Appeal in ITA No. 5500/Del/2003 is appeal filed by assessee and appeal in ITA No. 408/Del/2004 is appeal filed by Revenue against order of learned CIT(A)-XXIV, New Delhi in appeal No. 17 of 2003-04, dt. 16th Nov., 2003 for asst. yr. 2000-01. ITA No.3361/Del/2004 is appeal filed by assessee against order of learned CIT(A)-XXIV in appeal No. 315 of 2003-04, dt. 5th May, 2004 for asst. yr. 2001-02. Dr. Rakesh Gupta, advocate, and Shri Anil Kumar Gupta, chartered accountant, represented on behalf of assessee and Dr. Devender Singh, learned senior Departmental Representative, represented on behalf of Revenue. In ITA No. 5500/Del/2003, assessee has raised 3 issues. first issue being against action of learned CIT(A) in sustaining addition of Rs. 10,45,550 out of total addition of Rs. 29,61,521 made by AO on account of processing charges paid by assessee to M/s Vibgyor Colour Graphics. second issue is against order of learned CIT(A) confirming addition of Rs. 2,49,000 made by AO on account of interest paid by assessee on unsecured loans on ground that no interest was charged by assessee on unsecured loans given by assessee to his relatives. third issue is against order of learned CIT(A) in sustaining disallowance of ESI and PF payments not paid in time. In ITA No. 408/Del/2004, Revenue has filed appeal against action of learned CIT(A) in restricting disallowance on account of processing charges paid by assessee to M/s Vibgyor Colour Graphics to Rs. 10,45,550. In ITA No. 3361/Del/2004, assessee has challenged action of learned CIT(A) in confirming addition made by AO on account of interest paid by assessee on unsecured loans on ground that no interest was charged on unsecured loans given. In regard to addition confirmed by learned CIT(A) to extent of Rs. 10,45,550 out of total addition of Rs. 29,61,521 made by AO on account of processing charges paid by assessee to M/s Vibgyor Colour Graphics learned Authorised Representative submitted that said Vibgyor Colour Graphics was proprietary concern of Shri Anil Goel, brother of assessee. It was submission that assessee was in business of offset printing. assessee s brother Shri Anil Goel was running business of processing and manufacturing positives of offset printing material as required by assessee. During relevant assessment year, assessee had paid amount of Rs. 29,61,521 to M/s Vibgyor Colour Graphics as processing charges. AO had called for details of processing charges paid to Vibgyor Colour Graphics and Shri Anil Goel proprietor of Vibgyor Colour Graphics was also required to be produced before AO. assessee had produced all t h e details called for, but had not produced proprietor of Vibgyor Colour Graphics before AO for verification. AO on ground that M/s Vibgyor Colour Graphics did not have separate electricity meter but was drawing electricity from assessee s premises for which Vibgyor Colour Graphics was paying Rs. 15,000 per month and on ground that proprietor was not produced before AO as also because certain amounts had been paid by Vibgyor Colour Graphics to assessee, held that transactions between assessee and M/s Vibgyor Colour Graphics in regard to processing charges were not genuine and were not expenses of business and consequently added processing charges paid to M/s Vibgyor Colour Graphics as income of assessee. learned Authorised Representative drew our attention to p. 16 of paper book, which was extract of processing charges paid by assessee to various persons. assessee has paid from said break-up amount of Rs. 29,39,826 to M/s Vibgyor Colour Graphics as against total processing charges paid to extent of Rs.31,85,667. He also drew our attention to pp. 21 to 23 of paper book which was copy of invoice raised by assessee to one M/s. HTA Ltd. in regard to their client, Pepsi for printing of various stickers. Page 22 of paper book was corresponding invoice raised by M/s Vibgyor Colour Graphics with assessee in regard to processing of positive for said stickers. Page 23 was copy of positive which was processed by M/s Vibgyor Colour Graphics on behalf of assessee. He further drew our attention to pp. 24 to 25 of paper book which were details of party-wise processing charges paid to M/s. Vibgyor Colour Graphics vis- -vis amount of final bills raised by assessee. It is noticed that total amount charged by M/s Vibgyor Colour Graphics is to extent of about Rs. 29,39,826 and corresponding invoice raised by