the assessee to the decision of Delhi-tribunal in the case of ACIT v. The Baghpet Co-opertive Sugar Mills Limited in ITA No. 6157/Del/2012 , order dated 7th August, 2015. It was submitted by ld. Counsel for the assessee that tribunal in para No. 7 has held that Section 43B(d) has not application to loans raised from the Government of India/State government. It was further submitted by ld. Counsel for the assessee that Delhi-tribunal followed the aforesaid decision in another appeal in ITA No. 6452/Del/2014, vide orders dated 11.03.2016 in the case of Ramala Sahkari Chini Mills Ltd. Meerut v. ACIT. 21
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited
5.6 We have heard rival contentions and perused the material on record.We have observed that in the audited financial statements for the financial year 1996-97, the assessee has shown outstanding loans payable to Government of Uttar Pradesh in its liability side of Balance Sheet under Schedule -3 Loans under sub-head 3 Loan from Others , being Secured Loans. Thereafter under sub column 3(ii) , there is an interest accrued and due of Rs. 94,93,016/- as at 31.03.1997 which is stated to be payable by the assessee. The AO disallowed the said interest accrued and due to the tune of Rs. 94,93,016/- as there was no proof of payment of said interest which was accrued and due , by invoking provisions of Section 43B. The main contention of the assessee before ld.CIT(A) was that it was sanctioned term loan of Rs. 3 crores from U.P. State Government as rehabilitation package under BIFR (page 95-98/paper book) . It was claimed by assessee before ld. CIT(A) that the assessee is following mercantile system of accounting and hence the liability for interest was provided in the books of accounts and since it could not pay interest due on said loan, a provision of Rs. 94,93,016 /- was made in the books of account for interest accrued and due on said term loan. It was also submitted by assessee before ld. CIT(A) that the interest payable to State Government is out of purview of Section 43B of the 1961 Act , as the said provision is only applicable to interest payable to Banks and Financial institutions and not to interest on loans payable to Government. The assessee enclosed evidences by way of disbursement advices with respect to aforesaid term loan of Rs. 3.00 crores , dated 23.03.1996(Rs. 2.0 crores) and 15.06.1996(Rs. 1.0 crore). The ld. CIT(A) accepted the contentions of the assessee by holding as under: “ 3.2 Decision I agree with the assessee’s contention that interest payment to the government was not covered u/s 43B of the 1961 Act. Accordingly, this addition so made is deleted.”
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited As could be seen from above that the ld. CIT(A) passed a non-speaking , cryptic and un- reasoned order. The ld. CIT(A) failed to see that the assessee has claimed that it was sanctioned term loan of Rs. 3 crores by U.P. State Government but the said loan was disbursed only in March/June 1996 and the provision for interest accrued and due was Rs. 94,93,016/- for the year under consideration viz. financial year 1996-97 which translates to interest rate of more than 30% p.a. for one year from Term Loans claimed to be raised from State Government. The ld. CIT(A) failed to make any enquiry as to how such an exorbitant rate of interest could be charged by State Government. There is no working/details/breakup/bifurcation submitted by assessee as to the various loans claimed to be raised from Government and corresponding interest payable on such loan. There is no enquiry/investigation conducted by ld. CIT(A) to unravel truth as to the various loans raised by assessee and corresponding interest accrued and due/payable, and corresponding applicability of Section 43B. We have observed that the assessee has shown outstanding loans payable to Government of Uttar Pradesh to the tune of Rs. 4,77,22000/- in its liability side of Balance Sheet as at 31.03.1997 under Schedule -3 Loans under sub-head 3 Loan from Others , being Secured Loans and further amount of Rs. 2,60,64,684/- is shown as funded interest . Thereafter under sub column 3(ii) , there is an interest accrued and due of Rs. 94,93,016/- as at 31.03.1997 which is stated to be payable by the assessee. There is no discussion by ld. CIT(A) as to the applicability of provisions of Section 43B to interest payable on loans raised from Government. The ld. CIT(A) never called for details/bifurcations of these loans etc. along with their sanction letter to find out the details of lender(whether the Government or State FI’s are lenders) and terms and conditions of loan , before granting relief to the assessee. The ld. CIT(A) never investigated the details of lenders and whether these lenders were State Government or State Financial Institutions or any other State instrumentalities , as it will have bearing on applicability of Section 43B. The powers of ld. CIT(A) are co-terminus with powers of the AO (Section 251(1)(a) ) . All these aspects were never looked into by ld. CIT(A) before granting relief to the 23
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited assessee as there are no observations whatsoever on these critical issues and merely cryptic, unreasoned and non speaking order is passed by ld. CIT(A) , and hence the appellate order passed by ld. CIT(A) on this issue cannot be sustained and we are inclined to set aside and restore this issue back to the file of ld. CIT(A) for fresh adjudication on merits in accordance with law , and ld. CIT(A) is directed to pass reasoned and speaking order. So far as legal contention raised by the assessee that interest payable on loans raised from Government shall not be hit by Section 43B and reliance is placed on the two decisions of Delhi tribunal firstly in the case of ACIT v. The Baghpet Co-opertive Sugar Mills Limited in ITA No. 6157/Del/2012 , order dated 7th August, 2015. Secondly in another appeal in ITA No. 6452/Del/2014, vide orders dated 11.03.2016 in the case of Ramala Sahkari Chini Mills Ltd. Meerut v. ACIT, to support its contentions , no other contrary decision has been brought to our notice by Revenue. We have also perused the provisions of Section 43B as it stood at relevant time and the bar it created on interest payable under clause(d) to Section 43B, which refers to the interest payable on any loan or borrowing from any public financial institution or a state financial corporation or a state industrial investment corporation and further by virtue of clause (e) to Section 43B which refers to any interest on any term loan from a scheduled bank, wherein the deduction for such interest shall be allowed in the previous year in which such sum is actually paid by the assessee. However , vide first proviso to Section 43B, it is provided that in case any such sum is paid by assessee on or before the due date of furnishing of return of income u/s 139(1) in respect of previous year in which liability to pay such sum was incurred as aforesaid under clause (d) of Section 43B and evidence of such payment is furnished by the assessee along with return of income, the said sum shall be allowed in the year in which liability was incurred. Thus, Section 43B does not put any such restrictions so far as interest payable on loans raised from State Government or Central Government and we cannot expand the scope of Section 43B. The assessee has rightly relied upon the decisions of Delhi-tribunal in the case of Baghpat Co-operative Sugar Mills Company 24
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited Limited(Supra) and Ramala Sahkari Chini Mills Limited(Supra). However, the composition/details/bifurcation/working of interest payable as also corresponding loans availed by the assessee has not been looked into by ld. CIT(A) , as discussed by us as above in this order and hence , we have already set aside the matter to ld. CIT(A), but so far as ratio of law is concerned , interest payable on loans raised from State Government/Central Government are not hit by provisions of Section 43B as it stood at relevant time. Needless to say that ld. CIT(A) shall give proper opportunity of being heard to the assessee in set aside remand proceedings and evidences/explanations submitted by the assessee in its defense shall be admitted by ld. CIT(A) and adjudicated on merits in accordance with law. We order accordingly.
