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Income Tax Appellate Tribunal, DELHI “F” BENCH: NEW DELHI
Before: SHRI N.K.BILLAIYA & SHRI KUL BHARAT
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “F” BENCH: NEW DELHI
(THROUGH VIDEO CONFERENCING)
BEFORE SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER & SHRI KUL BHARAT, JUDICIAL MEMBER
ITA No.5968/Del/2017 Assessment Year : 2014-15 Addl. CIT, vs Peregrine Guarding Pvt.Ltd., Special Range-7, RZ-1B, Kapashera Crossing, New Delhi. New Delhi-110037. PAN-AADCP2498P APPELLANT RESPONDENT Appellant by Sh. I P S Bindra, CIT DR Respondent by Sh. Ajay Mangotia, Adv. Date of Hearing 20.10.2021 Date of Pronouncement 24.11.2021
ORDER PER KUL BHARAT, JM : This appeal filed by the Revenue pertaining to assessment year 2014-15
is directed against the order of Ld. CIT(A)-38, Delhi dated 16.06.2017. The
Revenue has raised following grounds of appeal:-
“On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law by deleting the addition/disallowance of Rs. 11,31,26,215/- made by the AO u/s 2(24)(X) r.w.s.36(1)(va) on account of delayed payment of EPF and ESIC, ignoring the clarification issued by the binding Circular No. 22/2015 of CBDT. 2. On the facts and circumstances of the case, Ld. CIT (A) erred in law by deleting the addition/disallowance of Rs. 67,96,840/- on account of Sponsorship Fees for higher education of Director's son u/s 37(1) of the IT Act on the basis of a self serving agreement which does not prove any nexus between the expenses claimed and business purposes of the assessee.
ITA No.5968/Del/2017 Assessment Year : 2014-15
The appellant craves to be allowed to add any fresh ground(s) of appeal and / or delete or amend any of the ground(s) of appeal.”
Facts giving rise to the present appeal are that the assessee company
filed its original return of income on 29.11.2014 declaring income of
Rs.15,46,10,480/-. The case was selected for complete scrutiny assessment.
Thereafter, the Assessing Officer issued requisite notice u/s 143(2) of the
Income Tax Act, 1961 (“the Act”). In response to the notice issued, Ld. AR for
the assessee attended the proceedings. The Assessing Officer during the
course of assessment proceedings recorded that the assessee had debited a
sum of Rs.67,96,840/- as the expenditure on sponsorship fee in respect of Mr.
Angad Rajain, son of one of the Directors of the assessee company pursuing
MBA in USA. The Assessing Officer after considering the submissions of the
assessee disallowed the deduction and made addition of the same to the
income of the assessee. The Assessing Officer also noticed that in respect of
employee’s contribution towards provident fund and ESIC, there was a delay in
depositing the amount. In respect to the query of the Assessing Officer, Ld.
Counsel for the assessee stated that the delay in depositing was unintentional
and the said contribution of Rs. 11,31,26,215/- was deposited before the due
dates of filing of return of income. However, the Assessing Officer did not
accept this explanation of the assessee and proceeded to make additions.
Hence, the Assessing Officer assessed the income at Rs.27,45,33,540/- against
the income of Rs.15,46,10,480/- declared by the assessee.
Aggrieved against this, the assessee preferred appeal before Ld.CIT(A)
who after considering the submissions, partly allowed the appeal. Thereby, Page | 2
ITA No.5968/Del/2017 Assessment Year : 2014-15
Ld.CIT(A) deleted the addition in respect of the payment of EPF and ESIC and
sponsorship fee.
Aggrieved against this, the Revenue is in appeal before this Tribunal.
Ground No.1 raised by the Revenue is against the deletion of addition of
Rs.11,31,26,215/- made by the Assessing Officer in respect of EPF & ESIC
contribution.
Ld.CIT DR supported the order of the Assessing Officer and placed
reliance on the decision of the Hon’ble Delhi High Court rendered in the case
of CIT vs Bharat Hotels Ltd. [2019] 103 Taxmann.com 295 (Delhi). He
submitted that Ld.CIT(A) therefore, was not justified in deleting the addition.
Per contra, Ld. Counsel for the assessee supported the order of Ld.CIT(A)
and submitted that the Hon’ble Jurisdictional High Court in the case of CIT vs
AIMIL Ltd. 321 ITR 508 and also in the case of PCIT vs Pro Interactive Service
(India) Pvt.Ltd. in ITA No.983/2018 [Del.] order dated 10.09.2018 submitted
that in view of the binding precedents, the Assessing Officer was not justified
in making the addition. The Ld.CIT(A) has therefore, rightly deleted the same.
We have heard the rival contentions and perused the material available
on record. The Hon’ble Delhi High Court in the case AIMIL Ltd. (supra) has
held as under:-
“We may only add that if the employees’ contribution is not deposited by the due date prescribed under the relevant Acts and is deposited late, the employer not only pays interest on delayed payment
ITA No.5968/Del/2017 Assessment Year : 2014-15
but can incur penalties also, for which specific provisions are made in the Provident Fund Act as well as the ESI Act. Therefore, the Act permits the employer to make the deposit with some delays, subject to the aforesaid consequences. Insofar as the Income Tax Act is concerned, the assessee can get the benefit if the actual payment is made before the return is filed, as per the principle laid down by the Supreme Court in Vinay Cement (supra).”
