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Income Tax Appellate Tribunal, “B” BENCH KOLKATA
Before: Shri Sanjay Garg & Dr. Manish Borad
order : March 16, 2023 आदेश / ORDER संजय गग�, �या�यक सद�य �वारा / Per Sanjay Garg, Judicial Member: The present appeal has been preferred by the assessee against the order dated 07.06.2019 of the Commissioner of Income Tax (Appeals)-17, Kolkata [hereinafter referred to as the ‘CIT(A)’] passed u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’). 2. The assessee in this appeal has taken the following grounds of appeal: “1. That the order passed by the Ld. CIT (Appeals)-17, Kolkata u/s 250 confirming the additions and disallowances made by learned assessing officer is wrong in the law and facts of the case.
2. That the Ld. CIT (Appeals) - 17, Kolkata erred in law as well as on facts of the case by confirming the disallowance of Employee's Contribution for Assessment year: 2015-16 M/s Capital Tours (India) Pvt. Ltd ESI and PF Expenses amounting to Rs. 1,07,733/- and addition of the same to the total income of the appellant.
3. That the Ld. CIT (Appeals) - 17, Kolkata erred in law as well as on facts of the case by confirming the disallowance of puja expenses of Rs. 1,48,252/- and addition of the same to the total income of the appellant.
4. That the Ld. CIT(Appeals)- 17, Kolkata erred in law as well as on facts of the case by confirming the disallowance of 10 percent of travelling conveyance expenses amounting Rs.64,210/- based on estimate and thereby making addition to the total income of the appellant.
5. That the Ld. CIT(Appeals)- 17, Kolkata erred in law as well as on facts of the case by confirming the disallowance u/s 14A r/w rule 3D of the I. T. Act, 1961 of Rs 5250/- and addition of the same to the total income of the appellant
6. That the Ld. CIT(Appeals)- 17, Kolkata erred in law as well as on facts of the case by confirming the disallowance of the whole amount of security charges paid of Rs.24,146/- due to non-deduction of TDS instead of 30% as specified in Sec 40(a)(ia) of the Income tax Act, 1961.
7. That the Ld. CIT (Appeals) 17, Kolkata erred in law as well as on facts of the case by confirming the disallowance on estimate basis being 50% of Misc. Expenses of Rs.3,77,039/- amounting to Rs. 1,88,520/- and addition of the same to the total income of the appellant.
8. That the appellant craves to leave, add, or amend any of the grounds during the course of appellant proceedings.” Ground No.1 is general in nature and does not require any 3. adjudication.
4. Ground No.2 is relating to disallowance made by the Assessing Officer on account of late deposit of employee’s contribution to ESI and PF. The ld. counsel for the assessee has fairly admitted that the issue is covered by the decision of the Hon’ble Supreme Court in Chekmate Services Pvt. Ltd. Vs. CIT (2022) 143 taxmann.com 178 (SC) dated 12.10.2022 wherein it has been held that “deduction u/s 36(1)(va) in respect of delayed deposit of amount collected towards employees’ contribution to PF cannot be claimed even though deposited within the due Assessment year: 2015-16 M/s Capital Tours (India) Pvt. Ltd date of filing of return even when read with Section 43B of the Income-tax Act,1961.” Relevant extract of the said judgment is reproduced as under:
“• The deduction made by employers to approved provident fund schemes, is the subject matter of Section 36(1) (iv). It is noteworthy, that this provision was part of the original IT Act; it has largely remained unaltered. On the other hand, Section 36(1)(va) was specifically inserted by the Finance Act, 1987, w.e.f. 01-04- 1988. Through the same amendment, by Section 3(b), Section 2(24) – which defines various kinds of "income" – inserted clause (x). This is a significant amendment, because Parliament intended that amounts not earned by the assessee, but received by it, - whether in the form of deductions, or otherwise, as receipts, were to be treated as income. The inclusion of a class of receipt, i.e., amounts received (or deducted from the employees) were to be part of the employer/assessee's income. Since these amounts were not receipts that belonged to the assessee, but were held by it, as trustees, as it were, Section 36(1)(va) was inserted specifically to ensure that if these receipts were deposited in the EPF/ESI accounts of the employees concerned, they could be treated as deductions. Section 36(1)(va) was hedged with the condition that the amounts/receipts had to be deposited by the employer, with the EPF/ESI, on or before the due date. The last expression "due date" was dealt with in the explanation as the date by which such amounts had to be credited by the employer, in the concerned enactments such as EPF/ESI Acts. Importantly, such a condition (i.e., depositing the amount on or before the due date) has not been enacted in relation to the employer's contribution (i.e., Section 36(1)(iv)). • The significance of this is that Parliament treated contributions under Section 36(1)(va) from those under Section 36(1)(iv). The latter (hereinafter, "employers' contribution") is described as "sum paid by the assessee as an employer by way of contribution towards a recognized provident fund". However, the phraseology of Section 36(1)(va) differs from Section 36(1)(iv). It enacts that "any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date." The essential character of an employees' contribution, i.e., that it is part of the employees' income, held in trust by the employer is underlined by the condition that it has to be deposited on or before the due date. • The differentiation is also evident from the fact that each of these contributions is separately dealt with in different clauses of Section 36 (1). All these establish that Parliament, while introducing Section 36(1)(va) along with Section 2(24)(x), Assessment year: 2015-16 M/s Capital Tours (India) Pvt. Ltd was aware of the distinction between the two types of contributions. There was a statutory classification, under the IT Act, between the two. • There is no doubt that in Alom Extrusions, this court did consider the impact of deletion of second proviso to Section 43B, which mandated that unless the amount of employers' contribution was deposited with the authorities, the deduction otherwise permissible in law, would not be available. This court was of the opinion that the omission was curative, and that as long as the employer deposited the dues, before filing the return of income tax, the deduction was available. A reading of the judgment in Alom Extrusions, would reveal that this court, did not consider Sections 2(24)(x) and 36(1)(va). Furthermore, the separate provisions in Section 36(1) for employers' contribution and employees' contribution, too went unnoticed. • When Parliament introduced Section 43B, what was on the statute book, was only employer's contribution (Section 36(1)(iv)). At that point in time, there was no question of employee's contribution being considered as part of the employer's earning. On the application of the original principles of law it could have been treated only as receipts not amounting to income. When Parliament introduced the amendments in 1988-89, inserting Section 36(1)(va) and simultaneously inserting the second proviso of Section 43B, its intention was not to treat the disparate nature of the amounts, similarly. As discussed previously, the memorandum introducing the Finance Bill clearly stated that the provisions – especially second proviso to Section 43B - was introduced to ensure timely payments were made by the employer to the concerned fund (EPF, ESI, etc.) and avoid the mischief of employers retaining amounts for long periods. That Parliament intended to retain the separate character of these two amounts, is evident from the use of different language. Section 2(24)(x) too, deems amount received from the employees (whether the amount is received from the employee or by way of deduction authorized by the statute) as income - it is the character of the amount that is important, i.e., not income earned. Thus, amounts retained by the employer from out of the employee's income by way of deduction etc. were treated as income in the hands of the employer. The significance of this provision is that on the one hand it brought into the fold of "income" amounts that were receipts or deductions from employees income; at the time, payment within the prescribed time – by way of contribution of the employees' share to their credit with the relevant fund is to be treated as deduction (Section 36(1)(va)). The other important feature is that this distinction between the employers' contribution (Section 36(1)(iv)) and employees' contribution required to be deposited by the employer (Section 36(1)(va)) was maintained - and continues to be maintained. On the other hand, Section 43B covers all deductions that are permissible as expenditures, or out-goings forming part of the assessees' liability. These include liabilities such as tax liability, cess duties etc. or interest liability having regard to the terms of the contract. Thus, timely payment of these alone entitle an assessee Assessment year: 2015-16 M/s Capital Tours (India) Pvt. Ltd to the benefit of deduction from the total income. The essential objective of Section 43B is to ensure that if assessees are following the mercantile method of accounting, nevertheless, the deduction of such liabilities, based only on book entries, would not be given. To pass muster, actual payments were a necessary pre-condition for allowing the expenditure. • The distinction between an employer's contribution which is its primary liability under law – in terms of Section 36(1)(iv), and its liability to deposit amounts received by it or deducted by it (Section 36(1)(va)) is, thus crucial. The former forms part of the employers' income, and the later retains its character as an income (albeit deemed), by virtue of Section 2(24)(x) - unless the conditions spelt by Explanation to Section 36(1)(va) are satisfied i.e., depositing such amount received or deducted from the employee on or before the due date. In other words, there is a marked distinction between the nature and character of the two amounts – the employer's liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the employees' income and held in trust by the employer. This marked distinction has to be borne while interpreting the obligation of every assessee under Section 43B. • The non-obstante clause in section 43B would not in any manner dilute or override the employer's obligation under section 36(1)(va) 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.”
Assessment year: 2015-16 M/s Capital Tours (India) Pvt. Ltd Respectfully following the decision of Hon’ble Supreme Court (supra) which squarely covers the Ground No.2 taken by the assessee is dismissed. Accordingly, Ground No.2 of the assessee is dismissed.
Ground No.3 - Vide Ground No.3, the assessee has contested the disallowance of puja expenses of Rs.1,48,252/-. The ld. counsel for the assessee has explained that the aforesaid expenses on account of puja were incurred for boosting morale of the employees and keeping the employees in good humour so that maximum work output can be achieved. Considering the above submissions that the aforesaid small expenses are relating to the business of the assessee, the aforesaid disallowance made by the Assessing Officer is ordered to be deleted. Ground No.3 of the assessee is allowed.