assessee from final party was to extent of nearly Rs. 7 crores. He further drew our attention to pp. 26 to 73 of paper book which were details of bills raised by M/s Vibgyor Colour Graphics vis-a-vis final bills raised by assessee to assessee s customers along with copies of invoices of assessee as also corresponding invoices of M/s Vibgyor Colour Graphics. He further drew our attention to pp. 125 to 144 of paper book which is copy of ledger account of M/s Vibgyor Colour Graphics in assessee s books of account. He also drew our attention to p. 145 of paper book which is copy of intimation issued under s. 143(1) of IT Act in case of Shri Anil Goel proprietor of M/s Vibgyor Colour Graphics for asst. yr. 2000-01 wherein he has declared income of Rs. 3,04,510. He also drew our attention to pp. 146 to 151 which is copy of computation of total income and balance sheet and P&L a/c of Shri Anil Goel wherein he has offered income from M/s Vibgyor Colour Graphics at Rs. 1,00,640. In trading and P&L a/cs of M/s Vibgyor Colour Graphics as found at p. 148, it was noticed that job work receipts of M/s Vibgyor Colour Graphics were to extent of Rs. 63,80,013. He drew our attention to p. 183 of paper book wherein break-up of this amount of Rs. 63,80,013 was found, out of which amount of Rs. 29,39,826 has been shown as relating to assessee. balance of nearly Rs. 34 lakhs related to various other persons. He further drew our attention to order of CIT(A) wherein CIT(A) before whom assessee had agreed to produce said Shri Anil Goel, proprietor of M/s Vibgyor Colour Graphics, more specifically p. 18 of order of CIT(A) wherein CIT(A) has given finding that as regards offer of appellant at appeal stage for issue of summons to Shri Anil Goel to secure his presence AO was of opinion that since assessment proceedings are over, therefore, chapter on this issue is now closed and AO was not favourably inclined about extending offer at appellate stage . He further submitted that learned CIT(A) had accepted genuineness of transaction between assessee and M/s Vibgyor Colour Graphics as genuine. He further submitted that assessee had produced details of earlier processing charges paid by assessee as also corresponding sales/job work earned by assessee. It was his submission that learned CIT(A) has erred in estimating disallowance on basis of average ratio of processing charges to sales/job work by considering only 2 years being asst. yrs. 1997-98 and 1998-99. He placed before us chart wherein he has computed average of ratio of processing charges debited to P&L a/c to sales and job work as earned by appellant for earlier 5 years. It was submission that by taking only two of assessment years learned CIT(A) had arrived at ratio of 4.17 and by applying said ratio of 4.17 per cent he had arrived at figure of Rs. 19,15,971. It was submission that if average of all 5 years was taken, then percentage would be 4.58 per cent and if such percentage was taken, processing charges allowable in relation to sales/job work in regard to current assessment year would be nearly Rs. 32,44,990. It was thus his submission that learned CIT(A) having accepted genuineness of transaction ought to have allowed claim as made by assessee in full. Learned Departmental Representative in reply submitted that proportion as taken by CIT(A) was wrong. It was his further submission that assessee had not produced said Shri Anil Goel before AO for examination. He vehemently supported order of AO. He further submitted that learned CIT(A) ought to have confirmed order of AO. It was his submission that order of CIT(A) is liable to be reversed and order of AO restored. We have considered rival submissions. It is noticed from order of learned CIT(A) that he has given specific finding at p. 19 of his order that onus to prove genuineness of expenditure and payments to M/s Vibgyor Colour Graphics was amply discharged by assessee. It is further noticed from grounds as raised by Revenue against partial sustenance by learned CIT(A) in ITA No. 408 that Revenue has not challenged finding of learned CIT(A) in regard to genuineness of expenditure and payments to M/s Vibgyor Colour Graphics as having been discharged by assessee. It is further noticed from paper book at pp. 24 and 25 being summary of party-wise processing charges paid during year to M/s Vibgyor Colour Graphics and amount of final bills raised that if any of these amounts as shown