BRIG.NARAYAN NAYAK,BHUBANESWAR vs. DCIT, CIRCLE-5(1), BHUBANESWAR

per Section 40(a)(ia) of the Act.

on the grounds filed originally in Form No.36 as well as the additional

ground filed by the assessee subsequently. After hearing both the sides

and perusing the entire material available on record, with regard to

11 ITA No.30/CTK/2017 & ITA No.230/CTK/2019 ground No.1, we find that the AO observed that there is an outstanding

credit balance of Rs.10,02,312/- in his balance sheet. The ld.AR of the

assessee submitted that it was security deposits and it has been taken

from the employees which is below Rs.2000/-. We observe from the

details of the amount that all the amounts are below Rs.20,000/- which

are very low and it has been received from 61 employees out of which

40 employees’ identity cards were produced before the AO. The AO did

not issue any notice either u/s.131 or u/s.133(6) of the Act to any of

the employees. If the AO had any doubt regarding their identity,

creditworthiness and genuineness of the transactions, he could have at

least issued any notice either u/s.131 or u/s.133(6) of the Act to any of

the employees but merely stating that the assessee could not produce

the identity card of the 21 employees and they had no PAN and not

filing their income tax returns, cannot be accepted. It was submitted by

the ld. AR of the assessee that the unsecured loan accepted from

employees is very nominal and that is treated as a security money kept

with the employer and paid back when they left the service. It was also

submitted by the ld. AR of the assessee that the employees’ identity

cards were produced before the AO and the nominal amount collected

from each employees was treated as a security money, therefore, it

cannot be treated as unsecured loan and there is no violation of Section

68 of the Act, 1961. Looking to the facts and circumstances of the case

12 ITA No.30/CTK/2017 & ITA No.230/CTK/2019 as well as considering the submission of the assessee, we direct the AO

to delete the addition made on account of unexplained cash credit.

and gratuity raised in ground Nos.2&3, as per the ld. AR of the assessee,

the employees are working continuously i.e. whole week, then get one

day leave but due to shortage of security and their willingness for

doing works on the holiday, they are entitled for leave encashment

payments if they have done duties on the holiday and/or it was also

provision made, however, employees have not availed the same. It is a

small organization and some of the employees have left out the

organisation after spending sometimes. Generally the employees

engaged in the organisation have kept their money pending with the

organisation and when they go to their villages, they collect all the

money on account of their dues from the organisation at a time. We

found substance on the arguments advanced by the ld.AR that it was

not a leave encashment as per Section 43B of the Act as envisaged. In

the small organization upto some extent they do not follow the strict

rule for leave etc. In respect of gratuity amounting to Rs.6,77,823/-

actually, it was the submission of ld. AR before us that it is in the nature

of compensation paid to employees after leaving to the institution for

some period and there is no complaint against the employees and these

employees worked for goodwill of the assessee company, therefore,

13 ITA No.30/CTK/2017 & ITA No.230/CTK/2019 they are paid a lumpsum amount as a gratuity but due to mistake of the

accountant the wrong nomenclature has been given in the books of

accounts which has subsequently been paid to the employees.

Considering the above, we allow both the grounds of appeal of the

assessee and direct the AO to delete the additions made on account of

leave encashment and gratuity to employees.

provident fund as raised by the assessee in ground No.4&5, we find

that the ld. DR before us relied on the decision of Hon’ble Delhi High

Court in the case of Bharat Hotel Ltd. (supra) and submitted that this

issue should be restored to AO for verification. After hearing both the

sides, perusing the entire materials available on record and the orders

of authorities below, we noticed that the assessee has not deposited the

employees contribution within the due date as specified in that

particular Act. We found substance in the submissions of the ld. DR that

Section 36(1)(va) of the Act deals with the deduction in respect of the

sum received by the assessee from any of his employees to which the

provisions of sub-section 2(24)(x) of the Act applies, provided such

sum is credited by the assessee to the employee’s account in relevant

fund on or before the due date. The ‘due date’ is defined under the

Explanation to section 36(1)(va) of the Act by stating that the due date

referred under the relevant Act and certainly not the due date for filing

14 ITA No.30/CTK/2017 & ITA No.230/CTK/2019 the return. We also found that this very similar issue has also been

decided by this bench of the Tribunal in the case of Milind Gupta, ITA

Nos.382&383/CTK/2017, order dated 27.09.2019, wherein the

Tribunal has restored the issue to the file of AO to examine the

contributions made with reference to the dates when they were

actually made and grant relief to such of claim which qualified for such

relief in terms of prevailing provisions of the Act. However, ld. AR of

the assessee relying on the decision of coordinate bench of the Tribunal

in the case of M/s Industrial Security & Allied Services Pvt. Ltd. (supra).

