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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR.
Before: SH. SANJAY ARORA & SH. N. K. CHOUDHRY
IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR. BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER AND SH. N. K. CHOUDHRY, JUDICIAL MEMBER I.T.A. Nos. 100 & 101/Asr/2014 Assessment Years: 2007-08 & 2009-10
Jammu and Kashmir Projects Vs. Assessing Officer Construction Corporation Ltd. Ward 1, Srinagar [PAN: AABCJ 2455N] (Appellant) (Respondent)
I.T.A. Nos. 175 & 176/Asr/2014 Assessment Years: 2007-08 & 2009-10
Assistant Commissioner of Vs. J&K Project Construction Income Tax, Circle-3, Srinagar Corporation Ltd., Haft Chinar, Srinagar [PAN: AABCJ 2455N] (Appellant) (Respondent)
Appellant by : Sh. Abdul Rashid Dulloo (C.A.) Respondent by: Sh. Sandeep Chauhan, CIT-DR Date of Hearing: 25.06.2018 Date of Pronouncement: 12.07.2018
ORDER Per Sanjay Arora, AM: These are a set of four Appeals, i.e., cross appeals by the Assessee and the Revenue, for two years, being Assessment Years (AYs.) 2007-08 & 2009-10, in respect of its’ assessments u/s. 143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) for the said years. The same raising common issues, were fixed for
2 ITA Nos. 100,101,175&176/Asr/2014 (AYs 2007-08 & 2009-10) Jammu and Kashmir Projects Construction Corporation Ltd. v. AO hearing and, accordingly, heard together, and are being accordingly disposed of per a common, consolidated order.
Assessee’s Appeals (for AYs 2007-08 & 2009-10) 2. The first ground of the assessee’s appeal for AY 2007-08 challenges the confirmation of disallowance to the extent of Rs.19,43,106/- by the Assessing Officer (AO), made on account of payments in cash in violation of section 40A(3) of the Act. The facts in brief that the assessee was observed to have incurred an expenditure in the sum of Rs.1,79,61,814/- in cash in apparent contravention of section 40A(3) of the Act. The assessee’s claim of the places where the payments in cash were made, which were predominantly as salary to its employees (Rs.160.19 lacs), were not serviced by banks, so that its case would fall within the one of the excepting clauses of rule 6DD (of the Income Tax Rules, 1962) providing for the prescribed circumstances excluding application of the non obstante clause of 40A(3), was rejected on the basis of the rebuttal by the AO, with several branches of different banks, viz. J&K Bank, State Bank of India and other Nationalized Banks, existing at the places mentioned by the assessee. The ld. CIT(A) would upon this, i.e., after issuing a finding that the assessee’s contention with regard to the non-servicing of the relevant places by bank facilities to be factually incorrect and, in fact, misleading, hold as under:
‘The appellant during the course of appellate proceedings made a submission wherein the appellant has accepted that there was technical default in making payments of salary exceeding Rs.20,000/-. The appellant has submitted that the payments of Rs.19,43,106/- being expenses other than salary were paid out of imprest account and no single payments have been made exceeding Rs.20,000/- in cash. However, the appellant could not produce any evidence either during appellate proceedings or remand proceedings to support its claim. Since the appellant stated to have disallowed on its own a sum of Rs.4,62,311 on this account, a relief to this extent is allowed to the appellant. Therefore, this ground of appeal is partly allowed.’
3 ITA Nos. 100,101,175&176/Asr/2014 (AYs 2007-08 & 2009-10) Jammu and Kashmir Projects Construction Corporation Ltd. v. AO We are clearly unable to understand as to how could it be said, on that basis, that the ld. CIT(A) has allowed the assessee’s claim for the balance amount, i.e., Rs.160.19 lacs, for which we find the Revenue to be in appeal per its Gd. 3. The ld. Authorized Representative (AR), the assessee’s counsel, Sh. Abdul Rashid Dulloo, CA, would submit that the relief allowed by the ld. CIT(A) is in respect of the salary to employees, and on the basis that the expenditure is genuine and the payees identifiable. We, however, even as observed by the Bench during hearing, do not find any such finding in the impugned order. Rather, the assessee having itself disallowed Rs.4.62 lacs, the disallowance, even assuming a relief by the ld. CIT(A) qua salary to employees, would be for the difference, i.e., Rs.14.88 lacs (19.43 - 4.62). The ld. AR would also cite some decisions by the Hon'ble Courts, viz., Anupam Teleservices v. ITO [2014] 366 ITR 122 (Guj) and Honey Enterprises v. CIT [2016] 381 ITR 258 (Del) to the effect that where the genuineness of the payment or the identity is the payee is not dispute, section 40A(3) shall not apply. As aforesaid, there is no finding to this effect by the ld. CIT(A). That apart, the said ruling is inconsistent with the