The next ground agitated by Revenue in this appeal concerns itself with disallowance of Rs. 46,39,150/- by AO on account of interest payable on loans , by invoking provisions of Section 43B, which disallowance stood deleted by ld. CIT(A). The AO observed that the assessee showed total liability of Rs. 2,66,32,979/-towards other liabilities under Schedule 11 of the Balance Sheet . From the details of such liabilities as on 31.03.1997 amounting to Rs. 64,36,440/- in Head Office Account, it was observed by AO that following interest are payable on loan : Interest Payable On: 1.) Loan for IRBI (Sugar) Rs. 1,11,168/- Neoli Sugar 2.) Loan for IRBI (Solvent) Rs. 1,31,096/- Solvent Oil 3.) Loan for IRBI (Sugar) Rs. 2,08,379/- Sugar 4.) FITL from IRBI(solvent) Rs. 23,370/- 5.) Loan from SDFI Rs. 5,84,741/- 6.) Loan from SDF – II Rs. 35,80,396/- Rs. 46,39,150/-
It was observed by the AO that these are unpaid liabilities and are covered u/s 43B of the 1961 Act. The AO further observed that the loan to the company from Sugar
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited Development fund is financial loans and hence interest liability which is not paid shall be hit by Section 43B of the 1961 Act , and the said facilities and interest on such facilities cannot override the provisions of the 1961 Act. Hence , the AO disallowed the interest liability to the tune of Rs. 46,39,150/- and added the same to the income of the assessee, vide assessment order dated 31.01.2000 passed by AO u/s 143(3) of the 1961 Act.
6.2 Aggrieved by the addition as was made by the AO, the assessee filed first appeal before Ld. CIT(A) and submitted as under:
“ 4. Addition of Rs. 46,39,150/- 4.1 “ Break up of Rs. 46,39,150 as has been added back by the learned Assessing Officer by invoking of provisions of sec 43B of the Income Tax Act is as under:
(RS.) a) Interest payable on loan Taken from Industrial Investment Bank of India 4,74,013 b) Interest payable on 1st Loan from Sugar development Fund taken Govt. of U.P. 5,84,741 c) Interest payable on 2nd loan From Sugar Development Fund Taken form UP Govt. 35.80.396 46,39,150 Interest amounting to Rs. 4,74,013/- as mentioned at St. No. (a) above together with interest amounting to Rs. 19,908/- (total Rs. 4,93,921/-) had duly been paid on 15.7.1997 as certified by the Auditors in para 6 of Annexure B of the Tax Audit Report (Page 56 of PB). Since the liability of interest had duly been discharged by actual payment before the due date of filing the return the said liability, in view of 1st proviso to section 43B, should be allowed as a legitimate business expenditure for the Assessment Year 1997-98 and no disallowance should have been made. The disallowance of Rs. 474013/- therefore should be deleted. Similarly with reference to the disallowance of liability of interest mentioned at SI No. (b) and (c) above our basic submission Is that these related to loan taken from Sugar Development Fund from U.P. Government. As U.P. Govt. is neither a Public Financial Institution as referred to sub section (d) of section 43 B of the Act nor a scheduled Bank referred to in sub-section (e) of Section 43B of the Act, the provision made for payment of interest to State Government, is outside the ambit of section 43B of the Income Tax Act 1961. The disallowance of liability of interest payable on loan taken from sugar Development Fund through Govt of U.P. should, therefore, be deleted. In any case and without prejudice to the above, the liability of interest amounting to Rs. 5,84,741/- as at SI. No. (b) above related to interest payable on 1st tranch of loan from sugar Development Fund as is evident from the copy of said account as appearing in the books of the company a copy of which is enclosed (page 99 of PB) as detailed hereunder:- (Rs.) Balance brought forward 7,98,000 Add: Provisions made for interest
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited Payable during the year 2,43,260 10,41,260 Less: Amount paid during the year 4,56,519 Balance carried forward 5,84,741 The provisions of Rs. 2,43,260/- made for the year under consideration has been added back by ourselves in computing our total income for the Assessment Year 1997-98 as is duly verifiable for the statement showing computation of (Page 67 of PB) no further disallowance is called for because the sum of Rs. 5,84,741/- as has been added back by the learned Assessing officer relates to earlier year(s). Similarly, the provision of Rs. 35,80,396/- as mentioned as item no.( c) above is in respect of interest payable on 2nd tranch of loan taken from Sugar Development Fund of U.P. Government which had been utilized in purchase of plant and machinery etc. under the expansion pregame of the company. As the borrowed funds have been utilized for installation of new plant and machinery etc. the interest of Rs. 35,80,396/- payable on 2nd loan taken from sugar Development Fund had been capitalized (Page 100 of PB). This had the effect of nullifying the effect of interest debited in Profit and Loss Account. In view of the fact that the amount of interest debited in the Interest paid amount stands capitalized and not charged to revenue (i.e. not claimed in the profit and loss account0 no further disallowance is called for and disallowance on this score should be deleted.”
6.3 The Ld. CIT(A) deleted the entire additions as were made by AO, vide appellate order dated 05.07.2016, by holding as under;
“4.2 Decision: Admittedly, Rs. 4,74,013/- had been paid before the due date of filing of the return of income; thus the same has to be allowed as deduction. As regard addition of Rs. 5,84,741 + 35,80,396/- I am of the considered view that interest payable to the U.P. government is not amendable to disallowance u/s 43B of the Act. Accordingly all the additions so made are deleted. “
6.4 Aggrieved by the decision of ld. CIT(A), the Revenue has come in appeal before the tribunal . The Ld. Sr. DR drew our attention to para 6 of the AO order and it was submitted that unpaid liabilities towards interest payable has been rightly added to the income of the assessee by AO by invoking provisions of Section 43B. Our attention was also drawn by ld. Sr. DR to the appellate order passed by ld. CIT(A) and it was submitted that these interest liabilities were not paid within time stipulated u/s 43B and hence prayers were made to confirm the additions as were made by the AO.