We have carefully perused the order passed by the Tribunal in above

case wherein the assessee is one of the Director and found that the

Tribunal after considering the submissions of the assessee has restored

the issue to the file of AO for verification as to whether the recipient

has disclosed the amount received from the assessee in her return of

income or not. If he finds that the recipient has disclosed the amount in

her return of income, then no disallowance should be made. The

relevant observations of the Tribunal are as under:-

“16. We have heard the rival submissions, perused the orders of lower authorities and materials available on record. We find that the assessee has paid Rs.3,78,000/- to Smt. Sunanda Nayak towards house rent by cheque. If the recipient of the amount Smt. Sunanda Nayak has disclosed has disclosed the amount received from the assessee in her return of income and paid due tax thereon, in view of the decision of Hon'ble Delhi High Court in the case of CIT vs. Ansal Land Mark Township (P) Ltd., 377 ITR 635 (Del), then, no disallowance in the hands of the assessee is called for. Therefore, we set aside the orders of lower authorities and restore this issue back to the file of the Assessing Officer to verify

15 ITA No.30/CTK/2017 & ITA No.230/CTK/2019 whether the recipient Smt. Sunanda Nayak has disclosed the amount received from the assessee in her return of income or not. If he finds that the recipient has disclosed the amount in her return of income, then no disallowance should be made. With these directions, the issue is restored back to the file of the Assessing Officer to re-adjudicate the issue. Hence, this ground is allowed for statistical purposes.”

Accordingly, the issue in the present appeal is similar to the issue

decided by the Tribunal in the case cited supra. Therefore, we restore

this issue to the file of AO to decide the same as per the case laws

quoted by both the sides. Thus, the ground of appeal of the assessee is

allowed for statistical purposes.

raised in ground No.6, we find that this ground is similar to the ground

decided by us in ground No.5 above, wherein we have restored the

issue to the AO for verification relying on the decision of coordinate

bench of the Tribunal in the case of Milind Gupta (supra). Therefore,

following the same reasoning as stated in ground No.5, we also restore

this issue of addition made on account of ESI contribution to the file of

AO for verification. This ground of appeal of the assessee is allowed for

statistical purposes.

No.7 by the assessee, we find that the coordinate bench of the Tribunal

in the case of Nilamadhab Builders Pvt. Ltd. in ITA No.296/CTK/2018,

order dated 26.11.2019 has restricted the disallowance to 30% on

16 ITA No.30/CTK/2017 & ITA No.230/CTK/2019

account of non-compliance of the TDS, wherein the Tribunal has

observed as under :-

“7. After considering the rival submissions of both the parties and carefully perusing the entire material available on record as well as the case laws cited by the ld. AR of the assessee, we find that the assessee has actually claimed expenses of Rs.35,46,286/- in the profit and loss account as against the addition made by the AO of Rs.39,62,695/-, which has been accepted by the CIT(A) at para 3.2 of the appellate order. On perusal of both assessment and appellate order, it is vivid that the total addition made by the AO includes Rs.4,16,409/- which was not claimed by the assessee as expenditure in its profit and loss account. Therefore, in our considered opinion, the disallowance of Rs.35,46,286/- upheld by the CIT(A) is to be held as 100% disallowance, which has been claimed by the assessee as expenditure in its profit and loss account. However, as per the amendment brought to the Finance Act, 2014 in Section 40(a)(ia) of the Act w.e.f. 01.04.2015, if 100% disallowance made u/s.40(a)(ia) of the Act, that would be restricted to 30% only. Now, the moot question arises before us as to whether the said amendment is having the retrospective effect or not. Ld. AR before us submitted that the above proviso inserted in the Act to be a curative one having retrospective effect and the assessee is entitled the benefit of 30% disallowance as against 100% disallowance made by the AO and confirmed by the CIT(A). In this regard, he placed reliance on the decision rendered by the Gauhati Bench of the Tribunal in case of Tripura State Electricity Corporation Ltd. (supra), wherein it is held as under :- “6. Mr. Goenka vehemently submits during the course of hearing that both the lower authorities have erred in disallowing assessee's impugned expenditure claim(s) on account of non- deduction of TDS. His case is that the assessee had not availed any technical services from its payees. The fact remains that this taxpayer has not tendered any details of the actual nature of expenditure. We therefore find no reason to disagree with the lower authorities' conclusion quoting assessee's failure in filing the relevant details. Coupled with this, the fact also remains that the legislature has itself amended Section 40(a)(ia) vide the Finance Act, 2014 w.e.f. 01.04.2015 restricting a disallowance made u/s 40(a)(ia) from 100% to 30% only. This tribunal's order in ITA No. 767/Kol/2016 Dipak Parui vs. JCIT decided on 20.07.2018 holds the above proviso inserted in the Act to be a curative one having retrospective effect. We therefore, direct the Assessing Officer to restrict the impugned disallowance to the extent of 30% only. Necessary computation to follow. This first substantive ground is taken as partly accepted in foregoing terms.”