clear provision of the Act; the provision being in law applicable only where the genuineness of the expenditure, including its’ payment, is not in doubt, as consistently held by the Amritsar Bench of the Tribunal (in Gurdas Garg v. Asst. CIT (in ITA No. 456/Asr/2013, dated 28/2/2014); Asst. CIT v. Darshan Kumar Mahajan (in ITA No. 566/Asr/2016, dated 18.04.2018); ITO v. Rehmat Traders (in ITA No. 545/Asr/2016, dated 01/6/2018). In fact, the special bench of the tribunal has in ITO v. Kenaram Saha & Subash Saha [2008] 116 ITD 1 (Kol)(SB) relied on a number of decisions by the Hon’ble High Courts across the country to hold that only where the assessee’s case falls under any one of the specified circumstances enumerated u/r. 6DD, would the saving from the rigor of the provision hold; there being no ambiguity in the express
4 ITA Nos. 100,101,175&176/Asr/2014 (AYs 2007-08 & 2009-10) Jammu and Kashmir Projects Construction Corporation Ltd. v. AO language thereof. No decision by the jurisdictional High Court has been brought to our notice. Under the circumstances, we only consider it proper that the matter is restored back to the file of the ld. CIT(A) for a decision on merits in accordance with law after allowing the assessee a reasonable opportunity of being heard. This also decides Ground 3 of the Revenue’s appeal for AY 2007-08. Coming to Gd. 1 of the assessee’s appeal for AY 2009-10, the disallowance stands upheld by the ld. CIT(A), again, on the aspect of serviceability of the banks at the places where the expenditure stands paid. The said finding remains unrebutted. As, however, we have remitted the matter back to the file of the ld. CIT(A) for AY 2007-08, it is only considered proper that, like-wise, it be done for this year so as to ensure consistency of decision at his end; the facts being largely the same. We decide accordingly.
Per its Ground 2 the assessee contests the confirmation of the disallowance in respect of provision for gratuity, at Rs.80,000 and Rs.3,70,015 for AY 2007-08 and 2009-10 respectively. The disallowance for both the years as well as its confirmation, is on the basis of section 40A(7) which bars deduction in respect of provision for gratuity expenditure. The assessee, though admitting the legal position, claims, albeit without any evidence, that the liability in respect of the impugned gratuity had, in fact, crystallized as at the year-end in-as-much as the relevant employee/s had superannuated during the relevant year/s. The assessee’s case, even as confirmed by the ld. AR during hearing, continues to be the same, so that its claim remains wholly unsubstantiated before us as well. Accordingly, we have no hesitation in upholding the impugned disallowance. Needless to add, the assessee shall be entitled to deduction in its respect u/s. 37(1), of course subject to the satisfaction of the AO with regard to the genuineness of the assessee’s claim, in the year of payment/s. We decide accordingly.
5 ITA Nos. 100,101,175&176/Asr/2014 (AYs 2007-08 & 2009-10) Jammu and Kashmir Projects Construction Corporation Ltd. v. AO 4. Ground 3 of the assessee’s appeals are in respect of disallowance of prior period expenses made and confirmed in the sum of Rs.87,12,283/- and Rs.77,77,664/- for AY 2007-08 and AY 2009-10 respectively. The disallowance is made on the basis of the audit report u/s. 142(2A) of the Act. The assessee admittedly following mercantile method of accounting, with each year being an independent unit of assessment, we find no reason not to uphold the impugned disallowance, even as fairly conceded to by the ld. AR during hearing. So, however, we consider it as incumbent upon us to state that while finalizing the assessment for AY 2009-10, prior period expenditure to the extent the same relate to AY 2007-08, subject to his examination and verification, be allowed by the AO. The onus to furnish the relevant details, as well as press any claim/s in its respect, would however be on the assessee. We decide accordingly.
Ground 4 for both the years is in respect of disallowance u/s. 40(a)(ia) , at Rs.596.71 lacs and Rs.670.90 lacs respectively. The disallowance, for both the years, was in fact much higher, with the ld. CIT(A) having allowed deduction to the assessee in respect of the amounts qua which tax deducted at source (TDS) had been deposited by the due date of filing of the return of income u/s. 139(1). The Revenue contests the same (vide Gd. 1 of its appeals) on the ground that the proviso to s. 40(a)(ia), introducing the leverage so as to exclude from the ambit of the statutory disallowance there-under where the payment has been made by the due date of filing the return u/s. 139(1), stands inserted by Finance Act, 2010 w.e.f. AY 2010-11, so that the said amendment, invoked by the ld. CIT(A) without specifically referring thereto, would not obtain for the relevant years.