6.5 The Ld. Counsel for the assessee contested the same and submitted that interest due of Rs. 4.74lacs was paid before the due date as provided u/s 139(1) of the 1961
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited Act, and hence disallowance under Section 43B cannot be made. It was submitted that loans under Sugar Development Fund is a loan granted by Government and hence provisions of Section 43B are not hit. It was further submitted that interest of Rs. 35.80 lacs payable was with respect to loans granted under Sugar Development Fund by Government and was capitalized and hence Section43B has no applicability. Our attention was drawn to page 100 of the paper book, wherein journal voucher dated 31.3.1997 passed by assessee is place wherein Neoli Sugar Factory (Project) A/c is debited and interest paid account is credited. Our attention was further drawn by ld. Counsel for the assessee to page 67 of paper book and it was submitted that Rs. 2,43,260/- is the interest payable on sugar development fund which was not paid and hence added back to the income of the assessee u/s 43B of the 1961 Act by assessee of its own in the revised return of income filed with the Revenue by the assessee. Our attention was also drawn to the appellate order passed by ld. CIT(A). On being asked by the Bench, that the amount capitalized in the Balance Sheet in Neoli Sugar Factory and Head Office is a meager sum of Rs. 2,60,590/- as per audited accounts for financial year 1996-97(paper book/page 34) in the Fixed Asset Schedule , the ld. Counsel for the assessee claimed that the sum of Rs. 35,80,396/- is capitalized by debiting to ‘Capital Work in Progress’ , and an amount of Rs. 3,86,94,450/- is outstanding as at 31.03.1997 under the head ‘Capital Work in Progress’. 6.6 We have considered rival contentions and perused the material on record.We have observed that there is an unpaid liability towards interest payable on various loans , the details are as under: Interest Payable On: 1.) Loan for IRBI (Sugar) Rs. 1,11,168/- Neoli Sugar 2.) Loan for IRBI (Solvent) Rs. 1,31,096/- Solvent Oil 3.) Loan for IRBI (Sugar) Rs. 2,08,379/- Sugar 4.) FITL from IRBI(solvent) Rs. 23,370/- 5.) Loan from SDFI Rs. 5,84,741/- 6.) Loan from SDF – II Rs. 35,80,396/- 28
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited Rs. 46,39,150/- The AO made additions by invoking provisions of Section 43B of the 1961 Act, while ld. CIT(A) deleted the additions by holding as as under: “4.2 Decision: Admittedly, Rs. 4,74,013/- had been paid before the due date of filing of the return of income; thus the same has to be allowed as deduction. As regard addition of Rs. 5,84,741 + 35,80,396/- I am of the considered view that interest payable to the U.P. government is not amendable to disallowance u/s 43B of the Act. Accordingly all the additions so made are deleted. “ We have perused the provisions of Section 43B as it stood at relevant time and the bar it created on interest payable under clause(d) to Section 43B, which refers to the interest payable on any loan or borrowing from any public financial institution or a state financial corporation or a state industrial investment corporation and further by virtue of clause (e) to Section 43B which refers to any interest on any term loan from a scheduled bank, wherein the deduction for such interest shall be allowed in the previous year in which such sum is actually paid by the assessee. However , vide first proviso to Section 43B, it is provided that in case any such sum is paid by assessee on or before the due date of furnishing of return of income u/s 139(1) in respect of previous year in which liability to pay such sum was incurred as aforesaid under clause (d) of Section 43B and evidence of such payment is furnished by the assessee along with return of income, the said sum shall be allowed in the year in which liability was incurred. Thus, clearly interest payable to IRBI( Industrial Reconstruction Bank of India later called as ‘Industrial Investment Bank of India’(IIBI) after being converted into a company) which is a public financial institution are clearly hit by Section 43B(d) of the 1961 Act. Thus , the interest at S.No. 1 to 4 above in chart in para 6.6, aggregating to Rs. 4,74,013/- payable to IRBI is hit by provisions of Section 43B(d) of the 1961 Act. The assessee has claimed that it paid the said amount of interest payable of Rs. 4,74,013/- on 15.07.1997 and reference is drawn to tax-auditor report (page 56/pb). The provision of Section 43B stipulates that evidence of payment is to be enclosed with 29
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited return of income in the first proviso to Section 43B . However, the assessee has not enclosed evidence of such payment along with return of income, but the factum of mention of interest paid to IIBI is found in tax audit report. In our view , to claim the extended period benefit u/s 43B, the mandatory requirement is the substantial compliance of making payment by assessee before the due date for filing of return of income u/s 139(1), while the second condition as stipulated under the first proviso to Section 43B of enclosing evidence of such payment along with return of income is directory in nature, and even if the said challan evidencing that payment is made before due date prescribed u/s 139(1) is produced at appellate stage , the assessee will be entitled for getting extended period benefit u/s 43B. The assessee is directed to produce evidence of payment of interest and working thereof in correlating with the existing loan liability before ld. CIT(A), as we are also remitting this issue to the file of ld. CIT(A). So far as interest payable on Sugar Development Fund aggregating to Rs. 41,65,137/- (Rs. 5,84,741/- + Rs.35,80,396) (item 5 and 6 in the chart in para 6.6 above ) is concerned , the ld CIT(A) deleted the addition on the grounds that interest payable to U.P. State Government is not hit by provisions of Section 43B. The ld. CIT(A) simply deleted the addition based on the contentions made by the assessee by holding that interest payable on Sugar Development fund is payable to U.P. State Government and hence not hit by Section 43B, not appreciating that Industrial Finance Corporation of India(IFCI) which is public financial institution is the nodal agency for Sugar development fund , since the inception of SDF. The IFCI is agency to Government for grant of loan under SDF wherein it act as Nodal agency to the Government for disbursement of loans, monitoring of the implementation of projects, recovery of a loan including legal proceedings in consultation with Government(Reference information booklet 2020 , Sugar Development fund, Department of Food and Public Distribution , Ministry of Consumer Affairs, Food and Public Distribution , Government of India- placed on record in file). The ld. CIT(A) did not gave any finding as to whether in such a 30
