ICOMM TELE LIMITED,HYDERABAD vs. DCIT, CIRCLE-2(1), HYDERABAD

Facts of the case, in brief, are that the assessee is a company engaged in the business of manufacturing and sale of Telecom/Electrical Towers. It filed its return of income for the impugned A.Y on 30.11.2014 admitting current year loss of Rs.23,64,70,514/- under the normal provisions and admitted book loss of Rs.84,58,26,995/- under MAT provisions. The case was selected for scrutiny through CASS and statutory notices u/s 143(2) & 142(1) of the Act were issued to the assessee in response to which the AR of the assessee appeared before the Assessing Officer from time to time and filed the relevant details. The Assessing Officer completed the assessment u/s 143(3) on 29.12.2016 wherein he apart from other additions made addition of Rs.1,13,11,663/- on a/c of delayed payment of Employees’ contribution to PF & ESI by observing as under: “4.1. From the above, it is clear that the employee's contribution of PF are covered u/s.36(1) (va) of the Act but not by section 43B of the Act. In view of the above the belated payment/ not paid payment of employee contribution to PF and ESI account of Rs.1,68,27,755/- is disallowed u/s. 36(1)(va) of the IT Act, 196. However, assessee vide his computation of income has added back the PF & ESI disallowance in respect of employee contribution of Rs. 55.16.092/-. Therefore the balance of Rs. 1,13,11,663/- is disallowed and added to the income of the assessee. Addition : Rs. 1,13,11,663/-“.

In appeal, the learned CIT (A) NFAC sustained the addition of Rs.1,13,11,663/- made by the Assessing Officer by observing as under: “7.2. I have perused the facts of the case with reference to the Tax audit report. the return of income, the assessment order and the submissions of the appellant. As per Column 20(b) of the Tax audit report (Form No.3CD), the appellant has collected monthly contribution from the salaries of employees towards PF/ ESI aggregating to Rs.1.68.27.755/- but has not deposited the same into the respective PF/ ESI accounts within the due dates prescribed under the PF/ ESI Acts Page 2 of 10

In the result, the appeal of the appellant is Partly Allowed”.

Aggrieved with such order of the learned CIT (A) the assessee is in appeal before the Tribunal.

We have heard the rival arguments made by both the sides and perused the record. A perusal of the record shows that out of the total delayed payment of Rs.1,68,27,755/- which is disallowable u/s 36(1)(va) of the I.T. Act, 1961, the Assessing Officer has already given credit of Rs.55,16,092/- which the assessee had suo moto disallowed in the computation of income. The Assessing Officer has only disallowed Rs.1,13,11,663/- which has been sustained by the CIT (A) NFAC, the reasons of which have already been reproduced in the preceding paragraph. A perusal of the details filed before the Assessing Officer and the CIT (A) NFAC clearly shows that the assessee has not made deposit of Employees’ contribution to PF & ESI amounting to Rs.1,13,11,663/- before the statutory due date under the said Act. We find the issue stands decided against the assessee by the decision of the Hon'ble Supreme Court in the case of Checkmate Services (P) Ltd vs. CIT (2022) 448 ITR 518 wherein the Hon'ble Supreme Court has categorically held that the employees’ contribution to PF and ESI to the extent it is not paid within due date prescribed under the PF Act, is not allowable u/s.36(1)(va) of the Act. The Hon’ble Supreme Court has also admittedly held that the provisions of section 43B would not apply to the provisions of section 36(1)(va) of the Act in respect of employees’ contribution to PF & ESI. Respectfully following the decision of Hon’ble Supreme Court in the case of Checkmate Services Pvt Ltd(supra), we are of the view that the delayed payment in respect of employees contribution to PF and ESI is not allowable. Since the issue stands decided against the assessee by the decision of the Hon'ble Supreme Court, therefore, the grounds raised

He issued a detailed questionnaire asking the assessee to furnish all the bills/vouchers for his verification in respect of the above expenditure alongwith ledger a/c copies. Inspite of giving several opportunities, the assessee failed to furnish the bills/vouchers or ledger a/c copies to establish that these expenses are incurred wholly and exclusively for the purposes of business. The Assessing Officer, therefore, considering the nature of the business and in the interest of revenue disallowed an amount of Rs.1,12,51,266/- on estimate basis being 10% of such expenditure.