6 ITA Nos. 100,101,175&176/Asr/2014 (AYs 2007-08 & 2009-10) Jammu and Kashmir Projects Construction Corporation Ltd. v. AO 6. We have heard the parties, and perused the material on record. The ld. CIT(A) has confirmed the disallowance u/s. 40(a)(ia) to the extent there has been non-deduction of tax at source, i.e., after confirming the figures from the AO through the remand proceedings. The assessee before us contests the said confirmation on the ground that the assessee does not stand to gain/benefit from the non-deduction of tax at source in any manner in-as-much as the relevant expenditure, i.e., against which there has been non-deduction of tax at source, stands already incurred in the course of and for the purposes of its business. Further, the disallowance is against a spirit of real income. The claims are not maintainable. Section 40(a)(ia) is a substantive provision, constitutionality of which stands upheld by the Hon'ble Courts. Two, it is trite law that the total income under the Act is to be assessed as per the real income subject to the provisions of the Act (refer, interalia, Poona Electric Supply Co. Ltd. v. CIT [1965] 57 ITR 521 (SC)). So, however, in-as-much as deduction of tax at source is one of the modes of recovery of tax, where (and to the extent) the tax liability on the impugned sum has been discharged by the payee/s, no disallowance u/s. 40(a)(ia) would arise, there can be no double levy of tax on the same sum, even as explained by the Apex Court in Hindustan Coca Cola Beverages Pvt. Ltd. v. CIT [2007] 293 ITR 226 (SC). This in fact is also the sub-stratum of the subsequent amendments to section 40(a)(ia), held by the Hon’ble Courts as retrospective. The burden to prove its claim in this respect, however, would be on the assessee, for which it shall be allowed a reasonable opportunity by the AO. We may also here deliberate on the Revenue’s appeals. The Hon'ble Courts have been consistent in the view that the amendment to section 40(a)(ia) has been introduced with a view to mitigate the hardship being caused to the assessees, and is therefore curative and, thus, retrospective in nature. We therefore do not find
7 ITA Nos. 100,101,175&176/Asr/2014 (AYs 2007-08 & 2009-10) Jammu and Kashmir Projects Construction Corporation Ltd. v. AO anything wrong in the deletion as directed by the ld. CIT(A). We must though add that the AO shall verify that the assessee does not get a double deduction in respect of the amount/s deleted by the ld. CIT(A), i.e., in the year of payment, in-as-much as sec. 40(a)(ia) only introduces a timing difference. The amendment to section 40(a)(ia) being subsequent in time, it may well be that the assessee had, in terms of the provision as it stood for the relevant years, claimed and been allowed deduction for the year/s when the TDS stands deposited to the credit of the Central Government. The onus to satisfy the AO in this regard, i.e., that there is no double deduction qua the amount deleted by the ld. CIT(A), being Rs.744.32 lacs and Rs.1058.44 lacs for AYs 2007-08 and 2009-10 respectively, would be on the assessee. The returns for the respective years having been ostensibly furnished in the following years, i.e., the previous years relevant to AY 2008-09 and AY 2010- 11 respectively, all that is required, for the purpose, is to see if the assessee had made any claim qua the said sum for these years, i.e., with reference to its disallowance for the relevant years. We decide accordingly.
Ground 5 for AY 2007-08 is in respect of confirmation of an addition for Rs.21,750 credited to the suspense account, so that the same was inferred by the AO as an unexplained liability and, accordingly, added as income. The same stood confirmed on the same basis. No improvement in its case stands effected before us, with the ld. AR in fact conceding to the impugned addition. We accordingly confirm the same. The subject matter of the assessee’s Gd. 6 for AY 2009-10 being the same, the same stands also confirmed at the impugned amount of Rs.27,100. We may though add that the latter sum of Rs.27,100 should not include – in whole or in part, the former sum of Rs.21,750, else, to that extent, it would be a case of a double addition. We say so as it could well be that the excess credit as on
8 ITA Nos. 100,101,175&176/Asr/2014 (AYs 2007-08 & 2009-10) Jammu and Kashmir Projects Construction Corporation Ltd. v. AO 31.03.2007 continues to obtain (to whatever extent) as on 31.03.2009 as well, in which case it would amount to a double addition. The onus however to show that it is so would be on the assessee. We decide accordingly.
Ground 6 for AY 2007-08 is in respect of confirmation of an addition for Rs.4,04,540/-. The facts in brief are that the assessee’s creditors, at Rs.85.49 cr. as on 31.03.2007, worked to 179% of its purchases (at Rs.48.05 cr.) for the relevant year. This was quite clearly an absurdly high figure, implying that the assessee’s entire purchases were made at an average credit period of 21.5 months. The same were accordingly added. In appeal, it was explained that of the sum of Rs.85.99 cr. outstanding at the year-end, Rs.66.10 cr. represented the opening balance from the earlier years. Of the balance Rs.19.89 cr., Rs.19.85 cr. represented provisions in respect of bills payable, salary payable, etc., leaving a balance of Rs.4.05 lacs, which was accordingly confirmed as unexplained credit. Very clearly, the assessee has no explanation for this sum, which represents neither an opening balance nor a provision was during the year. The confirmation of the addition to this extent is accordingly confirmed. We may though add that our said adjudication may not be in any manner construed as being in agreement with the deletion of Rs.66.10 cr., being the opening credit balance deleted by the ld. CIT(A). This is as without doubt the burden to establish that a credit/s, though arising in an earlier period, continues to outstand as at the year-end (31.03.2007), so that it indeed represents an existing liability thereat, is on the assessee. The Revenues is however not in appeal, so that our said observation shall have no impact, apart from clarifying the scope of our decision; the matter being primarily factual. We decide accordingly.