Ground No.4 – Vide Ground No.4, the assessee has contested the disallowance made by the Assessing Officer of 10% of travelling and conveyance expenses amounting to Rs.64,210/- based on estimation only. It is not the case of the Department that the travelling and conveyance expenses were not incurred for the purpose of business. The Assessing Officer has made adhoc disallowance on percentage basis out of the claim of small amount on account of travel expenses. It is not a case of huge travelling and conveyance expenses, wherein, the Assessing Officer may suspect element of personal expenses. In view of this, we do not find any justification on the part of the Assessing Officer in making the impugned disallowance and the same is ordered to be deleted. Ground No.4 is allowed.
Assessment year: 2015-16 M/s Capital Tours (India) Pvt. Ltd Ground No.5- Vide Ground No.5, the assessee has agitated the 7. disallowance made by the Assessing Officer of Rs.5250/- u/s 14A r.w.r. 8D of the Income Tax Rules.
7.1 The ld. counsel for the assessee has submitted that no exempt income was earned by the assessee during the assessment year under consideration and there is no expenses were made by the assessee in making the investment in question. He in this respect has relied upon the following case laws:
Cheminvest Ltd. vs. CIT 378 ITR 33 (Del). CIT vs. M/s. Holcim India Pvt. Ltd. in and ITA no. 299/2014; Judgment dt. 5-9-2014 CIT v. Shivam Motors (P.) Ltd. [2015] 230 Taxman 63 CIT vs. Ashika Global Securities Ltd. (G.A. No. 2122 of 2014) dt. 11/06/2018 In these case laws, Hon’ble High Courts have been unanimous to hold that where the assessee has not derived any tax exempt income from investments, then no disallowance is attracted u/s 14A of the Act.
7.2 The ld. D/R, however, has relied upon the newly inserted explanations to Section 14A of the Act, which is extracted for the sake of ready reference:- “14A. [(1)] [Notwithstanding anything to the contrary contained in this Act, for the purposes of] computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act.] ************************ *********************** Assessment year: 2015-16 M/s Capital Tours (India) Pvt. Ltd [Explanation.—For the removal of doubts, it is hereby clarified that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where the income, not forming part of the total income under this Act, has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such income not forming part of the total income.]”
The ld. D/R has further relied on the decision of the Co-ordinate Bench of ITAT Guwahati in the case of ACIT vs. Williamson Financial Services Ltd. reported in [2022] 140 taxmann.com 164 (Guwahati - Trib.). (Judicial Member herein being party to the said decision), to submit that the said explanation to Section 14A of the Act is retrospectively applicable. 7.3 However, the ld. A/R, has relied upon the recent decision of the Hon’ble Delhi High Court in the case of PCIT Vs. Era Infrastructure (India) Ltd. (ITA 204/2022) judgment dt. 20/07/2022, wherein, it has been held that the aforesaid explanation inserted to Section 14A of the Act is applicable prospectively. 7.4 Respectfully abiding by the principle of judicial hierarchy, the Hon’ble Delhi High Court being a Higher Court, and as no decision of the Hon’ble Jurisdictional High Court or Hon’ble Supreme Court is available on this issue as yet, hence applying the said decision of the Hon’ble Delhi High Court, we allow ground no.5 of the assessee. Ground No.6 - Vide Ground No.6, the assessee has contested the 8. disallowance made by the Assessing Officer on account of security charges claimed by the assessee due to non-deduction of TDS u/s 40(a)(ia) of the Act. Since the assessee did not give any satisfactory Assessment year: 2015-16 M/s Capital Tours (India) Pvt. Ltd explanation for non-deduction of TDS. Therefore, the Assessing Officer was justified in making the impugned disallowance. So far as the contention of the ld. AR that the disallowance be restricted to 30% of the expenditure in view of amended provision of section 40(a)(ia) of the Act is concerned, the issue is covered by the decision of the Hon’ble Supreme Court in the case of [2020] 118 taxmann.com 47 (SC) Shree Choudhary Transport Company vs. Income Tax Officer, wherein, the Hon’ble Supreme Court has held that the amendment made by the Finance (No.2) Act, 2014, could not be stretched anterior after the date of its substitution so as to reach the assessment year 2005-06. That the amendment by the Finance Act, 2014 was specifically made applicable w.e.f. 01/04/2015 and clearly represents the will of the legislature so as to what is to be deducted or what percentage of deduction is not to be allowed for a particular eventuality, for assessment year 2015-16. That the principles adopted by the Hon’ble Supreme Court in the case of Commissioner of Income-tax, Kolkata v. Calcutta Export Company [2018] 93 taxmann.com 51 (SC) dealing with curative amendment brought by the Finance Act, 2010, relating more to the procedural aspects concerning deposit by TDS, cannot be applied to the amendment of the substantive provisions by Finance Act (No. 2) Act, 2014. In view of this, Ground No.6 of the assessee is accordingly dismissed. Ground No.7 is regarding the disallowance on estimation basis of 9. 50% of miscellaneous expenses amounting to Rs.1,88,520/-. Considering the nature of expenses and smallness of amount, in our view, disallowance of 50% of the misc. expenses is not justified and the same is accordingly ordered to be restricted to 10% of the misc. expenses. This ground is accordingly partly allowed.