having been paid to M/s Vibgyor Colour Graphics is disallowed, then corresponding income could not have been Graphics is disallowed, then corresponding income could not have been generated by assessee as each of bills raised by assessee on its clients is supported by invoices raised by M/s Vibgyor Colour Graphics on assessee in regard to processing, scanning, planning and proofing of printing positive. It is further noticed that M/s Vibgyor Colour Graphics has also filed its return of income including receipts from assessee and had arrived at income of Rs. 1,00,640 and same had also been offered to tax. It is noticed that income of M/s Vibgyor Colour Graphics is substantially low in regard to job receipts of Rs. 63,80,013 but same has been found to be due to depreciation claimed to extent of Rs. 11,31,879. It is also noticed that plant and machinery on which M/s Vibgyor Colour Graphics claimed this depreciation has also been purchased through bank loan and Shri Anil Goel proprieter of M/s Vibgyor Colour Graphics has paid interest of Rs. 2,22,680. It is further noticed from details as found in paper book that said Shri Anil Goel, proprieter of M/s Vibgyor Colour Graphics has paid only amount of Rs. 1 lakh to assessee and it was repayment of loan taken by said Shri Anil Goel from assessee. In circumstances, considering fact that learned CIT(A) has given finding that genuineness of transaction between assessee and Vibgyor Colour Graphics is genuine and same having not been challenged by Revenue and fact that without payment of said processing charges, assessee could not have generated said receipts to extent of nearly Rs. 7 crores as also reason that if average of percentage of processing charges paid in relation to job work/sales done by assessee is considered for 5 years, average of same would come to 4.58 per cent which would translate into amount of Rs. 32,44,990, we are of view that no portion of processing charges paid by assessee to M/s Vibgyor Colour Graphics is liable to be disallowed. In circumstances order of learned CIT(A) on this issue is modified to this extent and this issue is decided in favour of assessee. As we have already decided this issue in favour of assessee, appeal of Revenue challenging order of CIT(A) restricting disallowance to Rs. 10,45,550 would also stand decided against Revenue and consequently, appeal of Revenue in appeal No. ITA 408/Del/2004 stands dismissed. In regard to second issue being disallowance as confirmed by learned CIT(A) and as made by AO on account of interest paid by assessee on unsecured loans taken by assessee for purpose of business on ground that no interest was charged by assessee on unsecured loans given to his relatives, learned Authorised Representative on behalf of assessee drew our attention to p. 205 onwards of paper book, which was balance sheet of assessee for year ending 31st March, 1993. He drew our attention to p. 209, which was balance sheet of assessee as on 31st March, 1997, wherein, loan given to Ms. Rita Chopra has appeared for amount of Rs. 3 lakhs. It was submission that he had capital balance of nearly Rs. 19,17,966 during year ending 31st March, 1997 as also sundry creditors to extent of nearly Rs. 2.11 crores which were non-interest-bearing funds. He drew our attention to p. 210 of paper book which is balance sheet of assessee as on 31st March, 1998 wherein capital of assessee has increased to Rs. 19.84 lakhs and sundry creditors to Rs. 2.56 crores. He placed before us balance sheet of assessee for year ending 31st March, 2000, wherein capital of assessee has been shown at Rs. 9,43,636 and sundry creditors as available were shown at Rs. 2,45,73,109. Thus, it was submission that assessee had adequate non- interest-bearing funds for purpose of giving non-interest bearing loans to his relatives. He further submitted that he had given amount of Rs. 5 lakhs to Ms. Arti Goel and amount of Rs. 5,50,000 to Ruchi Goel during financial years 1992-93 to 1997-98. It was submission that during this period assessee had adequate non-interest-bearing funds to give non-interest-bearing loans to relatives. It was his further submission that assessee had taken interest-bearing funds being loans only for purpose of business and no portion of interest-bearing funds had been diverted for non-interest bearing loans to relatives. It was his further submission that AO had not given any details to link that