Ground 7 for both the years is in respect of confirmation of addition in respect of interest on FDRs, worked at Rs.256.62 lacs and Rs.432.72 lacs for the
9 ITA Nos. 100,101,175&176/Asr/2014 (AYs 2007-08 & 2009-10) Jammu and Kashmir Projects Construction Corporation Ltd. v. AO two successive years respectively. The assessee admittedly following mercantile method of accounting, which it, being a corporate entity, is even otherwise obliged to under the Companies Act, was found to have not accounted for the interest accrued on fixed deposit receipts (FDRs) and cash deposit receipts (CDRs) maintained by it with its bank i.e., J&K Bank. The assessee failing to furnish the relevant details, the AO estimated the interest accrued for the relevant years on the basis of the average amount outstanding (on the basis of the monthly balance) for the two years under reference. Information u/s. 133(6) was sought from the bank with regard to the interest rates obtaining during the relevant period, and which informed the same to be at 4.5% p.a., (for deposits with maturity from 15 days to 45 days) and at 9.5% p.a., (with maturity period ranging from 46 days to 1 year). He, accordingly, applied an average rate of 8% per annum and computed the interest accrued on FDRs/CDRs accordingly. The same stood confirmed in appeal, with the assessee making no improvement in its case in the appellant proceedings.
We have heard the parties, and perused the material on record. The assessee is maintaining its accounts, disclosing business income, on mercantile basis. Section 145 obliges an assessee to maintain books either on cash or mercantile basis, so that hybrid system of accounting is impermissible w.e.f. AY 1997-98. The assessee has, we are sorry to state, at no stage, i.e., during the audit u/s. 142(2A); the assessment proceedings; the remand proceedings – the ld. CIT(A) calling for a remand report on quite a few issues, as well as in the appellate proceedings, made any effort to call for the relevant details, i.e., the interest accrued on its different FDRs as outstanding as at the relevant/s year-end. The Revenue is under the circumstances constrained to make an estimate of the interest accrued, and which is in our view quite reasonable as, clearly, the maturity period
10 ITA Nos. 100,101,175&176/Asr/2014 (AYs 2007-08 & 2009-10) Jammu and Kashmir Projects Construction Corporation Ltd. v. AO is apparently beyond 45 days. This is as a maturity period of upto 45 days yield a turnover much higher (i.e., at 8 times the average holding) than that obtains. We therefore have little hesitation in confirming the said addition. Our concern though is with regard to the non-allowance of the credit for TDS there-against in-as-much as bank, also following mercantile method of accounting, would, again, upon credit of interest to the assessee’s account, deduct tax at source. Not only therefore would the amount of interest gets crystallized, precluding the need for making an estimation, the assessee is also entitled to credit for tax deducted at source thereon. Our second area of concern is the double addition which may arise. This is as the interest would stand credited to the income account on receipt. Though the AO has taken care to deduct the interest credited in accounts for the relevant years, the interest accrued for f.y. 2006-07 and f.y. 2008- 09 (corresponding to AYs. 2007-08 and 2009-10) may stand receive and, accordingly, credited in accounts during f.y. 2007-08 (AY 2008-09) or f.y. 2009- 10 and beyond (i.e., AY 2010-11 and/or subsequent years). The matter accordingly is restored back to the file of the AO to allow the assessee an opportunity to present its case in this regard, even as, we may clarify, that in principle we find no infirmity in the Revenues’ claim or the addition as made by the AO. We decide accordingly.
The eighth; the last and ninth ground being general in nature warranting no adjudication, for AY 2007-08, is in respect of confirmation of the disallowance of depreciation at Rs.83825. The audit report u/s. 142(2A) carried a disqualification in that the bills for addition to fixed assets were not produced for verification. Further, that the depreciation had been charged in excess by Rs.1500. The AO accordingly called upon the assessee to produce the bills for the additions to the fixed assets during the year (to machinery and furniture and fixture). The same
11 ITA Nos. 100,101,175&176/Asr/2014 (AYs 2007-08 & 2009-10) Jammu and Kashmir Projects Construction Corporation Ltd. v. AO being not produced, he worked out the depreciation as per the relevant provision at Rs.82,325 and, accordingly, made a disallowance for 83,825 (Rs.82325+1500). The same stood confirmed in appeal in the absence of any improvement in its case by the assessee. The position continues to be the same before us. Accordingly, we have no hesitation in confirming the same. We decide accordingly.