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited scenario where IFCI is the nodal agency for loans granted under SDF by Government , Section 43B has any applicability or not.The claim is also set up by assessee before ld. CIT(A) that interest of Rs. 35.80 lacs was on loans granted under SDF and was capitalized and hence Section 43B has no applicability. Our attention was drawn by ld. Counsel for the assessee to page 100 of the paper book, wherein journal voucher dated 31.3.1997 passed by assessee is place wherein Neoli Sugar Factory (Project) A/c is debited and interest paid account is credited. On being asked by the Bench, that the amount capitalized in the Balance Sheet in Neoli Sugar Factory and Head Office is a meager sum of Rs. 2,60,590/- as per audited accounts for financial year 1996-97(paper book/page 34) in the Fixed Asset Schedule , the ld. Counsel for the assessee submitted that the sum of Rs. 35,80,396/- is capitalized by debiting to ‘Capital Work in Progress’ , and an amount of Rs. 3,86,94,450/- is outstanding as at 31.03.1997 under the head ‘Capital Work in Progress’. These contentions of the assessee will require verification which needs investigation and enquiries into the factual aspects to unravel the truth , as also adjudication of legal issue as to applicability of Section 43B in such a scenario as ultimately, the assessee will be claiming depreciation u/s 32 of the 1961 Act on the interest being capitalized , even though presently as claimed by assessee, the interest is capitalized by debiting to Capital Work in progress and not debited presently to P&L Account(which also requires verification ) . Since, all these aspects were never looked into by ld. CIT(A) , and hence the appellate order passed by ld. CIT(A) on this issue cannot be sustained and we are inclined to set aside and restore this issue back to the file of ld. CIT(A) for fresh adjudication on merits in accordance with law , and ld. CIT(A) is directed to pass reasoned and speaking order , after considering our observations on this issue in this order. The ld. CIT(A) has powers co-terminus with the powers of the AO. Needless to say that ld. CIT(A) shall give proper opportunity of being heard to the assessee in set aside remand proceedings and evidences/ explanations submitted by the assessee in its defense shall be admitted by ld. CIT(A) and adjudicated on merits in accordance with law. We order accordingly. 31
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited
The next grounds agitated by Revenue in this appeal relate to the deletion by ld. CIT(A) of disallowance as was made by AO of Rs, 39,000/- on account of unclaimed deposits/loans and Rs,1049/-on account of interest thereon. The AO during the course of assessment proceedings observed from details under head ‘other liabilities’ , the assessee company has claimed Rs. 39,000/- as “Unclaimed Deposits/Loans” and so is the claim of Rs. 1049/- as “Interest payable on Unclaimed deposits/Loans”. Thus, the AO observed that the assessee claim of liability on unclaimed deposit/loan is not ascertainable , which sum stood added by the AO to the income of the assessee, vide assessment order dated 31.01.2000 passed by AO u/s 143(3) of the 1961 Act. 7.2 Aggrieved by an additions as were made by AO in assessment proceedings , the assessee filed first appeal with ld. CIT(A). The assessee during the course of appellate proceedings before ld. CIT(A) submitted that the assessee raised fixed deposits in earlier years to raise cheap funds, and the following amounts were received as fixed deposits in earlier years:- SI. No. Name of Depositor FDR NO. & Date Amount (Rs.) 1. Sri Ahmad 204 8000/- Irshadul Haq 11.8.1975 2. Sri Gopal Krishna 309 6000/- Das 11.06.1977 3. Waqf Hazi 498 25,000/- Bhikkan 01.04.1980 The assessee submitted before ld. CIT(A) that these amounts can be verified from books of accounts and other records of the assessee maintained by assessee in regular course of business. The assessee also submitted before ld. CIT(A) that since no allowance or deduction has been claimed in respect of any of the assessment years for any loss , expenditure or trading liabilities incurred by assessee , nor does any benefit obtained in case or in any other manner whatsoever, any amount in respect of such loss or expenditure or any benefit in respect of such trading liability by way of remission or
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited cessation thereof , the same does not constitute its income. Thus, the assessee prayed before ld. CIT(A) that there is no justification for treating the deposits remaining unclaimed by the depositors as its income unless and until the same was appropriated by it in its books of accounts. The ld. CIT(A) was pleased to delete the disallowance, vide appellate order dated 05.07.2016, by holding as under: “ 5.2 Decision Since these amounts have not been written back by the assessee in its books, the same cannot be treated as its income u/s 41(1) of the I.T.Act. Additions s made are therefore, deleted.” 7.3. Aggrieved by the decision of ld. CIT(A), now it was the turn of Revenue to file an appeal with tribunal . The Ld. Sr. DR relied upon the assessment order passed by the AO and prayed that the additions as were made by the AO be confirmed. The Ld. Counsel for the assessee on the other hand submitted that there is no cessation of liability and thus, although these are unclaimed fixed deposits, but the same cannot be brought to tax by invoking provisions of Section 41(1) of the 1961 Act. The ld. Counsel for the assessee relied upon the judgment of Hon’ble Gujarat High Court in the case of PCIT v. Matruprasad C Pandey reported in(2015) 377 ITR 363( Guj.) and the judgment of Hon’ble Gujarat High Court in the case of CIT v. Bhogilal Ramjibhai Atara reported in (2014) 222 Taxman 313(Guj.)and further reliance was placed by ld. Counsel for the assessee on the appellate order passed by ld. CIT(A). 7.4 We have considered rival contentions and perused the material on record. We have observed that the assessee has reflected in its audited financial statements for the financial year ended 31.03.1997, under the head ‘other liabilities’ , Rs. 39,000/- as “Unclaimed Deposits/Loans” and so is the claim of Rs. 1049/- as “Interest payable on Unclaimed deposits/Loans”. The said Deposits / loans were raised by assessee, as under: SI. No. Name of Depositor FDR NO. & Date Amount (Rs.) 1. Sri Ahmad 204 8000/- 33