interest-bearing loans had been used to give non- interest bearing loans to relatives. He further drew our attention to pp. 211 and 212 of paper book which was bank account of assessee in Punjab & Sindh Bank wherein amount of Rs. 20 lakhs given to Mayura Print Process being sister concern of assessee has been shown to have been out of receipts of assessee. Thus, it was submission that no interest- bearing funds had been used for giving any non-interest bearing loans. He relied upon decision of Hon ble Delhi High Court in case of CIT vs. Orissa Cement Ltd. (2001) 252 ITR 878 (Del) as also decision of jurisdictional High Court in case of CIT vs. Tin Box Co. (2003) 182 CTR (Del) 171: (2003) 260 ITR 637 (Del) wherein it has been held that as capital of firm and interest-free unsecured loans with assessee far exceeded amounts advanced to sister concern and further there was no finding of Department that any specific interest-bearing borrowed funds has been diverted by assessee to its sister concern, no disallowance can be made. He further placed reliance upon decision of Hon ble Karnataka High Court in case of CIT vs. Sridev Enterprises (1991) 97 CTR (Kar) 80: (1991) 192 ITR 165 (Kar) wherein Hon ble Karnataka High Court had held that when assessee had advanced certain sums to another firm having common partners free of interest on money borrowed and in past years assessee s claim for deduction of interest paid was allowed on assumption that those advances were not out of borrowed funds advance of firm shown on first day of accounting year is to be excluded for purpose of computing disallowance of deduction. It was his submission that in assessee s case also amounts of advances given to relatives were out of non-interest bearing funds and they were opening balances and consequently same was not liable to be considered for disallowance of interest in hands of assessee. learned Departmental Representative vehemently supported orders of CIT(A) and AO on this issue. He relied upon decision of Hon ble Delhi High Court in case of Elmer Havell Electrics & Ors. vs. CIT & Anr. (2005) 197 CTR (Del) 316: (2005) 277 ITR 549 (Del) wherein Hon ble Delhi High Court had held that when assessee was borrowing funds and giving interest- free loans to sister concerns and there was no justifiable reason for transaction interest paid on borrowed capital was not deductible. It was his further submission that if assessee was having surplus funds as prudent businessman and in interest of business he should have repaid some of loans borrowed from banks to reduce burden of interest. He thus vehemently supported orders of AO and CIT(A) on this issue. We have considered rival submissions. decision referred to by learned Departmental Representative in case of Elmer Havell Electrics & Ors. referred to supra would not apply insofar as Hon ble High Court had clearly held that it was clearly established on record that assessee itself has taken loan with interest and had advanced funds by diversion or otherwise to its sister concern free of interest. In present case such establishment of fact is not coming out of assessment order or facts of case. In fact decision referred to by learned Authorised Representative in case of Tin Box Co. referred to supra as also decision of Hon ble Delhi High Court in case of Orissa Cement Ltd. (supra) is found to be more applicable insofar as it is found that loans had been advanced out of sale proceeds and not out of borrowings as is evident from paper book at pp. 211 and 212. Whether assessee should use surplus funds for repayment of interest- bearing loan or not is sole prerogative of assessee. law only bars assessee from claiming interest expenditure when assessee has diverted interest-bearing loans for non-interest bearing advances. It is further noticed that AO has not been able to point out any specific instance where interest- bearing borrowed funds had been diverted by assessee for giving non- interest-bearing advances to relatives and sister concern. In circumstances, we are of view that no interest is liable to be disallowed in hands of assessee. In circumstances, finding of learned CIT(A) and AO on this issue stands reversed. As identical issue has been raised in assessee s appeal in ITA No. 3361/Del/2004 for asst. yr. 2001-02, finding as given above in this issue would apply to said appeal in ITA No. 3361 and appeal of assessee in ITA No. 3361 stands allowed. In