The eight ground of appeal for AY 2009-10 is in respect of disallowance of claim for service-tax at Rs.3,25,000. On the basis of the details of service tax collected by the assessee’s different units from piece workers, and that remitted to the account of the Central Government, it was found that there was an excess collection by Rs.3.25 lacs. This was also confirmed on the basis of the assessee’s liability to service tax, for which though no systematic record was found to be maintained by it. The same was accordingly disallowed and, further, confirmed in appeal in the absence of the assessee furnishing any evidence of payment thereof, so that section 43B would operate to bar the allowance of the unremitted amount (sec.43B). Again, there is no improvement in the assessee’s case before us. Even assuming a liability (to service-tax), in-as-much as there is no systematic record with regard thereto, which though could be readily ascertained from the service tax returns as filed with the concerned department, being unpaid, s. 43B(a) would bar the allowance of the unpaid amount. So, however, we find that the Revenue authorities have drawn the presumption of non-payment on the basis of non- production of the relevant challans. Even if the same are not forthcoming, if there is no outstanding liability to service tax, as otherwise there would be a demand raised by the concerned Department, and the assessee’s accounts reflect the payment thereof, the presumption would be that the same has been paid. And therefore, could be allowed on that basis. The AO could verify the payment/s – with reference to the date/s of payment, from the concerned department. The
12 ITA Nos. 100,101,175&176/Asr/2014 (AYs 2007-08 & 2009-10) Jammu and Kashmir Projects Construction Corporation Ltd. v. AO position, we may though clarify, would be different where the excess service tax stands collected, and credited to the income account, in which case there is admittedly no question of payment thereof, so that the same stands rightly accounted as income. The burden to prove its claim/s, it may be clarified, would be on the assessee, and which it may do at the time of the AO giving appeal effect to this order, for which he shall allow the assessee a reasonable opportunity. We decide accordingly.
This leaves us with Gds. 5 & 9 of the assessee’s appeal for AY 2009-10. Gd. 5 is also the subject matter of the Revenue’s Gd. 2 before us for both the years, discussed and adjudicated vide para 15 of this order, so that the said para may be referred to. Gd. 9 is a general ground warranting no adjudication. The same was in fact not argued at the time of hearing.
Revenue’s Appeals (for AY 2007-08 & 2009-10) 14. The first ground of the Revenue’s appeal for both the years is with regard to the relief allowed by the ld. CIT(A) qua the disallowance u/s. 40(a)(ia). The same is on the basis that the tax deducted at source stands paid by the due date of filing of the return u/s. 139(1). The issues stand already deliberated and decided in assessee’s favour, while adjudicating Gd. 4 of the assessee’s appeal for the relevant years (refer paras 5 & 6 of this order). We decide accordingly.
The second ground of the Revenue’s appeal for both the years is with regard to the deletion of the disallowance u/s. 40(a)(ia) on the short deduction of tax at source. The basis of the Revenue’s disallowance is that there has been no deduction of tax at source to that extent. The assessee’s case, and which found favour with the ld. CIT(A), is that it is a case of short deduction, i.e., with reference to the entire amount liable for deduction of tax at source, arising on
13 ITA Nos. 100,101,175&176/Asr/2014 (AYs 2007-08 & 2009-10) Jammu and Kashmir Projects Construction Corporation Ltd. v. AO account of a bona fide confusion with regard to the rate of deduction, so that the same could not be construed as non-deduction on the balance amount. We may clarify the dichotomy by way of an example. The assessee deducts tax on a sum of Rs. 1000 (say) at 3% (say). The correct rate for TDS is, however, 5% (say). While the Revenue states that there has been no deduction on Rs.40; the tax deducted (Rs.30) being relatable to the principal sum of Rs.600, the assessee states that it has deducted tax on Rs.1000 at the rate of 3% (Rs.30). The matter in our view is factual. If the assessee can show that there has been a short deduction of tax at source, i.e., at the rate of 3%, no disallowance u/s. 40(a)(ia) is called for in-as- much as the tax deducted at source is on the entire sum of Rs.1000. At the same time, the same cannot be allowed to be used as a bogey, so that an actual non- deduction, i.e., in the absence of any confusion, is sought to be impressed with the character of a short deduction, as where there has been no deduction (on Rs. 400, going by our example). The orders by the authorities are silent on this aspect. What, for example is the nature of the confusion, i.e., the different sections under which the tax was actually deducted, and ought to have been. Further, the assessee’s accounts and TDS returns would itself bear this out. The ld. CIT(A) has, however, issued a finding of it being a case of short deduction. No contradicting material, contesting the same, has been brought on record or to our notice by the ld. CIT-DR. We, accordingly, going by the finding by the ld. CIT(A), which therefore remains unrebutted, confirm the deletion. We decide accordingly.