17 ITA No.30/CTK/2017 & ITA No.230/CTK/2019

Similarly, the Kolkata Bench of the Tribunal in the case of Dipak Parui (supra), wherein it has been held that the amendment w.e.f. 01.04.2015 to be retrospective effect being curative nature and observed as under:-

“5. Latter issue before us is that of correctness of section 40 (a)(ia) disallowance of Rs.1.79,800/- out of assessee's total claim of Rs.,3,05,364/-. His only argument before us is that section 40(a)(ia) as amended by Finance Act 2014 w.e.f. 01.04.2015 prescribing such disallowance to be restricted to 30% only than the entire amount of Rs.1,79,800/-; applies with retrospective effect. Learned Departmental Representative vehemently opposes this legal plea. He pleads that the said proviso does not carry any retrospective effect. We find no force in Revenue's instant arguments as a coordinate bench of this tribunal in Shri Rajendra Yadav in ITA No.895/JP/2012 decided on 29.01.2016 already concludes the above amendment w.e.f. 01.04.2015 to be retrospective effect being curative in nature. We therefore direct the Assessing Officer to restrict the impugned disallowance to 30% only to be followed by necessary ITA No.767/Kol/2016 Dipak Parui A.Y.2011-12 3 computation as per law. This latter substantive ground is treated as partly accepted in above terms.”

Further, the Delhi Bench of the Tribunal in the case of Smt. Kanta Yadav (supra) while considering the similar issue has held as under :-

“6. We have considered rival submissions and find that issue is covered in favour of the assessee by order of ITAT Jaipur Bench in the case of Shri Rajendra Yadav vs. ITO and Smt. Sonu Khandelwal vs. ITO. In these orders it was held that the disallowance u/s 40(a)(ia) to be restricted to 30% of the addition. In these orders the Tribunal has considered the amended provisions of section 40(a)(ia) of I.T. Act. In these orders the assessment year's involve was 2007-08 and 2008-09. In ITA No. 6312/Del/2016 Smt. Kanta Yadav vs. ITO the present appeal the assessment year is 2012-13. Therefore facts are identical. In this view of the matter and following the above decisions of Jaipur Bench, we set aside and modify the orders of the authorities below and direct the Assessing Officer to restrict the addition to 30% of the total addition made on account of deduction of TDS u/s 40(a)(ia) of the Act.”

18 ITA No.30/CTK/2017 & ITA No.230/CTK/2019

93 taxmann.com 51 (SC), while deciding the issue as to whether amendment made by Finance Act, 2010, to provisions of section 40(a)(ia) is curative in nature and it should be given retrospective operation from date of insertion of said provision i.e. with effect from assessment year 2005-06, has held as under :-

“The purpose for bringing said amendment is to ensure tax compliance. The fact that the intention of the legislature was not to punish the assessee is further reflected from a bare reading of the provisions of section 40(a)(ia). It only results in shifting of the year in which the expenditure can be claimed as deduction. In a case where the tax deducted at source was duly deposited with the Government within the prescribed time, the said amount can be claimed as a deduction from the income in the previous year in which the TDS was deducted. However, when the amount deducted in the form of TDS was deposited with the Government after the expiry of period allowed for such deposit then the deductions can be claimed for such deposited TDS amount only in the previous year in which such payment was made to the government. [Para 16]”

19 ITA No.30/CTK/2017 & ITA No.230/CTK/2019

Respectfully following the above observations of the Tribunal, we

direct the AO to restrict the disallowance made u/s.40(a)(ia) of the Act

on account of non-compliance of TDS to 30%. This ground of appeal of

the assessee is partly allowed.