regard to ground against order of CIT(A) in confirming disallowance of ESI and PF payments made belatedly by invoking provisions of s. 43B, learned Authorised Representative drew our attention to pp. 250 and 251 of paper book which were break-up and details of employer s and employees contributions to PF and ESI. It is noticed that all these payments have been made before due date of filing return. It was submission that amounts having been paid before due date of filing return decision of Hon ble Delhi High Court in case of CIT vs. Dharmendra Sharma (2007) 213 CTR (Del) 609 and decision of Hon ble Karnataka High Court in case of Sabari Enterprises (2007) 213 CTR (Kar) 269: (2008) 298 ITR 141 (Kar) would apply. learned Departmental Representative vehemently supported orders of AO and CIT(A). We have considered rival submissions. In regard to employees contributions to PF and ESI, it is noticed that this Tribunal in case of Kuber Hinges (P) Ltd. vs. ITO in ITA No. 1654/Del/2007, dt. 20th March, 2008 [reported at (2008) 12 DTR (Del)(Trib) 461 Ed.] for asst. yr. 2001-02 has decided this issue by following decision of Hon ble High Court of Karnataka in case of CIT vs. Sabari Enterprises (supra). This Tribunal has held as follows: "4. We have considered rival contentions. From record, we found t h t AO has disallowed employer s contribution and employees contributions, which were deposited beyond due date as provided under s. 36(1)(via) of Act, by observing that employees contributions could not be allowed under s. 43B and employees contribution was to be treated as income of assessee within meaning of s. 2(24)(x) of Act. By impugned order, CIT(A) confirmed disallowance made by AO. We have carefully gone through decision of Hon ble Supreme Court and Hon ble High Court as referred above and found that issue before Karnataka High Court was with respect to claim of deduction under s. 36(1)(va) r/w s. 2(24) which pertains to employees contribution which was not paid by assessee before statutory date provided under PF Act, but before due date for furnishing return of income under s. 139(1) of Act. disallowance made by invoking provisions of s. 43B pertains to deduction claimed with reference to employer s contribution. After discussion in detail history of provisions of s. 2(24)(x) r/w ss. 36(1)(va) and 43B of Act, and amendment brought therein by various Finance Acts, High Court observed as under: After hearing learned counsel for parties, we have carefully examined above statutory provisions of Act including definition of s. 2(24)(x) and ss. 36(1)(va) and 43B(b), which reads thus: 2(24)(x) income includes any sum received by assessee from his employees as contribution to n y provident fund or superannuation fund or any fund set up under provisions of Employees State Insurance Act, 1948. 36(1) deduction provided for in following clauses shall be allowed in respect of matters dealt with therein in computing income referred to in s. 28. (va) any sum received by assessee from any of his employees to which provisions of sub-cl. (x) of cl. (24) of s. 2 apply, if such sum is credited by assessee to employee s account in relevant fund or funds on or before due date. Explanation: For purposes of this clause, due date means date by which assessee is required as employer to credit employee s contribution to employee s account in relevant fund under any Act, rules, order or notification issued thereunder or under any standing order, award, contract of service or otherwise. This clause is inserted by Finance Act w.e.f. 1st April, 1988. Explanation to this clause is read very carefully, Due date has been explained stating that means date by which assessee is required as employer to credit contribution to employees account in relevant fund under any Act, rule or order or notification issued thereunder or under any standing order, award, contract of service or otherwise . Prior to above clause was inserted to s. 36 giving statutory deductions of payment of tax under provisions of Act, s. 43B(b) was inserted by Finance Act, 1983 which came into force w.e.f. 1st April, 1984. Therefore, again provision of s. 43B(b) clearly provides that notwithstanding anything contained in other provisions of Act including s. 36(1), cl. (va) of Act, even prior to insertion of that clause assessee is entitled to get statutory benefit of deduction of payment of tax from Revenue. If that provision is