CIT, FARIDABAD vs. M/S LAKHANI MARKETING INC.

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ITA/3/2009HC Punjab & HaryanaPHHC01084392200903 December 2010Bench: MR. JUSTICE AJAY KUMAR MITTAL,MR. JUSTICE ADARSH KUMAR GOEL9 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that only the first substantial question of law (Question A) concerning the grace period for PF payments was to be decided. Both parties agreed that this issue was settled by the Apex Court's judgment in Commissioner of Income Tax v. Alom Extrusions Ltd. [2009] 319 ITR 306 (SC) and this Court's own decision in Commissioner of Income Tax, Patiala v. M/s Rai Agro Industries Ltd. Sangrur. Consequently, Question A was answered in favour of the assessee and against the revenue. The Court did not provide specific reasoning for this finding, relying on the aforementioned precedents. The second issue regarding interest-free advances was implicitly not decided as it was agreed that only Question A survived. The appeals were dismissed based on the decision on Question A.

What were the facts?

The revenue (Commissioner of Income Tax) appealed against the order of the Income Tax Appellate Tribunal (ITAT) in ITA No. 3 of 2009 concerning assessment year 2004-05. The assessee, M/s Lakhani Marketing Inc., had filed its return declaring an income of Rs. 1,62,34,517/-. The assessment was completed at Rs. 1,75,45,385/-, including additions for late payment of employees' contribution to PF and disallowance of interest on advances to sister concerns. The CIT(A) deleted these additions. The ITAT dismissed the revenue's appeal. The High Court was considering multiple appeals involving similar issues. For ITA No. 3 of 2009, the High Court noted that only one substantial question of law remained after its initial order.

What were the issues?

The High Court had to decide two substantial questions of law raised by the revenue: 1. Whether the ITAT was correct in holding that the actual date of payment of employees' contribution to PF was within the permissible grace period, despite the Income Tax Act, 1961, only referring to the "due date" and not a grace period. 2. Whether the ITAT was correct in upholding the deletion of a disallowance of Rs. 5,36,120/- on account of interest-free advances given to sister concerns, considering the onus on the assessee to prove commercial expediency and the alleged non-speaking nature of the ITAT's order. Arguments presented: Assessee: The judgment does not explicitly record arguments for the assessee on these specific issues, but it notes that the parties agreed that only question A survived and was settled by higher judicial pronouncements. Revenue: Argued that the Income Tax Act does not recognize a grace period for PF payments and that the assessee failed to prove the commercial expediency for interest-free advances to sister concerns.

Which sections of the Income-tax Act were involved?

Section 36(1)(iii)

AI-generated summary — verify with the full judgment below

ITA No. 3 of 2009 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 3 of 2009 Date of Decision: 3.12.2010 Commissioner of Income Tax, Faridabad ....Appellant. Versus M/s Lakhani Marketing Inc. ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Yogesh Putney, Advocate for the appellant, in ITA No.3 of 2009. Mr. Rajesh Katoch, Advocate for the appellant, in ITA Nos. 474, 515 of 2006, 378, 432 of 2007. Ms. Radhika Suri, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1. This order shall dispose of ITA Nos. 3 of 2009, 474, 515 of 2006 and 378 and 432 of 2007 as similar issues of law are involved therein. For brevity, the facts are being extracted from ITA No. 3 of 2009. 2. The revenue in the present appeal had claimed the following two substantial questions of law:- “A. Whether, on the facts and circumstances of the case, the Hon'ble ITAT was right in law in holding that the actual date of payment is within the grace period permissible under the Employee's Provident Fund Scheme, 1952, especially when the Income Tax Act,

ITA No. 3 of 2009 -2- 1961 does not talk about the grace period for making payments in relevant funds and it talks only about the “due date” by which the assessee is required to make the payments in relevant funds? B. Whether, on the facts and circumstances of the case, the Hon'ble ITAT was right in law in upholding the order of the Ld. CIT(A) in deleting the disallowance of Rs.5,36,120/- on account of interest free advances given to its sister concerns, especially when the onus is on the assessee to prove 'commercial expediency' behind giving interest free loans and as to which particular fund was utilized by it to make advances to the sister concern and the assessee had failed to prove it, and the Hon'ble ITAT has simply held that interest free loans were given to sister concerns which are into the same business, no specific details have been given in this regard and has passed a general and non-speaking order?” 3. This Court on 3.3.2009, while issuing notice of motion by recording a detailed order had held that only question at serial No. A arises in this appeal for determination by this Court. The appeal was thereafter admitted on 23.4.2009. 4. The facts necessary for adjudication as narrated in the instant appeal are that the assessee filed its return on 29.10.2004 for the assessment year 2004-05 declaring an income of Rs.1,62,34,517/-. The assessment was completed on 26.12.2006 at an income of

