PEREGRINE GUARDING PVT. LTD.,NEW DELHI vs. ADDL. CIT, SPECIAL RANGE- 7, NEW DELHI

PER N.K. CHOUDHRY, J.M.

2.1 The Assessee also challenged the additions under consideration before the ld. Commissioner, who vide para No. 3 of his order, deleted the addition made by the Assessing Officer qua late deposit of EPF/ESIC contribution of employees. Further vide para No. 4 also allowed the expenditure claimed to the tune of Rs.60,93,623/- on account of sponsorship fee paid by the Assessee on account of fees for Mr. Angad Rajain (son of one of the directors) for pursuing MBA in USA u/s. 37(1) of the Act.

“ In the opinion of this Court, the reasoning in the impugned judgment that the nonobstante clause would not in any manner dilute or override the employer’s obligation to deposit the amounts retained by it or deducted by it from the employee’s income, unless the condition that it is deposited on or before the due date, is correct and justified. The non-obstante clause has to be understood in the context of the entire provision of Section 43B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some leeway in that as long as deposits are made beyond the due date, but before the date of filing the return, the deduction is allowed. That, however, cannot apply in the case of amounts which are held in trust, as it is in the case of employees’ contributions- which are deducted from their income. They are not part of the assessee employer’s income, nor are they heads of deduction per se in the form of statutory pay out. They are others’ income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in terms of such welfare enactments. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. If such interpretation were to be adopted, the non-obstante clause under Section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee’s contribution on or before the due date as a condition for deduction.”

4.1 The ld. AR did not refute/controvert the dictum laid down by Hon’ble Apex Court as claimed by the ld. DR, hence, we are inclined to reverse the decision of the ld. Commissioner on the issue under consideration and consequently restore the addition/disallowance made by the Assessing Officer u/s. 24(x) read with section 36(1)(va) to the tune of Rs.8,17,84,664/-. Consequently, Ground No. 1 raised by the Revenue Department stands allowed.

5.1 We observe that the ld. Commissioner thoroughly considered the copy of the Agreement dated 26.07.2012 executed between the Assessee and Shri Angad Rajain, as well as other documents in support of the fact that Shri Angad Rajain had complied with all the conditions set out in the agreement and before coming to the conclusion also perused and relied upon various judgments which have been rendered qua admissibility of claim of deduction of sponsorship fee u/s. 37(1) of the Act specifically by the Hon’ble Delhi High court in the case of M/s. Kostub Investments Ld. vs. ACIT in ITA No. 10/2014.

5.2 We further observe that Hon’ble coordinate Bench vide order dated 24.11.2021 in also dealt with the identical issue and set aside the issue to the file of the ld. Assessing Officer for examining the services rendered by the son of the director after completing studies.

5.3 Considering the peculiar facts and circumstances of the case and the order of the coordinate Bench referred to above, we are also inclined to remit the issue under consideration to the file of the Assessing Officer for examining the facts as whether the son of the director has worked in the company after completing his studies and if the Assessee would be able to substantiate its claim, then the Assessing Officer shall grant appropriate relief qua disallowance as claimed by the Assessee. Needless to say, the Assessee shall be afforded reasonable opportunity of being heard. Consequently Ground no. 2 is allowed for statistical proposes.

We observe that the Assessing Officer during the course of assessment proceedings by observing the facts that the Assessee had made cash payments of expenses exceeding Rs.20,000/-, show caused the Assessee on 14.12.2017 as to why the said expenses made in cash may not be disallowed. The Assessee in response, filed is reply dated 17.12.2018 whereby the Assessee claimed as under :

“The assessee has incurred some expenses in cash for business promotion which are above the limit prescribed u/s 40A(3) of the IT Act, 1961. The assessee is carrying on its business on PAN India basis and its some locations are on very interior site. Hence the assessee gives some lump sum amount to the person incharge of the said location who incurs the petty expenses on food, tea, local conveyance etc. throughout the month. Further to have control on such expenses the assessee has kept the limit of expenses. Hence the person incharge is given only the said restricted amount and he has to manage the expenses within that limit. It is the necessity of business to incur such expenses and hence it has been incurred in the interest of business.

Kindly find the above in order and complete the assessment.”

8.1 The Assessing Officer though considered the reply of the Assessee, however, not found the same as tenable and consequently held that the Assessee has incurred the expenses on account of business promotion in violation of section 40A(3) of the Act as all the payments have been made in cash exceeding Rs.20,000/-. The Assessing Officer consequently disallowed the expenses of Rs.6,66,500/- and added to the income of the Assessee.

However, the ld. Commissioner by considering and reproducing the provisions of section 40A(3) of the Act held that exceptions to the provisions of section 40A(3) of the Act are stated in Rule 6DD of the Rules. The Assessee has not been able to prove that the case lies in these exceptions. Therefore, ground is dismissed. Consequently, the ld. Commissioner upheld the addition made by the Assessing Officer u/s. 40A(3) of the Act.

Order pronounced in the open court on 10/02/2023.