The third ground of the Revenue’s appeal for AY 2007-08 in respect of deletion of the disallowance u/s. 40A(3). The said issue being also the subject- matter of the assessee’s appeal (vide Gd. 1) stands decided along with, with we having restored back the same to the file of the first appellate authority for an adjudication on merits (refer para 2 of this order). We decide accordingly.
14 ITA Nos. 100,101,175&176/Asr/2014 (AYs 2007-08 & 2009-10) Jammu and Kashmir Projects Construction Corporation Ltd. v. AO 17. The fourth and third ground of the Revenue’s appeals for the two successive years respectively is in respect of deletion of disallowance in respect of the employee’s share to Employee Provident Fund, effected u/s.36(1)(va) r/w s. 2(24)(x) of the Act. While the disallowance was made on account of the same having been deposited outside the time limit prescribed by the relevant Act, as the Employees Provident Fund Act, i.e., in terms of the relevant section (s. 36(1)(va)), its deletion has been directed on the basis that the relevant amounts have been deposited to the account of the concerned employee/s by the due date of filing the return of income u/s. 139(1), i.e., with reference to section 43B. We find a conflict of judicial opinion in the matter. The Hon'ble Gujarat High Court in CIT v. Gujarat State Road Transport Corporation [2014] 366 ITR 170 (Guj) has held that the deduction in respect of the employees’ contribution to the EPF and other employee welfare funds (to be deposited by the employer after deducting the same from the employee’s emoluments, and which deduction is deemed as his income u/s. 2(24)(x)) is regulated by section 36(1)(va), providing for its deduction subject to payment within the time prescribed under the relevant Act, or rules framed thereunder. And that the same has no interface with section 43B, which concerns the employer’s contribution to the provident or other employee welfare funds (i.e., as an employer, in addition to the employee’s contracted remuneration). The other High Courts, viz. Delhi, Uttarakhand, Bombay, Punjab & Haryana & Rajasthan, have expressed a contrary view, holding that section 43B – which allows deduction in respect of the sums specified therein subject to their payment by the due date of filing the return of income u/s. 139(1), would regulate deduction of the employees’ contribution, i.e., besides the employers’ contribution, as well. There is nothing in the language of the relevant provision, i.e., s. 43B, to indicate that the section is applicable to the employee’s
15 ITA Nos. 100,101,175&176/Asr/2014 (AYs 2007-08 & 2009-10) Jammu and Kashmir Projects Construction Corporation Ltd. v. AO contribution as well, deduction in respect of which is, as afore-stated, governed by s. 36(1)(va) r/w s. 2(24)(x). Further, even assuming – for the sake of argument, that sec. 43B is applicable to the employee’s contribution, deduction would yet not ensue where the payment is made beyond the time prescribed under the relevant Act. This is as section 43B, a non obstante provision, becomes applicable only where the deduction is ‘otherwise allowable’, i.e., but for the condition prescribed by section 43B, which is in that sense a disabling provision. The deduction of the employees’ contribution (to the relevant funds) being admittedly governed by section 36(1)(va) r/w s. 2(24)(x), the occasion to travel to sec. 43B would not arise unless the sum under reference, i.e., the employee’s contribution, is deductible under the relevant provision/s, s.36(1)(va) in the present case. Section 36(1)(va) providing for the time limit for payment as prescribed under the relevant Act, which is not made, so that the employee’s contribution is not allowable as deduction, the need for examining the satisfaction of the condition of section 43B would not arise. In other words, s. 36(1)(va) also providing the condition of payment for deductibility and, in fact, more stringent than that stipulated u/s. 43B, the need to travel to the latter would not arise where the condition per s. 36(1)(va) is not met. The said view finds expression in the decisions by the tribunal in Jt. CIT v. ITC Ltd. [2008] 112 ITD 57 (Kol) (SB); ITO v. LKP Securities Ltd. [2013] 36 CCH 93 (Mum), and G.K. Management Services (India) Ltd. (in ITA No. 3316/Mds./2016, dated 31.08.2017). The decision in the case of CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306 (SC), which is followed by different High Courts, claiming the same as covering the issue under reference, is, again, not applicable. The said decision concerns the amendment to section 43B by Finance Act, 2003 w.e.f., 01.04.2004, which the Apex Court has in that case clarified to operate retrospectively. The current year is a later year, to which therefore the
16 ITA Nos. 100,101,175&176/Asr/2014 (AYs 2007-08 & 2009-10) Jammu and Kashmir Projects Construction Corporation Ltd. v. AO amended section 43B only is applicable. We have in any case clarified that s. 43B is not applicable to the employee’s contributions and, further, even assuming it to be so would not in any manner improve the assessee’s case for deductibility where the sum is not deductible u/s. 36(1)(va). Be that as it may, we yet, respectfully following the predominant judicial view in the matter, with there being no decision by the Hon'ble jurisdictional High Court having been brought to a notice, decide the matter adopting the said view. Accordingly, deduction shall be subject to the payment of the impugned sum by the due date of filing of the return u/s. 139(1), which the AO shall verify. We decide accordingly.