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited Irshadul Haq 11.8.1975 2. Sri Gopal Krishna 309 6000/- Das 11.06.1977 3. Waqf Hazi 498 25,000/- Bhikkan 01.04.1980
Thus, it could be seen that the assessee has raised these deposit/loans in the year 1975, 1977 and 1980, and presently we are concerned with previous year 1996-97( ay:1997- 98 ), so these loans were raised almost 16-22years back. The assessee has admitted in its audited financial statements that these are unclaimed deposits/loans. There is also an interest payable of Rs. 1049/- existing in the assessee’s books of accounts on these unclaimed deposits/loans, as at 31.03.1997. The assessee has claimed interest on these deposits/loans as deduction on revenue account while computing income chargeable to tax in the earlier years, and hence it could not be said that the assessee has not obtained any benefit out of these loans/deposit and clearly Section 41(1) is applicable. Now, these loans/deposits have remained unclaimed and are more than 16-22 years old . There is no evidence brought on record even before us to establish that any of the aforesaid parties have come forward to claim these amounts after such a long gap of 16-22 years. Even law of limitation provides for a period of 3 years and beyond that the debt become time barred , if no claim is made or debt is not acknowledged . No doubt law of limitation only bars legal suit for recovery of debt through Court of law, and creditor can always voluntarily come forward and acknowledge or pay debt even beyond limitation period of 3 years and Section 41(1) will not be applicable. But, in this instant case before us, on the touchstone of preponderance of probabilities , we are of the considered view that these unclaimed deposits/loans are 16-22 years old which is a considerable period of time-gap , these loans/deposits are admittedly shown as ‘unclaimed deposits/loans’ by assessee itself in its audited financial statements, the assessee has claimed albeit in earlier years benefit of deduction of interest expenses on these deposits/loans as revenue deduction while computing income chargeable to tax for those earlier years, and even before us it could not be shown that there is any claim 34
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited made by any of these depositors/lenders for reviving their claim of debt/loan or assessee has acknowledged its debt towards these unclaimed deposits/loans , that the aforesaid amount of Rs. 39,000/- as unclaimed deposit/loan and interest payable thereon of Rs. 1049/- on these unclaimed deposits/loans were rightly added by AO to the income of the assessee and we uphold the view of the AO and set aside the appellate order passed by ld. CIT(A) on this issue. We order accordingly. 8. The next issue agitated by Revenue in this appeal concerns itself with the deletion by ld. CIT(A) of disallowance to the tune of Rs. 48,172/- on account of unpaid liabilities towards sale tax payable on molasses , vide appellate order dated 05.07.2016, which was earlier added by AO in assessment order dated 31.01.2000 passed by AO u/s 143(3) of the 1961 Act. It was observed by the AO that the aforesaid liability is outstanding for payment as at 31.03.1997 and was part of the liabilities in Neoli Sugar Factory amounting in aggregate to Rs. 2,00,14,490/-, and the assessee has not submitted proof regarding such payment of unpaid sales tax liability to the tune of Rs. 48,172/- being made before the due date of filing of return of income u/s 139(1), along with return of income filed with Revenue. The AO invoked provisions of Section 43B and disallowed the said amount and added the same of the income of the assessee, vide assessment order dated 31.01.2000. 8.2 The assessee being aggrieved by aforesaid addition to the income of the assessee by the AO, filed first appeal with ld. CIT(A) . The assessee submitted that unpaid liability towards sales tax on molasses has been discharged by making actual payment on 17.04.1997 and the assessee claimed to have filed challan before ld. CIT(A) evidencing such payment(page 101-103 of paper) and prayers were made to delete the disallowance as were made by the AO since payments were made before the due date of filing of return of income u/s 139(1) , by invoking first proviso to Section 43B. The Ld. CIT(A) was pleased to delete the disallowance by holding as under , vide appellate order dated 05.07.2016:-
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited “6.2 Decision In view of the fact that the payment had actually been made , the addition so made is hereby deleted.” 8.3 Aggrieved by the deletion of disallowance by ld. CIT(A), the revenue has filed an appeal with tribunal. The Ld. Sr. DR submitted that disallowance was made by AO as the liability towards sale tax was unpaid as at year end and since no proof for payment was filed that the said liability was paid before due date for filing of return of income u/s 139(1), and thus, the same was hit by Section 43B and AO rightly made the disallowance . The ld. Sr. DR relied upon the assessment order passed by AO . The ld. Counsel for the assessee on the other hand argued that unpaid sales tax liability was paid on 17.4.1997 and thus was paid before the due date of filing of return of income u/s 139(1) and hence disallowance under Section 43B cannot be made. The ld. Counsel for the assessee relied upon the appellate order passed by ld. CIT(A). 8.4 We have heard both the rival parties and perused the material on record.We have observed that there was an unpaid liability of Rs. 48,172/- towards sale tax payable on molasses , as at 31.03.1997. The AO invoked provisions of Section 43B of the 1961 Act and added the same , as the assessee did not enclosed evidence of payment of such amount of sales tax payable on molasses along with return of income. The assessee has claimed to have filed challan for payment of aforesaid sales tax liability , before ld. CIT(A) stating that said liability towards sales tax was paid on 17.04.1997(page 101- 103). We have perused the challans filed at page 101-103/pb , but it is observed that the challans are not clearly visible/legible and hence we could not confirm the validity of these challans so filed in paper book. The ld. CIT(A) has allowed the relief to the assessee by passing a cryptic , un-reasoned and non speaking order, by holding as under: “6.2 Decision In view of the fact that the payment had actually been made , the addition so made is hereby deleted.”