20 ITA No.30/CTK/2017 & ITA No.230/CTK/2019 20. Thus, the appeal of the assessee in ITA No.30/CTK/2017 is partly

allowed for statistical purposes.

No.230/CTK/2019, wherein the sole issued involved is with regard to

levy of penalty u/s.271(1)(c) of the Act.

on the decision of Hon’ble Karnataka High Court in the case of

Manjunatha Cotton & Ginning Factory, 359 ITR 565 (Kar) submitted

that the AO issued notice u/s.274 r.w.s.271(1)(c) of the Act on

31.10.2017, wherein both the allegations have been noted and the AO

has not shown any clear indication to the assessee that on which

allegation he intends to impose penalty u/s.271(1)(c) of the Act. Ld. AR

contended that even in the assessment order there is no iota that on

which allegation the AO intends to impose the penalty on the assessee

either on the allegation on concealment of income or on the allegation

of furnishing inaccurate particulars of income. Therefore, on both the

counts penalty imposed by the AO u/s.271(1)(c) of the Act and

confirmed by the CIT(A) cannot be held as sustainable.

authorities and submitted that the assessee has not declared the

income received from consultancy fees and income from other sources

in her return of income furnished before the date of search which

21 ITA No.30/CTK/2017 & ITA No.230/CTK/2019 means the assessee has concealed his income and, therefore, attracts

penalty u/s.271(1)(c) of the Act.

perusing the entire material available on record as well as orders of

lower authorities, we found that the penalties have levied by the AO on

the addition made on account of leave encashment paid to the

employees and addition made u/s.68 of the Act, which we have deleted

the same while deciding the quantum appeal of the assessee. When the

quantum addition upon which the AO has imposed the penalty have

been deleted by us, therefore, the levy of penalty on the above two

additions has no legs to stand and accordingly, we delete the same.

No.230/CTK/2019.

of the present appeals were concluded on 25.02.2020, however, this

order is being pronounced much after the expiry of 90 days from the

date of conclusion of hearing. We find that Rule 34(5) of the Income

tax Appellate Tribunal Rules, 1962, which envisages the procedure for

pronouncement orders, provides as follows:

34(5) The pronouncement may be in any of the following manners: - (a) The Bench may pronounce the order immediately upon the conclusion of hearing.

22 ITA No.30/CTK/2017 & ITA No.230/CTK/2019 (b) in case where the order is not pronounced immediately on the conclusion of the hearing, the Bench shall give a date of pronouncement. (c) In a case where no date of pronouncement is given by the Bench, every endeavour shall be made by the Bench to pronounce the order within 60 days from the date on which the hearing of the case was concluded but, where it is not practicable so to do on the ground of exceptional and extraordinary circumstances of the case, the Bench shall fix a future day for pronouncement of the order, and such date shall not ordinarily be a day beyond a further period of 30 days and due notice of the day so fixed shall be given on the notice board.

As such, “ordinarily”, the order on an appeal should be pronounced by

the Bench within no more than 90 days from the date of concluding the

hearing. It is, however, important to note that the expression

“ordinarily” has been used in the said rule itself. This rule was inserted

as a result of directions of Hon’ble High Court in the case of Shivsagar

Veg Restaurant vs ACIT (2009) 319 ITR 433 (Bom), wherein, it was,

inter alia, observed as under:

“We, therefore, direct the President of the Appellate Tribunal to frame and lay down the guidelines in the similar lines as are laid down by the Apex Court in the case of Anil Rai (supra) and to issue appropriate administrative directions to all the benches of the Tribunal in that behalf. We hope and trust that suitable guidelines shall be framed and issued by the President of the Appellate Tribunal within shortest reasonable time and followed strictly by all the Benches of the Tribunal. In the meanwhile (emphasis, by underlining, supplied by us now),all the revisional and appellate authorities under the Income-tax Act are directed to decide matters heard by them within a period of three months from the date case is closed for judgment”.