The fourth and last ground of the Revenue’s appeal for AY 2009-10 is in respect of the relief allowed qua the disallowance of depreciation on fixed assets. The assessee failing to produce the bills/vouchers in respect of addition to the fixed assets during the year, the AO worked out the depreciation thereon as per the applicable rates and period, at Rs.25,97,261. The assessee having made a claim for depreciation at Rs.120.17 lacs, he effected a disallowance for the balance Rs.94.20 lacs. In appeal, it was clarified by the assessee that the AO’s working fails to take into account the depreciation on the opening value of the different block of assets. The same was worked at Rs.87.96 lacs, so that the ld. CIT(A) allowed relief to the assessee to that extent. We find no infirmity in the impugned order nor was any pointed out to us during hearing. We accordingly confirm the said deletion. We decide accordingly.
17 ITA Nos. 100,101,175&176/Asr/2014 (AYs 2007-08 & 2009-10) Jammu and Kashmir Projects Construction Corporation Ltd. v. AO 19. In the result, the assessee’s appeals are partly allowed, and the Revenues’ appeals are partly allowed for statistical purposes. Order pronounced in the open court on July 12, 2018
Sd/- (Sanjay Arora) Accountant Member
I have perused the order dated 12.07.2018 passed by the Hon’ble Accountant Member although I am in agreement with the conclusion drawn by the Hon’ble Accountant Member, whereby he has partly allowed the assessee’s appeals and the Revenue’s appeals for statistical purposes.
Hon'ble Accountant Member in para No.17 of the order stated above affirmed the deletion of disallowance on account of employees share paid to be deposited to the Employees Provident Funds by giving his own elaboration, however I feel it appropriate to give my own reasoning which is as under:
4th and 3rd grounds of Revenue’s appeals for the two successive years respectively involve the challenge of the deletion of disallowance qua employee's share paid to be deposited to the Employees’ Provident Fund which was deposited beyond the time limit prescribed by the relevant Act i.e. Employees’ Provident Fund Act, which was subjected to disallowance by the Assessing Officer. The said disallowance was deleted by the Ld. CIT(A) on the consideration that the relevant amounts have been deposited in the account of the concern employees by due date of filing of the return of income u/s 139(1).
Majority of the High Courts have already held that amount of employees share, payable to be deposited to Employees’ Provident Fund, if deposited before the due date of filing of the return of income u/s 139(1) of the Income Tax Act then the same cannot be liable for the disallowance.
18 ITA Nos. 100,101,175&176/Asr/2014 (AYs 2007-08 & 2009-10) Jammu and Kashmir Projects Construction Corporation Ltd. v. AO Recently, while considering the judgments of various High Court and Apex Court, the Co-ordinate Bench at Amritsar in the case of ACIT Vs. M/s. Khyber Industreis Pvt. Ltd., Srinagar in Appeal No.395(Asr)/2017 dated 21.06.2018 , justified and affirmed the deletion of the similar disallowance qua employees’ contribution towards ESI Employees. For the sake of convenience and brevity the operative part of the order is reproduced herein below.
“4.3 Ground No.4 relates to the deletion of addition of Rs.30,56,704/- and Rs.4,98,965/- in terms of provision of Sec.36(1)(va) read with Sec.2(24)(x) of the I.T. Act, when the same has not been deposited within the due date as prescribed under the PF Act and the ESI Act. The Ld. CIT(A) while relying upon the order of Ld. CIT(A) in the case of the appellant itself for the A.Y.2011-12, deleted the said addition. Even we realized that jurisdictional High Court in the case of M/s R.M. Exports vs. CIT, Jalandhar in ITA No.115 of 2009 order dated 06.08.2013 held that:
“8. In the present case, the assessee had deposited the amounts under ESI and EPF contributions prior to the filing of the return under Section 139(1) of the Act. Section 43B of the Act was interpreted by this Court vide judgment delivered on 5.9.2006 in Avery Cycle Industries (P) Ltd’s case (supra) and on 7.3.2007 delivered by the Hon’ble Supreme Court in Vinay Cement Ltd’s case (supra). The said decisions were prior in point of time to the decisions of the Tribunal on 5.11.2007 and 23.11.2007. Once that was so, applying the enunciation of law as laid down by the Hon’ble Supreme Court in Saurashtra Kutch Singh Gurbachan 2013.09.11 15:34 I attest to the accuracy and integrity of this document High Court Chandigarh Stock Exchange Ltd’s case (supra), the Tribunal was in error in declining to rectify the mistake which was apparent on the face of the record.”
