COMMISSIONER OF INCOME TAX -II vs. KIRI DYES AND CHEMICALS PVT. LTD.

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TAXAP/1506/2010HC GujaratGJHC24027384201026 December 2013Author: HONOURABLE MR. JUSTICE M.R. SHAH,HONOURABLE MR. JUSTICE R.P.DHOLARIA7 pages
AI SummaryPartly Allowed

What did the High Court hold?

The High Court addressed two substantial questions of law. Regarding the first question, concerning the disallowance of Rs.26,256/- for employees' contribution to PF & ESI, the Court held in favour of the revenue and against the assessee. This decision was based on the Division Bench's ruling in Commissioner of Income Tax II Vs. Gujarat State Road Transport Corporation (Tax Appeal No.637 of 2013), which held that deduction under Section 36(1)(va) for employees' contribution to PF/ESI is allowable only if such sums are credited to the employees' account in the relevant fund on or before the due date as per the explanation to Section 36(1)(va). Consequently, the ITAT's deletion of the disallowance was quashed and set aside, and the AO's disallowance was restored. For the second question, concerning the computation of profit under Section 80HHC for DEPB credit, the Court held in favour of the assessee and against the revenue. This was based on the Supreme Court's decision in Topman Exports Vs. Commissioner of Income Tax (342 ITR 49 SC). The appeal was partly allowed to this extent.

What were the facts?

The assessee, Kiri Dyes and Chemicals Pvt. Ltd., filed its return of income for Assessment Year 2001-02 declaring NIL income, but paid tax on book profit of Rs.95,06,969/- under Section 115JB. The Assessing Officer (AO) disallowed Rs.26,256/- for delayed employees' contribution to PF & ESI and Rs.34,439/- for delayed employer's contribution. The AO also denied deduction under Section 80HHC concerning DEPB credit. The CIT(A) partly allowed the assessee's appeal, confirming the disallowance of Rs.26,256/- and the issue of DEPB credit. The Income Tax Appellate Tribunal (ITAT) deleted the disallowance of Rs.26,256/- and restored the DEPB credit issue to the AO, holding that 90% of DEPB profits should be excluded for Section 80HHC computation, not the total amount received. The Revenue has appealed this ITAT order.

What were the issues?

1. Whether the Appellate Tribunal is right in law and on facts in deleting the disallowance of Rs.26,256/- being employees' contribution towards PF & ESI? (Question of law) 2. Whether the Appellate Tribunal was right in holding that while computing the profit of the business under Explanation (bba) of Section 80HHC, 90% of the profits on transfer of DEPB should be excluded, not the total amount received by the assessee on the transfer of DEPB credit? (Question of law) Assessee's contentions: For issue 1: Not recorded. For issue 2: The issue is covered against the revenue by the Supreme Court decision in Topman Exports Vs. Commissioner of Income Tax. Revenue's contentions: For issue 1: The issue is not res integra in view of the Division Bench decision of this Court in Tax Appeal No.637 of 2013 and allied matters, which held that if employees' contribution to PF/ESI is not deposited by the due date under Section 36(1)(va), deduction is not allowable. Deleting the second proviso to Section 43B and amendment in the first proviso to Section 43B do not affect the explanation to Section 36(1)(va). For issue 2: Not recorded.

Which sections of the Income-tax Act were involved?

Section 115JB,Section 80HHC,Section 36(1)(va),Section 43B,Section 2(24)(x)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
O/TAXAP/1506/2010 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 1506 of 2010 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE M.R. SHAH Sd/- and HONOURABLE MR.JUSTICE R.P.DHOLARIA Sd/- ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ COMMISSIONER OF INCOME TAX -II....Appellant(s) Versus KIRI DYES AND CHEMICALS PVT. LTD.....Opponent(s) ================================================================ Appearance: MRS MAUNA M BHATT, ADVOCATE for the Appellant(s) No. 1 MR BS SOPARKAR, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE R.P.DHOLARIA Date : 26/12/2013

ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) 1. 00. Feeling aggrieved and dissatisfied with the impugned judgement and order dated 23/12/2009 passed by the learned Income Tax Appellate Tribunal (hereinafter referred to as “the ITAT” for short) in ITA No.389/Ahd/2005 for AY 2001-02, the revenue has preferred the present Tax Appeal to consider the following substantial question of law :- “(A) Whether the Appellate Tribunal is right in law and on facts in deleting disallowance of Rs.26,256/- being contribution towards employees contribution to PF & ESI? (B) Whether the Appellate Tribunal was right in holding that while computing the profit of the business under Explanation (bba) of section 80HHC, 90% of the profits on transfer of DEPB should be excluded, not the total amount received by the assessee on the transfer of DEPB credit?”

2.00.

That the assessee filed return of Income Tax for the year under consideration declaring total income at Rs.NIL. However, the assessee has paid tax on book profit on Rs.95,06,969/- as provided under section 115JB of the Income Tax Act, 1961. The case was selected for scrutiny. That during the assessment proceedings, the AO made disallowance of payment made to the PF and ESI (employees’ contribution and employer’s contribution) and directed to make addition of Rs.26,256/- in respect of delayed payment to ESI and PF being employees’ contribution and Rs.34,439/- being delayed contribution to ESI and PF relating to employer’s contribution. The AO also denied deduction under section 80HHC of the Act with respect to DEPB credit.