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited
As could be seen from the appellate order passed by ld. CIT(A), there is no mention as to the verification of the challan vis-à-vis unpaid liability towards sales tax. There is also no reference /reasons for allowing the claim more so in the teeth of first proviso which requires evidence of such payment to be enclosed with the return of income , to claim benefit of extended period u/s 43B. We have perused the provisions of Section 43B as it stood at relevant time and the bar it created on tax,duty,cess or fee under any law for the time being in force which is payable under clause(a) to Section 43B, wherein the deduction for such tax,duty, cess,fee shall be allowed in the previous year in which such sum is actually paid by the assessee. However , vide first proviso to Section 43B, it is provided that in case any such sum is paid by assessee on or before the due date of furnishing of return of income u/s 139(1) in respect of previous year in which liability to pay such sum was incurred as aforesaid under clause (a) of Section 43B and the evidence of such payment is furnished by the assessee along with return of income, the said sum shall be allowed in the year in which liability was incurred. The provision of Section 43B stipulates that evidence of payment is to be enclosed with return of income in the first proviso to Section 43B, the assessee has not enclosed the evidence of payment along with return of income . The assessee has claimed that it paid the said unpaid liability towards sales tax on 17.04.1997 and challans were filed before ld. CIT(A). In our considered view , to claim the extended period benefit u/s 43B, the mandatory requirement is the substantial compliance of making payment by assessee before the due date for filing of return of income u/s 139(1), while the second condition as stipulated under the first proviso to Section 43B of enclosing evidence of such payment is directory in nature, and even if the said challan evidencing that payment is made before due date prescribed u/s 139(1) is produced by the tax-payer at appellate stage , the tax-payer will be entitled for getting extended period benefit u/s 43B. The assessee is directed to produce visible/legible copy of challan evidencing payment of
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited unpaid liability of Rs. 48,172/- towards sales tax before ld. CIT(A) for verification by ld. CIT(A), as we are also remitting this issue to the file of ld. CIT(A) for verification of challans for remitting payment to Government by assessee towards unpaid sales tax liability on molasses to the tune of Rs. 48,172/- vis-à-vis liability as is appearing in its audited financial statements as at 31.03.2007. The ld. CIT(A) shall provide proper and adequate opportunity of being heard to the assessee in accordance with principles of natural justice in accordance with law, and evidences/explanations submitted by the assessee shall be admitted by ld. CIT(A) and adjudicated on merits in accordance with law. We order accordingly. . 9. The next issue concerns itself with the deletion of disallowance to the tune of Rs91,508/- on account of PF, EPF of the employees of the company vide appellate order dated 05.07.2016 passed by ld. CIT(A), which was earlier added by the AO to the income of the assessee vide assessment order dated 31.01.2000 passed by AO u/s 143(3) of the 1961 Act. The AO during the course of assessment order observed from the computation chart that the asessee has suo motu added Rs. 52,106/- as company’s contribution towards PF , under the provisions of Section 43B of the 1961 Act, while in the revised return of income filed by assessee with Revenue, the said disallowance was revised to Rs. 52,082/-. In addition to the disallowance as was voluntarily made by the assessee, the AO from the details of PF and EPF filed by assessee, held that the following amounts are also not allowable as the same were paid beyond the prescribed dates and are hit by provisions of Section 36(1)(va) of the 1961 Act , details as under, vide assessment order dated 31.01.2000 passed u/s 143(3) of the 1961 Act :- “Month Amount Date of payment P.F. July, 1996 Rs. 1,086/- 10.09.1996 Sept. 1996 Rs. 11,444/- 09.11.1996 Oct. 1996 Rs. 12,910/- 03.12.1996 -Do- Rs. 9,615/- 03.12.1996 Jan. 1997 Rs. 440/- 03.12.1996 -Do- Rs. 1013/- 21.02.1996 E.P.F. April, 1996 Rs. 55,000/- 21.05.1996 Rs. 91,508/-
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited 9.2 Aggrieved by an assessment framed by AO, the assessee filed first appeal with ld. CIT(A). The assessee submitted before ld. CIT(A) that this payment has to be made within 15 days of end of the month in which wages/salaries have been paid. It was submitted that there is no question of deposited the said amount unless and until salaries/wages are paid. Reference was made to provisions of Section 38 of PF Act, 1952 and it was submitted that if the period as is contemplated u/s 36(1)(va) is to be calculated being 15 days from the end of the month in which salaries/wages were paid, then there is no default on the part of the assessee. Thus, it was prayed that additions have been made by AO by wrongly interpreting the statute. The ld. CIT(A) was pleased to allow relief to the assessee by deleting the disallowance as was made by AO , vide appellate order dated 05.07.2016, by holding as under: “7.2 Decision In view of clear factual position, the addition so made is hereby deleted.”
9.3 Aggrieved by the appellate order passed by ld. CIT(A), the Revenue has now come in appeal before the tribunal. The ld. Sr. DR relied upon the assessment order passed by AO and prayers were made to confirm the additions. It was submitted by ld. Sr. DR that the ld. CIT(A) has just reproduced the assessee’s submissions and without discussing the issues raised by the AO, and hence the appellate order is not also sustainable on this ground. The ld. Counsel for the assessee on the other hand relied upon the appellate order passed by Allahabad-tribunal in the case of JCIT(OSD) , Allahabad v. Bharat Pumps and Compressors Limited, Allahabad, in ITA no. 147 and 148 /Alld/2016 for ay: 2005-06, vide orders dated 12.08.2021, in which both of us were part of the Division Bench who pronounced the said order, and prayers were made that since the said amount was paid before the due date as is prescribed u/s 139(1) of the 1961 Act and hence the appellate order passed by ld. CIT(A) be confirmed. It was also submitted that the impugned year under consideration before the Bench is ay: 1997-98 and
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited amendments as were made by Finance Act, 2021 in Section 36(1)(va) and 43B shall not be applicable to impugned year under consideration before the Bench. 9.4 We have considered rival contentions and perused the material on record. The assessee has deposited employees contribution to PF/EPF to the tune of Rs. 91,508/- beyond the time stipulated under the PF/EPF Act, and additions were made by AO by invoking provisions of Section 36(1)(va). The AO has extracted details of employees contribution towards PF/EPF which was required to be deposited by the assessee to the credit of employees with the relevant fund, for different months along with actual dates of payments made by the assessee , as under: “Month Amount Date of payment P.F. July, 1996 Rs. 1,086/- 10.09.1996 Sept. 1996 Rs. 11,444/- 09.11.1996 Oct. 1996 Rs. 12,910/- 03.12.1996 -Do- Rs. 9,615/- 03.12.1996 Jan. 1997 Rs. 440/- 03.12.1996 -Do- Rs. 1013/- 21.02.1996 E.P.F. April, 1996 Rs. 55,000/- 21.05.1996 Rs. 91,508/-
The ld. CIT(A) l granted relief to the assessee by passing a non speaking, cryptic and unreasoned order, by holding as under:
“7.2 Decision In view of clear factual position, the addition so made is hereby deleted.”