In appeal, the learned CIT (A) NFAC granted part relief to the assessee by excluding the excise duty of Rs.4,17,70,010/- and sales tax paid of Rs.2,23,957/- from other expenses of Rs.6,29,15,604/- and accordingly directed the Assessing Officer to recompute the deduction by observing as under: “10.1 have given a thoughtful consideration on the impugned disallowance. observed that the other expenses of Rs.6,29,15,604/- [item no.(x) above ] includes excise duty paid of Rs.4,17,70,010/- and sates tax paid of Rs.2,23,957/-. These two payments are clearly not disallowable unless they were incurred in the prior year(s) and deduction was also claimed thereof in the prior year(s). The AO is, therefore, directed to verify the claim from the tax audit report [Form No.3CD] as to the period of incurrence and payment of the said two expenditure and allow the appellant's claim to the extent admissible u/s 43B and/ or u/s 37(1) of the Act. 10.2 For the remaining items of expenditure mentioned in item nos. (i) to (ix) above and also balance expenditure from item no.(x) after excluding excise duty/ sales tax, it is observed that the quantum of expenses under each item is pretty big and these expenses have substantial impact in the incurring of overall loss computed by the appellant for the tax purposes. The AO had issued statutory notices calling for the details like bills, vouchers, ledger accounts, etc. for verification of the appellant's claim with regard to the quantum of such expenses as well as the genuineness of such claim. It has been fairly admitted by the appellant that the requisitioned details were not furnished before the A0. At the appellate stage, the appellant has now filed these details as fresh evidences without giving any appropriate reasons for its inability to furnish the details before the AO even after they were requisitioned by the AO. It is well settled that as per rule 46A of the Income-tax Rules, 1962, the appellant is precluded from furnishing such fresh evidences before the CIT(A) unless he proves that the case is covered under any of the four clauses a)to (d) of sub-rule (1) of rule 46A. It is not a case at all that the AO had refused to admit such evidence and the fact reveals that the AO had, in fact, requisitioned these details but not furnished before him. The appellant has not shown any sufficient cause which had prevented it from producing these details before the AO. The appellant has also not made out a case which may indicate that sufficient opportunity was not afforded to it by the AO during the assessment proceedings. In such backdrop, the appellant has not fulfilled the ingredients of rule 46A for the purpose of presenting the aforesaid fresh/ additional evidences at the present appellate stage. In this view of the matter, I find no good and sufficient reasons to admit such fresh/ additional evidences at this stage whose admission, in view of the Page 7 of 10

The learned Counsel for the assessee at the time of hearing submitted that the Assessing Officer has asked for all the bills and vouchers along with ledger a/c which are not produced before him due to voluminous bills and vouchers which were required to be filed during the then prevailing pandemic period. He submitted that the accounts of the assessee are audited and all vouchers item wise are maintained and given an opportunity, the assessee is in a position to substantiate with evidence to the satisfaction of the Assessing Officer regarding the nature and purpose of the expenses. He accordingly submitted that he has no objection if the matter is restored to the file of the Assessing Officer with a direction to give an opportunity to the assessee to submit all the bills and vouchers.

The learned DR, on the other hand, strongly supported the order of the learned CIT (A) NFAC and submitted that despite number of opportunities granted by the Assessing Officer, the assessee failed to produce the relevant bills and vouchers for which the Assessing Officer has very reasonably disallowed 10% of such expenses. After considering the nature of expenses the Assessing Officer has already excluded an amount of Rs.4,19,93,967/- out of other expenses and therefore, the adhoc disallowance is applicable to the expenditure of Rs.7,05,18,698/- which comes to Rs.70,51,870/- which is very reasonable under the facts and circumstances of the case. Page 8 of 10

We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned CIT (A)/NFAC and the paper book filed on behalf of the assessee. We find the Assessing Officer in the instant case made adhoc disallowance of Rs.1,12,51,266/- being 10% of the various expenses debited to the P&L A/c amounting to Rs.11,25,12,665/-. We find the learned CIT (A) NFAC directed the Assessing Officer to exclude the excide duty paid of Rs.4,17,70,010/- and sales tax paid of Rs.2,23,957/- which are included in other expenses of Rs.6,29,15,604/- and sustained the 10% adhoc disallowance on the balance expenditure. It is the submission of the learned Counsel for the assessee that the assessee company maintaining is full records and the books of account are audited and given an opportunity he is in a position to substantiate with evidence to the satisfaction of the Assessing Officer regarding the nature and purpose of each and every expenditure.

In the result, A.Y 2014- 15 is dismissed and for the A.Y 2018-19 is partly allowed for statistical purposes.