It appears that the above decision was not brought to the notice of the
Hon’ble Delhi High Court in the case of Bharat Hotels vs CIT (supra) wherein
the Hon’ble High Court has decided the issue in favour of the Revenue by
observing as under:-
“Having regard to the specific provisions of the Employees‟ 8. Provident Funds Act and ESI Act as well as the concerned notifications which granted a grace period of 5 days (which appears to have been late withdrawn recently on 08.01.2016), we are of the opinion that the ITAT‟s decision in this case was not correct. The assessee undoubtedly was entitled to claim the benefit and properly treat such amounts as having been duly deposited, which were in fact deposited within the period prescribed (i.e. 15 + 5 days in the case of EPF and 21 days + any other grace period in terms of the extent notification). As far as the amounts employees‟ constituting deductions from salaries towards their contributions, which were made beyond such stipulated period, obviously the assessee was not entitled to claim the deduction from its returns.”
However, Hon’ble Delhi High Court in the case of PCIT vs Pro Interactive
Service (India) Pvt.Ltd. in ITA No.983/2018 [Del.] order dated 10.09.2018 held as
under:-
ITA No.5968/Del/2017 Assessment Year : 2014-15
“In view of the judgement of the Division Bench of Delhi High Court in Commissioner of Income Tax versus AIMIL Limited, (2010) 321 ITR 508 (Del.) the issue is covered against the Revenue and, therefore, no substantial question of law arises for consideration in this appeal. The legislative intent was/is to ensure that the amount paid is allowed as an expenditure only when payment is actually made. We do not think that the legislative intent and objective is to treat belated payment of Employee’s Provident Fund (EPD) and Employee’s State Insurance Scheme (ESI) as deemed income of the employer under section 2(23)(x) of the Act.” Respectfully following the same and ratio laid down by the Hon’ble
Jurisdictional High Court in above-mentioned cases, this ground raised by the
Revenue is dismissed.
Now, coming to Ground No.2 raised by the Revenue as aggrieved by the
decision of Ld.CIT(A) for deleting disallowance of Rs.67,96,840/- made on
account of sponsorship fee for higher education of Director’s son u/s 37(1) of
the Act.
Ld. CIT DR vehemently argued that Ld.CIT(A) was not justified in deleting
the disallowance as the assessee has not provided any evidence suggesting that
sponsorship fee of study of the son of the Director was authorized by the Board
and there is no evidence suggesting that after completion of the study of the
son of the Director, worked for the assessee company. In the absence of such
evidences, there was no justification in allowing the expenditure incurred on
the studies of the son of the Director of the company.
ITA No.5968/Del/2017 Assessment Year : 2014-15
On the contrary, Ld. Counsel for the assessee supported the order of
Ld.CIT(A) and submitted that the copy of agreement dated 26.07.2012 was
furnished before Ld.CIT(A). He submitted the studies were sponsored as per the
Agreement and it is allowable expenditure.
We have heard the rival contentions and perused the material available
on record. We find that Ld.CIT(A) has deleted the disallowance by observing as
under:-
4.2. “I have considered the facts of the case, the submissions of appellant and the assessment order. The Ld. Assessing Officer has held that sponsorship fee of Rs.67,96,840/- paid by appellant on account of fees of Mr. Angad Rajain, son of one of the director of appellant for perusing MBA in USA should not be allowed u/s 37(1) of the IT Act, 1961. However, appellant has apart from furnishing copy of agreement dated 26.07.2012 between the appellant and Sh. Angad Rajain and other documents in support of the fact that Sh. Angad Rajain had complied with all the conditions set out in the agreement, also relied on a plethora of judicial pronouncements in support of admissibility of claim of deduction of sponsor fee u/s 37(1) of the IT Act, 1961. Respectfully following the decision of Hon'ble Delhi High Court in the case of M/s Kostub Investments Ltd. vs ACIT in ITA No. 10/2014, the facts of which case are very similar to the facts of the instant case, I hold that the expenditure claimed by appellant to fund the higher education of Sh. Angad Rajain had an intimate and direct connection with its business and that it is therefore, deductible u/s 37(1) of the Act. Therefore, ground of appeal ii is allowed.”
We find that the agreement dated 26.07.2012 was not notarized by the
assessee nor any other supporting evidences suggesting that in pursuance of
the agreement, son of the Director had worked for the company after Page | 6
ITA No.5968/Del/2017 Assessment Year : 2014-15
completing the MBA. In the absence of such evidence, we do not see any
justification for deleting the disallowance by Ld.CIT(A). Under these facts, the
impugned order on this issue is hereby set aside and the issue is restored to
the file of the Assessing Officer to decide it afresh after giving opportunity to
the assessee regarding evidence related to the services rendered by the son of
the Director, namely Mr. Angad Rajain after completing his study. This ground
is allowed for statistical purposes.
Ground No.3 raised by the Revenue is general in nature, needs no
separate adjudication.
In the result, the appeal of the Revenue is partly allowed for statistical
purposes.
Above decision was pronounced on conclusion of Virtual Hearing in the
presence of both the parties on 24th November, 2021.
Sd/- Sd/-
(N.K.BILLAIYA) (KUL BHARAT) ACCOUNTANT MEMBER JUDICIAL MEMBER
*Amit Kumar*