Proceeding further, there is no dispute between rival parties as to actual deposit of aforesaid employees contribution towards PF/ESI to the credit of employees with relevant fund, as is reflected in chart reproduced above. It could be seen from the aforesaid chart reproduced above that all the aforesaid payments were made prior to the due date of filing of return of income u/s 139(1) , and in our considered view the 40
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited assessee will be entitled for deduction u/s 36(1)(va) read with Section 2(24)(x) if the payment is made before the due date of filing of return of income u/s 139(1). There is a recent amendment by Finance Act, 2021 in Section 36(1)(va) and 43B. The Allahabad- tribunal in the case of Bharat Pumps and Compressors Limited in ITA No. 147 and 148/Alld/2016 for ay:2005-06 , vide an detailed and elaborate orders dated 12.08.2021 where both of us were part of the Division Bench which pronounced the order, have adjudicated this issue in favour of the tax-payer . Similarly, Allahabad- tribunal has in the case of Commercial Auto Sales Private Limited in ITA No. 13/Alld/2021 for ay: 2018-19, vide orders dated 16.12.2021 in which both of us were part of the Division Bench which pronounced the order, has decided this issue in favour of the tax-payer, by following the decision in the case of Bharat Pumps and Compressors Limited(Supra). It is also noted that several Benches of ITAT across India have already adjudicated this issue in favour of tax-payer , even after considering the recent amendments made by Finance Act, 2021 in Section 36(1)(va) and 43B. Presently, we are concerned with ay:1997-98. This issue is adjudicated in favour of the assessee. We order accordingly. 10. The next issue concerns itself with the deletion by ld. CIT(A) of disallowance of Rs. 1042/-on account of payment to Dinners Club, which was earlier added by the AO to the income of the assessee vide assessment order dated 31.01.2000 passed by AO u/s 143(3) of the 1961 Act. The AO during the course of assessment proceedings observed that the assessee has made payment of Rs. 1,042/- to Dinners Club which is not related to business of the assessee and hence the additions to the tune of Rs. 1042/- was made by AO to the income of the assessee by disallowing the said amount being not related to the business of the assessee, vide assessment order dated 31.01.2000 passed by AO u/s 143(3) of the 1961 Act. 10.2 Aggrieved by assessment framed by AO., the assessee filed first appeal before ld. CIT(A) , and submitted that Rs. 1,042/- was paid to Dinner Club for membership of
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited club was for promoting business of the assessee company. The assessee submitted before ld. CIT(A) that the aforesaid sum was laid out wholly and exclusively keeping in view legitimate business needs of the assessee company and no disallowance is called for . The assessee prayed that the disallowance as was made by AO be deleted. 10.3 The ld. CIT(A) accepted the contentions of the assessee and deleted the disallowance as was made by the AO ,vide appellate order dated 05.07.2016 passed by ld. CIT(A), by holding as under:
“8.2 Decision In view of submissions made, the addition made is hereby deleted.”
10.4 Aggrieved by the relief granted by ld. CIT(A) to the assessee, the Revenue has come in appeal before the tribunal. The ld. Sr. DR relied upon assessment order passed by AO. The ld. Counsel for the assessee on the other hand relied upon the submissions made by assessee before ld. CIT(A) and the appellate order passed by ld. CIT(A). 10.5 We have considered rival contentions and perused the material on record. We have observed that the assessee paid Rs. 1042/-to Dinners Club for membership fee, which was claimed as revenue expenses by the company. The AO disallowed the same as in view of AO , the same were not related to the business of the assessee. The ld. CIT(A) granted relief to the assessee by accepting the contentions of the assessee. The ld. CIT(A) passed cryptic, non speaking and un-reasoned order , by holding as under:
“8.2 Decision In view of submissions made, the addition made is hereby deleted.”
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited
Revenue is aggrieved by decision of ld. CIT(A) and have come in appeal before tribunal. We have observed that there is no evidence on record , which could justify that these expenses were incurred by assessee for business purposes. There is no evidence on record as to whom name this Dinners Club Membership was taken, who all are authorized to use the facilities granted by Dinners Club and actual usage of facilities for business activities or business promotion. In the absence of any evidence on record, we are afraid these expenses cannot be allowed as business/revenue expenses. Even , before us no evidence is filed or brought to our notice to justify that these expenses are business expenses incurred wholly and exclusively for the purposes of business of the assessee. Thus, we reverse the appellate order passed by ld. CIT(A) and uphold the addition as was made by AO. We order accordingly. 11. The next issue concerns itself with the deletion by ld. CIT(A) of addition to the tune of Rs. 49,310/- made by AO to the income of the assessee on account of short credit of income in the P&L Account . It was observed by AO during the course of assessment proceedings from the tax-audit report at Column 9(b) that income of preceding year reported by auditor is Rs. 3,73,724/-, while the assessee has credited income of Rs. 3,24,414/- in its income account . Thus, the AO brought to tax difference income of Rs. 49,310/- by adding the same to income of the assessee, vide assessment order dated 31.01.2000 passed by AO. 11.2 Aggrieved by an assessment framed by AO adding Rs. 49,310/- to the income of the assessee vide assessment order dated 31.01.2000, the assessee filed first appeal before CIT(A) and submitted that the assessee company as per tax-audit report in para 9(b) as reported by tax-auditor has received income of earlier years aggregating to Rs. 3,73,724/- , whereas in schedule 13 of ‘other income’ as annexed to Balance Sheet s at 31.03.1997, the amount of income relating to earlier years credited stood at Rs. 3,24,414/- only. It was submitted that differential amount of Rs. 49,310/- was refund of 43
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited insurance premium which was included in the sum of Rs. 9,30,576.28 already credited in other income under the head Sundry Receipts. The assessee submitted that these can be verified . The Ld. CIT(A) accepted the contentions of the assessee and deleted the additions to the tune of Rs. 49,310/- as was made by AO, vide appellate order dated 05.07.2016 passed by ld. CIT(A), by holding as under:-
“9.2 Decision: In view of the factual position narrated above , the addition so made cannot survive and is, therefore deleted.”
11.3 Aggrieved by appellate order passed by ld. CIT(A) granting relief to the assessee, the Revenue has now filed second appeal with tribunal. The ld. Sr. DR relied upon the assessment order passed by the AO . It was also submitted by ld. Sr. DR that the ld. CIT(A) merely reproduced the assessee’s submissions without discussing the issue raised by the AO and hence the appellate order passed by ld. CIT(A) is not sustainable. The Ld. Counsel for the assessee on the other hand relied upon the appellate order passed by ld. CIT(A). 11.4 We have considered rival contentions and perused the material on record.We have observed that in the tax-audit report at Column 9(b) , income of preceding year reported by auditor is Rs. 3,73,724/-, while the assessee has credited income of Rs. 3,24,414/- in its income account . Thus, the differential amount of Rs. 49,310/- was added to the income of the assessee by AO. The assessee filed appeal before ld. CIT(A) and explained before ld. CIT(A) that differential amount of Rs. 49,310/- was refund of insurance premium which was included in the sum of Rs. 9,30,576.28 already credited in other income under the head Sundry Receipts. The ld. CIT(A) simply accepted the contentions of the assessee and passed a cryptic, non-speaking and un-reasoned order , by holding as under:
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited
“9.2 Decision: In view of the factual position narrated above , the addition so made cannot survive and is, therefore deleted.”