read along with first proviso of said section which was inserted by Finance Act, 1987 which came into effect from 1st April, 1988, letters numbered as cl. (a) or cl. (c) or cl. (d) or cl. (e) or cl. (f) are omitted from above proviso and therefore deduction towards employer s contribution paid can be claimed by assessee. Explanation to cl. (va) of s. 36 of IT Act further makes it very clear that amount actually paid by assessee on or before due date applicable in this case at time of submitting returns of income under s. 139 of Act to Revenue in respect of previous year can be claimed by assessee for deduction out of their gross income. abovesaid statutory provisions of IT Act abundantly make it clear that contention urged on behalf of Revenue that deduction from out of gross income for payment of tax at time of submission of returns under s. 139 is permissible only if statutory liability of payment of PF or other contribution funds referred to in cl. (b) are paid within due date under respective statutory enactments by assessee as contended by learned counsel for Revenue is not tenable in law and therefore same cannot be accepted by us. learned counsel, Sri Parthasarathy and Departmental Representative Kishna, appearing for respondents, also drew our attention to deletion of second proviso to s. 43B of IT Act by Finance Act, 2003 which provision has come into force w.e.f. 1st April, 2004. reliance placed upon decision of apex Court in Allied Motors (P) Ltd. vs. CIT and also on decision in General Finance Co. vs. CIT, in respect of applicability of s. 43B(b) and also omission of cl. (a) or (c) or (d) or (f), referred to above occurred in first proviso to s. 43B, supports case of assessee and also relevant paras extracted from Allied Motor s case and para 59 referred to supra in this judgment from Finance Bill with all fours support case of assessee/respondents. Therefore, we have to answer substantial question of law No. 1 framed by this Court in these appeals at instance of Revenue against them viz. in negative. Accordingly, we answer substantial question No. 1 framed in these appeals in negative. It is crystal clear from detailed discussion made by Hon ble Karnataka High Court that both employer and employees contribution was considered for allowing as deduction if paid before last date of filing return considered for allowing as deduction if paid before last date of filing return under s. 139(1). Undisputedly, in instant case also, actual payment was before last date of filing return. Respectfully following decision of Hon ble Karnataka High Court, we are inclined to agree with learned Authorised Representative that orders of lower authorities deserve to be reversed. Accordingly, we allow appeal in favour of assessee." In present case since it is seen that payments were made before due date of filing return of income, payment by assessee is allowable as such. We accordingly delete disallowance of aforesaid sum for both years. Thus, it is crystal clear from detailed discussion made by Hon ble Karnataka High Court which is followed by this Tribunal in ITA No. 1654/Del/2007, dt. 20th March, 2008 that employees contribution was considered for allowing as deduction if paid before last date of filing return under s. 139(1) and no distinction has been made with regard to allowing same if payment is made before last date of filing return. Undisputedly, in instant case both employer s and employees contributions were not paid in some of cases before statutory dates defined under respective Acts, but actual payment was made before last date of filing return under s. 139(1) of Act. In circumstances, respectfully following decision of Hon ble Karnataka High Court in case of Sabari Enterprises referred to supra and decision of this Tribunal in ITA No. 1654/Del/2007, dt. 27th March, 2008 in case of Kuber Hinges (P) Ltd. (supra), AO is directed to allow claim of deduction of PF and ESI as made by assessee. It may be mentioned here that no decision to contrary has been brought to our attention on this issue. In circumstances, appeal of assessee is allowed. In result, appeal in ITA No. 5500/Del/2003 filed by assessee for asst. yr. 2000-01 is allowed, appeal in ITA No. 408/Del/2004 filed by Revenue for asst. yr. 2000-01 is dismissed and appeal filed by assessee in ITA No. 3361/Del/2004 for asst. yr. 2001-02 is allowed. *** SUNIL GOEL v. ASSISTANT COMMISSIONER OF INCOME TAX