In the said case decided by the Hon’ble Punjab & Haryana High Court (supra) the issue was related to the delayed deposits of various amounts of employees contributions towards ESI and EPF, which have been deposited before the due date of filing of the return, however, the same were disallowed by the Assessing Officer by holding that the assessee firm is in default for depositing the aforesaid amount beyond the stipulated time period as prescribed under the PF Act and ESI Act,
19 ITA Nos. 100,101,175&176/Asr/2014 (AYs 2007-08 & 2009-10) Jammu and Kashmir Projects Construction Corporation Ltd. v. AO however, the Ld. CIT(A) deleted the addition which was not accepted by the ITAT and ITAT reversed the order of ld. CIT(A) by sustaining the addition made by the Assessing Officer. The action of the ITAT was challenged by the assessee by filing Miscellaneous Application which yielded no result and thereafter the assessee preferred the appeal before the Hon’ble High Court and while relying upon the various judgments it was contended that any contribution made to the provident fund before the filing of the return could not be disallowed u/s 43B(b) of the Act. The said contention of the assessee was accepted by the Hon’ble High Court .
Jurisdictional High Court further in the case of Commissioner Of Income Tax vs M/S Hemla Embroidery Mills (P) Ltd {ITA no. 16 of 2009 decided on 27 November, 2012} while following the case Commissioner of Income Tax v. Alom Extrusions Ltd. [2009] 319 ITR 306 (SC) decided by Apex Court , dealt with the same issue and decided that the assessee was entitled to deduction in respect of employer and employee's contribution to ESI and Provident Fund as the same had been deposited prior to the filing of the return under Section 139 (1) of the Act.
Relevant observation is reproduced herein below :-
Learned counsel for the appellant could not dispute that the issue raised herein finally stands settled by the Apex Court judgment in Commissioner of Income Tax v. Alom Extrusions Ltd. [2009] 319 ITR 306 (SC) and this Court in Income Tax Appeal No. 663 of 2005 (The Commissioner of Income Tax, Patiala v. M/s Rai Agro Industries Ltd. Sangrur), decided on 30.11.2010 wherein it has been held that Second Proviso to Section 43B of the Act omitted by Finance Act, 2003 with effect from 1.4.2004 was clarificatory in nature and was to operate retrospectively. Once that is so, in the present case, the respondent-assessee was entitled to deduction in respect of employer and employee's contribution to ESI and Provident Fund as the same had been deposited prior to the filing of the return under Section 139 (1) of the Act.
In view of the above, the substantial questions of law are answered against the revenue and in favour of the assessee. Consequently, the appeals are dismissed.
Even ITAT Bench at Delhi in the case of ACIT vs. M/s Vipul Facility Management Pvt. Ltd. in ITA No.1020/Del/2012 relevant to the Asst.Year:2008-09 vide order dated 06.09.2012, while dealing with the same and identical issue hold that the employees contribution towards PF paid by the assessee before due date on filing of return u/s 139(1) of the Act for the Asst. Year under consideration is admissible for deduction.
20 ITA Nos. 100,101,175&176/Asr/2014 (AYs 2007-08 & 2009-10) Jammu and Kashmir Projects Construction Corporation Ltd. v. AO In view of the decisions of the jurisdictional High Court as well as Co-ordinate Bench of ITAT at Delhi, we do not have any hesitation to upheld the deletion of addition qua contribution of employee's provident fund (PF) on account of employee's contribution towards provident funds as well as under ESI Act.
Respectfully following the dictum in its true spirit, of Apex Court judgment held in Commissioner of Income Tax vs. Alom Extrusions Ltd. [2009] 319 ITR 306 (SC) and mandate of the various High Courts, as well as co-ordinate benches, without going into any further elaboration and discussion on the contrary decisions, I feel it appropriate to follow the majority view by confirming the deletion of the aforesaid disallowance by the Ld. CIT(A).
Resultantly, I affirm the deletion of disallowance on account of employee’s share paid to be deposited to the Employees Provident Fund.
In the result, as I am in concurrence with conclusion and reasoning given in rest part of the order dated 12.07.2018 passed by the Hon’ble Accountant Member, therefore, the assessee’s appeals are partly allowed and those of the Revnue’s are partly allowed for statistical purposes.
Sd/- N. K. Choudhry (Judicial Member)
Date: 12.07.2018 /GP/Sr. Ps. Copy of the order forwarded to: (1) The Appellant: Jammu and Kashmir Projects Construction Corporation Ltd. (2) The Respondent: Assessing Officer Ward 1, Srinagar (3) The CIT(Appeals), Jammu (4) The CIT concerned (5) The Sr. DR, I.T.A.T True Copy
By Order