Thus, instead of giving reasons for acceptance or rejection of assessee’s contention, ld.CIT(A) simply accepted the assessee’s contentions without giving its own reasons or results of verification conducted by him. The powers of ld.CIT(A) are co-terminus with powers of the AO. The claim submitted by assessee that the differential amount of Rs. 49,310/- was refund of insurance premium which was included in the sum of Rs. 9,30,576.28 already credited in other income under the head Sundry Receipts, requires verification and investigation into facts to unravel truth, and hence we are inclined to set aside and restore this issue to file of ld.CIT(A) for fresh adjudication on merits in accordance with law , and ld. CIT(A) is directed to pass reasoned and speaking order , after considering our observations on this issue in this order. Needless to say that ld. CIT(A) shall give proper opportunity of being heard to the assessee in set aside remand proceedings and evidences/ explanations submitted by the assessee in its defense shall be admitted by ld. CIT(A) and adjudicated on merits in accordance with law. We order accordingly.
The next issue concerns itself with the deletion by ld. CIT(A) of disallowance of Rs. 18,333/- on account of entertainment expenses , which was earlier added by AO to the income of the assessee by invoking provisions of Section 37(2) of the 1961 Act. The AO observed during the course of assessment proceedings that the assessee has debited Rs. 46,666/- towards Entertainment expenses out of which it deducted 25% i.e. Rs. 11,667/- allocated for expenses for employees and against balance of Rs. 35,000/- the assessee claimed Rs. 22,500/- as business deduction. The AO did not accepted the claim of the assessee and by following the provisions of Section 37(2), allowed firstly 45
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited Rs. 10000/- out of total expenses of Rs. 46,666/- and for the balance amount remaining of Rs. 36,666/-, the AO allowed 50% of the remaining amount , wherein Rs. 18,333/- stood allowed by the AO , and the balance amount of Rs. 18,333/- was disallowed which stood added to the income of the assessee by the AO , vide assessment order passed u/s 143(3) of the 1961 Act. Thus, in nutshell , out of total amount of Entertainment Expenditure to the tune of Rs. 46,666,- claimed by assessee to have been incurred, an amount of Rs. 28,333/- stood allowed by the AO, while an amount of Rs. 18,333/- stood disallowed by the AO, by invoking provisions of Section 37(2) of the 1961 Act, vide assessment order dated 31.01.2000 passed by AO u/s 143(3) of the 1961 Act. 12.2 Aggrieved by an assessment framed by the AO wherein an amount of Rs. 18,333/- stood disallowed by the AO, the assessee filed first appeal with ld. CIT(A). The assessee submitted before ld. CIT(A) that an amount of Rs. 46,666/- was incurred by assessee under the head Entertainment Expenses. It was submitted that these expenses were incurred wherein employees of the assessee accompany the customers, and hence such an expenses were estimated to be 25% of the total expenses. It was submitted that for computing disallowance u/s 37(2), the assessee reduced the total Entertainment Expenses by 25% and on the balance amount the disallowance was worked out by invoking provision of Section 37(2) of the 1961 Act. The assessee relied upon the decision of Hon’ble Delhi High Court in the case of CIT v. Expo Machinery Limited reported in (1991) 190 ITR 576 (Del. HC) . The ld. CIT(A) was pleased to accept the contentions of the assessee and the additions as were made by the AO stood deleted by ld. CIT(A), by holding as under, vide appellate order dated 05.07.2016:
“10.2 Decision: In view of the factual position narrated above, the addition so made is hereby deleted.”
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited 12.3 Now, it was the turn of Revenue to be aggrieved by the appellate order passed by ld. CIT(A) granting relief to the assessee, who filed second appeal with tribunal. The ld. Sr. DR relied upon assessment order passed by the AO. The ld. Counsel for the assessee on the other hand relied upon the appellate order passed by ld. CIT(A).
12.4 We have considered rival contentions and perused the material on record.We have observed that the assessee has incurred expenditure of Rs. 46,666/- towards Entertainment Expenses. We have observed that the assessee has claimed that employees of the assessee company accompanied the customers of the assessee and 25% of the total expenses incurred under the head ‘Entertainment Expenses’ were attributable to employees of the assessee. The assessee has relied upon the decision of Hon’ble Delhi High Court in the case of CIT v. Expo Machinery Limited(supra) to justify its stand that it will be entitled for deduction on account of its employees accompanying customers @ 25% of the total Entertainment Expenses being attributable to said employees. We have observed that in aforesaid judgment passed by Hon’ble Delhi High Court in Expo Machinery(supra), there is a finding of fact recorded by ld. CIT(A) that employees accompanied customers and the employees have also taken food along with customers. This finding of fact recorded by ld. CIT(A) in the case of Expo Machinery(supra) was later confirmed by tribunal and estimate was made by tribunal @35% of the total Entertainment Expenses being attributable to employees taking food and eatables along with customers. This estimate was upheld by Hon’ble Delhi High Court in the case of Expo Machinery(supra) on the ground that the estimate is reasonable. While in the instant case before us, the ld. CIT(A) has simply accepted the contentions of the assessee and granted relief to the assessee by passing a cryptic, non speaking and unreasoned order, wherein no independent finding of fact is recorded by ld. CIT(A) based on evidences , by holding as under: “10.2 Decision:
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited In view of the factual position narrated above, the addition so made is hereby deleted.” The above order is clearly not sustainable in the eyes of law being non-speaking, cryptic and unreasoned order passed by ld. CIT(A) , wherein no independent verifications were done and no finding of fact on the employees accompanying customers based on evidence is recorded by ld. CIT(A) , and we are inclined to set aside the appellate order passed by ld. CIT(A) and restore the issue back to the file of ld. CIT(A) for fresh adjudication on merits in accordance with law . The ld. CIT(A) is directed to pass speaking and reasoned order, wherein finding of fact based on evidence be recorded on the issue under consideration. Needless to say that ld. CIT(A) shall give proper opportunity of being heard to the assessee in set aside remand proceedings and evidences/ explanations submitted by the assessee in its defense shall be admitted by ld. CIT(A) and adjudicated on merits in accordance with law. We order accordingly. 13. In the result, appeal filed by the Revenue in ITA No. 227/Alld/2016 for ay: 1997-98 stands partly allowed for statistical purposes. Order pronounced on 24/12/2021at Allahabad Sd/- Sd/- [VIJAY PAL RAO] [RAMIT KOCHAR] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 24/12/2021 Kd. Azmi
ITA No.227/ALLD/2016 Assessment Year: 1997-98 Shervani Sugar Syndicate Limited