2.01.

Feeling aggrieved and dissatisfied with the order passed by the AO, the assessee preferred an appeal before the CIT(A) and the learned CIT(A) partly allowed the said appeal with respect to employer’s contribution, however, confirmed the disallowance of Rs.26,256 towards employees’ contribution of PF and ESI and also with respect to DEPB credit.

2.02.

Feeling aggrieved and dissatisfied with the order passed by the learned CIT(A), the assessee preferred an appeal before the learned ITAT and by the impugned judgement and order, the learned ITAT has allowed the appeal preferred by the assessee deleting disallowance of Rs.26,256/- being contribution towards employees’ contribution to PF and ESI and restored the matter to the file of the AO with respect to the DEPB credit and held that while computing the profit of the business under explanation (baa) of section 80HHC, 90% of the profits on transfer of DEPB should be excluded and not total amount received by the assessee on transfer of DEPB credit.

2.03.

Feeling aggrieved and dissatisfied with the impugned order passed by the learned ITAT, the revenue has preferred the present Tax Appeal to consider the following substantial questions of law : “(A) Whether the Appellate Tribunal is right in law and on facts in deleting disallowance of Rs.26,256/- being contribution towards employees contribution to PF & ESI? (B) Whether the Appellate Tribunal was right in holding that while computing the profit of the business under Explanation (bba) of section 80HHC, 90% of the profits on transfer of DEPB should be excluded, not the total amount received by the assessee on the transfer of DEPB credit?”

3.00.

Now, so far as Question No.(A) is concerned, Ms.Mauna Bhatt, learned advocate appearing on behalf of the revenue has vehemently submitted that as such the aforesaid issue is now not res-integra in view of decision of the Division Bench of this Court in Tax Appeal No.637 of 2013 and other allied matters. It is submitted that in the aforesaid decision it is held by the Division Bench of this Court that if the amount towards employees’ contribution with respect to PF and ESI is not deposited on or before the due date under the PF / ESI Act as provided under section 36(1)(va) of the Income Tax Act, 1961, the assessee would not be entitled to the deduction. It is submitted that it is specifically held by the Division Bench of this Court in the aforesaid decision that deleting second proviso to section 43B and amendment in first proviso to section 43B would not in any way affect the explanation to section 36(1)(va) of the Act. Therefore, it is requested to allow the present appeal.

Mr.B.S. Soparkar, learned advocate appearing on behalf of the respondent is not in a position to dispute the above.

4.00.

Now, so far as Question No.(B) i.e. Whether the Appellate Tribunal was right in holding that while computing the profit of the business under Explanation (bba) of section 80HHC, 90% of the profits on transfer of DEPB should be excluded, not the total amount received by the assessee on the transfer of DEPB credit, is concerned, Mr.Soparkar, learned advocate appearing on behalf of the respondent – assessee has submitted that the aforesaid issue now squarely covered against the revenue in view of the decision of the Hon'ble Rs.26,256/- being contribution towards employees contribution to PF & ESI, is concerned, now the aforesaid question is (x) of sub-section (24) of section 2 and section 36(1)(va) of the Act, in para 8 the Division Bench of this Court has observed and held as under :

“8. 00. In view of the above and for the reasons stated above, and considering section 3(1)(va) of the Income Tax Act, 1961 read with sub-clause (x) of clause 24 of section 2, it is held that with respect to the sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section (2) applies, the assessee shall be entitled to deduction in computing the income referred to in section 28 with respect to such sum credited by the assessee to the employees’ account in the relevant fund or funds on or before the due date mentioned in explanation to section 36(1)(va). Consequently, it is held that the learned tribunal has erred in deleting respective disallowances being employees’ contribution to PF Account / ESI Account made by the AO as, as such, such sums were not credited by the respective assessee to the employees’ accounts in the relevant fund or funds (in the present case Provident Fund and/or ESI Fund on or before the due date as per the explanation to section 36(1)(va) of the Act i.e. date by which the concerned assessee was required as an employer to credit employees’ contribution to the employees’ account in the Provident Fund under the Provident Fund Act and/or in the ESI Fund under the ESI Act. Consequently, all these appeals are allowed and the impugned judgement and orders passed by the tribunal in deleting the disallowances made by the AO are hereby quashed and set aside and the disallowances of the respective sums with respect to the Provident Fund / ESI Fund made by the AO is hereby restored. With this, all these appeals are allowed.”

5.02.

Applying ration laid down by the Division Bench of this Court in Tax Appeal No.637 of 2013 and other allied matters, Question No.(A) is answered in favour of the revenue and against the assessee.

5.03.

Now, so far as Question No.(B) i.e. Whether the Appellate Tribunal was right in holding that while computing the profit of the business under Explanation (bba) of section 80HHC, 90% of the profits on transfer of DEPB should be excluded, not the total amount received by the assessee on the transfer of DEPB credit, is concerned, the said question is also now not res-integra in view of the decision of the Hon'ble Supreme Court in the case of Topman Exports (supra). Applying the ratio laid down by the Hon'ble Supreme Court in the case of Topman Exports (supra), Question No.(B) is answered against the revenue and in favour of the assessee. Present appeal is partly allowed to the aforesaid extent. (M.R.SHAH, J.) (R.P.DHOLARIA,J.) Rafik

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