In the rules so framed, as a result of these directions, the expression

“ordinarily” has been inserted in the requirement to pronounce the

order within a period of 90days. The question then arises whether the

23 ITA No.30/CTK/2017 & ITA No.230/CTK/2019 passing of this order, beyond ninety days, was necessitated by any

“extraordinary” circumstances.

coordinate Bench of the Tribunal viz; ITAT, Mumbai ‘F’ Bench in DCIT,

Central Circle-3(2), Mumbai vs JSW Limited & ors (ITA

No.6264/Mum/18 dated 14.5.2020, wherein, it was observed as under:

“ 9. Let us in this light revert to the prevailing situation in the country. On 24th March,2020, Hon’ble Prime Minister of India took the bold step of imposing a nationwide lockdown, for 21 days, to prevent the spread of Covid 19 epidemic, and this lockdown was extended from time to time. As a matter of fact, even before this formal nationwide lockdown, the functioning of the Income Tax Appellate Tribunal at Mumbai was severely restricted on account of lockdown by the Maharashtra Government, and on account of strict enforcement of health advisories with a view of checking spread of Covid 19. The epidemic situation in Mumbai being grave, there was not much of a relaxation in subsequent lockdowns also. In any case, there was unprecedented disruption of judicial wok all over the country. As a matter of fact, it has been such an unprecedented situation, causing disruption in the functioning of judicial machinery, that Hon’ble Supreme Court of India, in an unprecedented order in the history of India and vide order dated 6.5.2020 read with order dated 23.3.2020, extended the limitation to exclude not only this lockdown period but also a few more days prior to, and after, the lockdown by observing that “In case the limitation has expired after 15.03.2020 then the period from 15.03.2020 till the date on which the lockdown is lifted in the jurisdictional area where the dispute lies or where the cause of action arises shall be extended for a period of 15 days after the lifting of lockdown”. Hon’ble Bombay High Court, in an order dated 15th April 2020, has, besides extending the validity of all interim orders, has also observed that, “It is also clarified that while calculating time for disposal of matters made time-bound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly”, and also observed that “arrangement continued by an order dated 26th March 2020 till 30th April 2020 shall continue further till 15th June 2020”. It has been an unprecedented situation not only in India but all over the world. Government of India has, vide notification dated 19th February 2020, taken the stand that, the corona virus “should be considered a case of natural calamity and FMC (i.e. force majeure clause) maybe invoked, wherever considered appropriate, following the due procedure...”. The term ‘force majeure’ has been defined in Black’s Law Dictionary, as ‘an event or effect that can be

24 ITA No.30/CTK/2017 & ITA No.230/CTK/2019

neither anticipated nor controlled’ When such is the position, and it is officially so notified by the Government of India and the Covid-19 epidemic has been notified as a disaster under the National Disaster Management Act, 2005, and also in the light of the discussions above, the period during which lockdown was in force can be anything but an “ordinary” period.

Bombay High Court and the Tribunal, we are of the considered view

that the period during which the lockdown was in force shall stand

excluded for the purpose of working out the time limit for

25 ITA No.30/CTK/2017 & ITA No.230/CTK/2019 pronouncement of orders, as envisaged in Rule 34(5) of the Appellate

Tribunal Rules, 1963.”

statistical purposes and ITA No.230/CTK/2019 is allowed.

Order pronounced in the open court on 05/06/ 2020. Sd/- Sd/- (C.M.GARG) (L.P.SAHU) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER कटक Cuttack; ददनांक Dated 05/06/2020 Prakash Kumar Mishra, Sr.P.S. आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : अऩीलाथी / The Appellant- 1. Brig. Narayan Nayak, Prop: M/s Industrial Security & Allied Services, F3-F5, ID Market, IRC Village, Nayapalli, Bhubanesar-751015 प्रत्यथी / The Respondent- 2. DCIT, Circle-5(1), Bhubaneswar आयकि आयुक्त(अऩील) / The CIT(A), 3. आयकि आयुक्त / CIT 4. ववभागीय प्रनतननधध, आयकि अऩीलीय अधधकिण, कटक / DR, ITAT, 5. Cuttack गार्ा पाईल / Guard file. 6. सत्यावऩत प्रनत //True Copy// आदेशािुसार/ BY ORDER, (Senior Private Secretary) आयकर अपीऱीय अधिकरण, कटक/ITAT, Cuttack