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Income Tax Appellate Tribunal, HYDERABAD BENCH “B”, HYDERABAD
Before: SMT P. MADHAVI DEVI & SHRI S. RIFAUR RAHMAN
PER S. RIFAUR RAHMAN, A.M.:
This appeal filed by the assessee is directed against the order dated 31st May, 2017 of CIT – 1, Hyderabad, passed u/s 263 of the Act, for AY 2013-14.
Briefly the facts of the case are, assessee company, engaged in the business of manpower supply services, e-filed its return of income on 30/09/2013 admitting total income at Rs. 10,78,110/-, which was processed u/s 143(1) of the Income-tax Act, 1961 (in short ‘the Act’) on 01/08/2014. Subsequently, the case was selected for scrutiny under CASS and notices u/s 142(1) and 143(2) were issued. In response to the notices, the assessee furnished the information as called for.
2 ITA No. 1044/Hyd/17 M/s Adroit Management Consultants (P) Ltd.. 2.1 On examination of the information provided by the assessee, the AO noticed from the profit and loss account that the assessee had shown gross receipts at Rs. 13,83,97,691/-. However as per the 26AS statement, the gross receipts were Rs. 14,55,21,239/- and the difference amount was Rs. 71,23,548/-. When questioned for the difference amount, the AR had explained that an amount of Rs. 69,85,664/- pertains to service tax components which was supported by the service tax returns. With regard to the balance gross receipts of rs. 1,37,884/-, the AR could not submit any evidence, hence, the difference amount of Rs. 1,37,884/- was added to the total income of the assessee, which was agreed by the AR of the assessee.
On perusal of assessment record by exercising the powers vested u/s 263 of the Act, the Pr. CIT found that the assessee remitted employees’ contribution to PF & ESI aggregating to Rs. 48,59,869/- belatedly. According to the CIT, the said amount was not added back by the assessee in the computation of total income nor did the AO examine this aspect or added back the belated payments during the assessment proceedings. Hence, he was of the view that the order passed u/s 143(3) is prima-facie erroneous and prejudicial to the interests of revenue and a show cause notice dated 14/03/2017 was issued to the assessee to explain as to why the assessment so made should not be revised by making disallowance u/s 36(1)(va) of the Act in respect of the above belated payment.
3.1 In compliance to the show cause notice, the assessee vide its reply dated 18/03/2017, inter-alia, stated that though the said amount paid belatedly by a few days, but all the relevant amounts were paid before due date of filing of return of income u/s 139(1) of the Act. Assessee relied on the decision of the Tribunal in the case of Tetra Soft (India) Pvt. Ltd. Vs. ACIT [2015] 40 ITR (Trib) 470.
3 ITA No. 1044/Hyd/17 M/s Adroit Management Consultants (P) Ltd.. 3.2 The Pr. CIT after considering the submissions of the assessee, elaborately discussed the issue with various case law as well as Board Circular No. 22/2015, dated 17/12/2015 and directed to make the addition of Rs. 33,23,058/- u/s 2(24(x) of the Act out of the total belated payments of Rs. 48,59,869/-, as he allowed an amount of Rs. 15,36,811/-, the payments of which were paid within the grace period of five days.
Aggrieved by the order of CIT, the assessee is in appeal before us raising the following grounds: “1. The order of the Administrative Commissioner of Income Tax - 1, Hyderabad is contrary to law, facts & circumstances of the case.
The Principal Commissioner of Income Tax - 1, Hyderabad, ought not to have held that the order passed u/s.143(3) dated 08/03/2016 is erroneous & prejudicial to the interest of revenue.
The Principal Commissioner of Income Tax - I, Hyderabad ought not to have directed the A.O to bring to tax the amount of Rs.33,23,058/- being disallowable u/s.36(1)(va) of the Act.”
Considered the rival submissions and perused the material on record. Similar issue on disallowance of Employees Contribution to PF & EsI came up for consideration before us in the case of Tetrasoft India Pvt. Ltd., in ITA No. 291/Hyd/2017 wherein the coordinate bench has held as under: “7. Considered the rival submissions and perused the orders of revenue authorities as well as material on record. The AO has invoked the provisions of section 36(1)(va) to disallow ESI & PF payments. We have carefully gone through the section 36(1)(va) with section 2(24)(x) and also gone through decision of the Hon’ble High Court of Allahabad in the case of Sagun Foundry (P) Ltd. Vs. CIT, [2017] 78 Taxmann.com 47 (All.) wherein the Hon’ble Court has observed as under: Section 36(1)(va) permits deductions in respect to relevant fund of employees. ■ Section 43B permits deductions otherwise allowable under the Income-tax Act in case any sum payable by the assessee is paid actually before the date of filing of return under section 139 and carves out an exception in this regard.