ITA No. 3 of 2009 -3- Rs.1,75,45,385/- including addition of Rs.7,08,742/- made on account of late payment of employees' contribution to PF and disallowance of interest of Rs.5,36,120/- under Section 36(1)(iii) of the Income Tax Act, 1961 (in short “the Act”). Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [hereinafter referred to as “the CIT(A)”] who vide order dated 13.9.2007 while deleting the additions allowed a total relief of Rs.12,68,743/-. Against the order of the CIT (A), the department approached the Tribunal who vide order dated 4.4.2008 dismissed the appeal. Hence, the present appeal by the revenue. 5. We have heard learned counsel for the parties. 6. Learned counsel for the parties are agreed that only question at serial A now survives and the issue raised therein finally stands settled by the Apex Court's judgment in Commissioner of Income Tax v. Alom Extrusions Ltd. [2009] 319 ITR 306 (SC) and this Court in Income Tax Appeal No. 663 of 2005 (The Commissioner of Income Tax, Patiala v. M/s Rai Agro Industries Ltd. Sangrur), decided on 30.11.2010 against the revenue and in favour of the assessee. 7. In view of the above, the substantial question of law at 'A' above is answered in favour of the assessee and against the revenue. Consequently, the appeals are dismissed. (AJAY KUMAR MITTAL) JUDGE December 3, 2010 (ADARSH KUMAR GOEL) gbs JUDGE

ITA No. 3 of 2009 -4-

ITA No. 3 of 2009 -5- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 474 of 2006 Date of Decision: 3.12.2010 Commissioner of Income Tax-III, Ludhiana ....Appellant. Versus M/s Mohini Hosiery Mills ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Rajesh Katoch, Advocate for the appellant. None for the assessee. AJAY KUMAR MITTAL, J. The appeal is dismissed. For reasons, see the detailed order of even date recorded in ITA No. 3 of 2009 (Commissioner of Income Tax, Faridabad v. M/s Lakhani Marketing Inc). (AJAY KUMAR MITTAL) JUDGE December 3, 2010 (ADARSH KUMAR GOEL) gbs JUDGE

ITA No. 3 of 2009 -6- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 515 of 2006 Date of Decision: 3.12.2010 Commissioner of Income Tax-III, Ludhiana ....Appellant. Versus M/s Grewal Hotels (P) Ltd. ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Rajesh Katoch, Advocate for the appellant. None for the assessee. AJAY KUMAR MITTAL, J. The appeal is dismissed. For reasons, see the detailed order of even date recorded in ITA No. 3 of 2009 (Commissioner of Income Tax, Faridabad v. M/s Lakhani Marketing Inc). (AJAY KUMAR MITTAL) JUDGE December 3, 2010 (ADARSH KUMAR GOEL) gbs JUDGE

ITA No. 3 of 2009 -7- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 378 of 2007 Date of Decision: 3.12.2010 Commissioner of Income Tax-III, Ludhiana ....Appellant. Versus M/s Deepak Builders ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Rajesh Katoch, Advocate for the appellant. None for the assessee. AJAY KUMAR MITTAL, J. The appeal is dismissed. For reasons, see the detailed order of even date recorded in ITA No. 3 of 2009 (Commissioner of Income Tax, Faridabad v. M/s Lakhani Marketing Inc). (AJAY KUMAR MITTAL) JUDGE December 3, 2010 (ADARSH KUMAR GOEL) gbs JUDGE

ITA No. 3 of 2009 -8- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 432 of 2007 Date of Decision: 3.12.2010 Commissioner of Income Tax-III, Ludhiana ....Appellant. Versus M/s Mohini Hosiery Mills ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Rajesh Katoch, Advocate for the appellant. None for the assessee. AJAY KUMAR MITTAL, J. The appeal is dismissed. For reasons, see the detailed order of even date recorded in ITA No. 3 of 2009 (Commissioner of Income Tax, Faridabad v. M/s Lakhani Marketing Inc). (AJAY KUMAR MITTAL) JUDGE December 3, 2010 (ADARSH KUMAR GOEL) gbs JUDGE

ITA No. 3 of 2009 -9- C.M. No. 30889-CII of 2010 IN I.T.A. No. 3 of 2009 Present: Mr. Yogesh Putney, Advocate for the appellant. Ms. Radhika Suri, Advocate for the applicant-respondent. **** This is an application under Section 151 of the Code of Civil Procedure for disposal of the appeal in terms of the judgment of the Hon'ble Apex Court in Commissioner of Income Tax v. Alom Extrusions Ltd. [2009] 319 ITR 306. Notice of this application to counsel for the appellant. Mr. Yogesh Putney, Advocate accepts notice. With the consent of the parties, the main appeal is taken up for hearing today. CM stands disposed of accordingly. (ADARSH KUMAR GOEL) JUDGE December 3, 2010 (AJAY KUMAR MITTAL) gbs JUDGE

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