4 ITA No. 1044/Hyd/17 M/s Adroit Management Consultants (P) Ltd.. ■ Explanation to section 36(1)(va) provides that deduction shall be allowed in respect to the sum paid by the assessee to employee's account, in the relevant fund, on or before due date, i.e., such date by which assessee is required to credit employee's contribution in the relevant fund, under any Act, Rule, Order or Notification issued therein. In the instant case, due date, therefore, shall be the date mentioned in the 1952 Act or 1948 Act or Rules framed thereunder, etc. by which contributions were to be made. Admittedly as per due date under the relevant Acts, contributions were not paid by the assessee. Section 36(1)(va) talks of only employee's contribution and allow deduction in respect thereto in computing 'income' under section 28. ■ So far as section 43B is concerned, it was inserted with effect from 1-4-1984 to allow deductions provided payments are actually made before filing of return as per due date under section 139(1). 'Income' defined under section 2(24) includes 'profits and gains'. Under section 2(24)(x), any sum received by assessee from his employees as contribution to any provident fund/superannuation fund or any fund set up under Employees State Insurance Act, 1948, or any other fund for welfare of such employees, constitute 'income'. In respect to such contributions deduction was allowed under section 36(1)(va) when contributions received by employer is deposited within time prescribed, under relevant labour welfare statute. Prior to 1-4-1984, every assessee was entitled to deduction on mercantile system of accounting as a business expenditure by making provision in his books of account in that regard and this situation continued upto 1-4-1984. An assessee, if maintaining books on accrual system of accounting, even after collecting contribution from his employee, and even without remitting the amount to Regional Provident Fund Commissioner, he would have claimed deduction as 'business expense' by merely making a provision to that effect in his books of account. A similar discrepancy was noticed in the context of sales tax where assessee collected the same and other indirect taxes from his respective customers and claimed deduction only by making provisions in his books without actually remitting the amount to exchequer. To curb thispractice, section 43B was inserted with effect from 1-4-1984, whereby mercantile system of accounting with regard to tax, duty and contributions to welfare funds stood discontinued. Now it became necessary for the assessee to account for the aforestated items, not mercantile basis, but on cash basis. With effect from 1-4- 1988 section 43B was again amended and a Proviso was inserted. It provided, inter alia, in the context of any sum payable by the assessee by way of tax, duty, cess or fee, if such an assessee pays such tax, duty, cess or fee even after closing of accounting year but
5 ITA No. 1044/Hyd/17 M/s Adroit Management Consultants (P) Ltd.. before date of filing of return under section 139(1), assessee would be entitled to deduction under section 43B on actual payment basis and such deduction would be admissible for the accounting year. This proviso, however, was not made applicable to contributions made by the assessee to labour welfare funds. By Finance Act, 1988, with effect from 1-4-1988, Second Proviso came to be inserted. Second Proviso was further amended by Finance Act, 1989 with effect from 1-4-1989. ■ From the above provisions, now assessee becomes entitled to deduction only if contribution stand credited on or before due date, given in labour welfare statutes. However, Second Proviso again created certain difficulties. In many of the companies, financial year ended on 31st March did not coincide with accounting period of labour welfare statutes. In many cases, time to make contribution of funds ended after due date of filing of returns. On the representation of industries, again Parliament, vide Finance Act, 2003, with effect from 1-4-2004, made amendment by deleting Second Proviso and amending First Proviso. ■ The Supreme Court in the case of Alom Extrusions Ltd. (supra) considered the intent, purpose and object in the historical back drop of insertion of section 43B and its progress by way of various amendments and held that when the contribution had been paid by the assessee towards provident fund, etc. prior to filing of return under section 139(1), the assessee would be entitled for deduction under section 43B. [Para 27] ■ From the aforesaid judgment of the Supreme Court, the Bench finds that irrespective of the fact that deduction in respect of sum payable by employer's contribution was involved, but the Court did not restrict observations, findings and declaration of law to that context but looking to the objective and purpose of insertion of section 43B applied it to both the contributions, whether by employer or employee. It also observed clearly that section 43B is with a non obstante clause and, therefore, over ride even if, anything otherwise is contained in section 36 or any provision of the Income-tax Act. ■ In view of the aforesaid, the assessee was entitled to deductions under sections 43B and 36(1)(va). 7.1 After considering the ratio laid down by the Hon’ble High Court as above in the said case and respectfully following the same, we hold that no disallowance can be made towards PF/ESI contributions made by the assessee within the FY or before filing of the return. In the given case, assessee has paid shortfall amount within the FY, hence, the assessee is allowed to claim the above payment as deduction in the same FY. Therefore, the AO is directed to delete the addition made.”
6 ITA No. 1044/Hyd/17 M/s Adroit Management Consultants (P) Ltd.. Respectfully following the above decision as well as considering the fact that the assessee has remitted the employees’ contribution to PF & ESI before the filing of the return u/s 139(1) of the Act, we observe that the AO has allowed the claim of the assessee and not disallowed the contribution which is as per the decision of the jurisdictional ITAT. Accordingly, we set aside the order of CIT passed u/s 263 of the Act and restore the order of AO. Accordingly, the grounds raised by the assessee are allowed.
In the result, appeal of the assessee is allowed. Pronounced in the open Court on 23rd May, 2018.
Sd/- Sd/- (P. MADHAVI DEVI) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated: 23rd May, 2018 kv Copy to:-
1) M/s Adroit Management Consultants Pvt. Ltd., 1-8-32/44/1, Plot No. 45, Bapu Bagh Colony, PG Road, Secunderabad. 2) Pr. CIT – 1, IT Towers, Masab Tank, Hyderabad. 3) Addl. CIT - 1, Hyd. 4) The Departmental Representative, I.T.A.T., Hyderabad. 5) Guard File