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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI V.DURGA RAO & SHRI G.MANJUNATHA
PER G.MANJUNATHA, AM: This appeal filed by the Revenue is directed against the
order passed by the learned CIT(A)-1, Coimbatore dated
02.03.2018 and pertains to assessment year 2013-14.
The Revenue has raised following grounds of appeal:-
“1) The order of the ld. CIT(A), Coimbatore is against the facts and circumstances of the case and is erroneous by law.
2) The learned CIT(A) has erred in law by holding that the advances will not come under the provision of section 2(22)(e) of the Act.
3) The learned CIT(A) erred in law in giving a finding that the advances were made by a company to a sister concern and adjusted the dues for job work done by the sister concern. However, the learned CIT(A) failed to state how the liabilities paid by the assessee company on behalf of the sister concern
ITA No. 1882/Chny/2018
would tantamount to a commercial transaction thereby not attracting the provisions of section 2(22)(e) of the I.TAct. 1961.
4) The learned CIT(A) has erred in law in not considering the following judgements of the Hon’ble Supreme Court:
(a) In Kantilal Manilal Vs. CIT [1961] cited in 41 ITR 275 (SC), the Supreme Court held that section 2(22) deals with various types of cases and creates a fiction by which certain receipts or parts thereof are treated as dividend for the purpose of levy of income-tax.
(b) In Tarulata Shyam vs. CIT [1977] cited in 108 ITR 345 (SC), the Hon’ble Supreme Court held that under section 2(22) the liability to tax attaches to any amount taken as loan by the shareholder from a controlled company to the extent it possesses accumulated profits at the moment the loan is borrowed and it is immaterial whether the loan is repaid before the end of the accounting year or not.
5) The learned CIT(A) erred in law by allowing the assessee’s appeal on the issue of disallowance of belated payment of employee’s contribution of ESI and PF amount by merely relying on the decision rendered by the Hon’ble Supreme Court in the case of Prl.CIT, Jaipur vs. Rajasthan State Beverages Corporation Ltd., cited in [2017] 250 Taxman 16. However, the Hon’ble Supreme Court dismissed the SLP filed by the Department against the order of the Rajasthan High Court (citation: [2017] 84 taxmann.com 173). The Rajasthan High Court while deciding the case in favour of the assessee merely relied on its own decision rendered in the case of CIT v. State Bank of Bikaner & Jaipur cited in [2014] 363 ITR 70/43 taxmann.com 411 and had no occasion to consider the Board’s Circular No.22/2015 dated 17.12.2015. Hence these case laws are not applicable to the present set of facts of the assessee’s case.
6) The learned CIT(A) failed to note that the jurisdictional High Court’s decision in the case of CIT vs. Industrial Security and Intelligence Industries India (Pvt) Ltd that was relied upon by the learned CIT(A) was rendered on 24 July, 2015 which is prior to issue of circular No. 22/2015 dt. 17.12.2015 and the Hon’ble Jurisdictional High Court had no occasion to consider the circular No.22/2015.
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7) For these and other grounds that may be adduced at the time of hearing, the order of the ld. CIT(A), may be cancelled and that of the Assessing Officer be restored.”
Brief facts of the case are that the assessee company is
engaged in the business of contract manufacturing to cater
needs of M/s. Indo Shell Mould Ltd. The assessee has filed its
return of income for assessment year 20013-14 on 30.11.2013
declaring total income of Rs.14,97,870/-. The assessment for
the impugned assessment year was completed u/s.143(3) of
the Income Tax Act, 1961, on 28.03.2016 and determined total
income of Rs.4,96,29,142/- by making additions towards
deemed dividend u/s.2(22)(e) of the I.T. Act, 1961 for
Rs.4,75,00,481/- and disallowance of belated payment of
employees contribution to PF & ESI amounting to
Rs.6,30,791/-. The assessee carried the matter in appeal
before first appellate authority. The learned CIT(A) for the
reasons recorded in his appellate order deleted additions made
by the Assessing Officer towards deemed dividend u/s.2(22)(e)
of the Act and belated payments of PF & ESI u/s.36(1)(va)
r.w.s 43B(b) of the Act. Aggrieved by the learned CIT(A) order,
the revenue is in appeal before us.
4 ITA No. 1882/Chny/2018
The first issue that came up for consideration from
ground No.2 to 4 of revenue appeal is deletion of additions
made towards loans & advances u/s.2(22)(e) of the Income
Tax Act, 1961. The facts with regard to impugned dispute are
that assessee company and M/s. Indo Shell Mould Ltd. are
related concerns. The assessee company has paid a sum of
Rs.4,75,00,481/- towards various expenses including excise
duty and service tax, salaries & wages, TDS payment and
bank charges on behalf of M/s. Indo Shell Mould Ltd. and
debited to their account. The Assessing Officer has treated
debit balance in the name of M/s. Indo Shell Mould Ltd. as
loans & advances by a company to shareholder and invoked
provisions of section 2(22)(e) of the I.T.Act, 1961, and made
additions towards advances in the name of M/s. Indo Shell
Mould Ltd. as deemed dividend u/s.2(22)(e) of the Act.
The learned DR submitted that the learned CIT(A) has
erred in deleting additions made by the Assessing Officer
towards advances u/s.2(22)(e) of the Act, without appreciating
fact that liabilities paid by the assessee company on behalf of
sister concern would tantamount to loans or advances, which
5 ITA No. 1882/Chny/2018
attracts provisions of section 2(22)(e) of the Act. The DR further
referring to the decision of Hon'ble Supreme Court in the case
of Kantilal Manilal Vs.CIT (1961) 41 ITR 275 and the decision of
Tarulata Shyam vs.CIT (1977) 108 ITR 345 submitted that
amount taken as loan by shareholder from a controlled
company to the extent it possesses accumulated profit comes
under the provisions of section 2(22)(e) of the Act .
The learned AR for the assessee, on the other hand,
strongly supporting order of the learned CIT(A) submitted that
transactions between assessee and M/s. Indo Shell Mould Ltd.
is normal commercial transaction between two related
companies and further, the assessee being contract
manufacturer for M/s. Indo Shell Mould Ltd. in terms of
agreement between the parties dated 25.07.2011 has made
payment of certain expenses on behalf of M/s. Indo Shell
Mould Ltd. and debited to their account. Further, said advance
has been subsequently adjusted against receivables from the
company. Therefore, same cannot be treated as loans or
advances to invoke provisions of section 2(22)(e) of the Act.
The learned AR further submitted that Assessing Officer has
6 ITA No. 1882/Chny/2018
completely erred in invoking provisions of section 2(22)(e) of
the Act, because if at all, said payment is loans or advances,
same needs to be considered in the hands of shareholders or
concern in which shareholder is having beneficial interest, but
same cannot be added in the hands of assessee u/s.2(22)(e) of
the Act. He further submitted that this issue is also covered in
favour of the assessee by the decision of the Tribunal in
assessee’s own case for assessment year 2012-13 in ITA
No.1691 &1973/Chny/2015 dated 03.10.2018.
We have heard both the parties, perused material
available on record and gone through orders of the authorities
below. As per the provisions of section 2(22)(e), any payment
by a company to a shareholder in the nature of loans or
advances is deemed to be dividend, if such shareholder holds
more than 10% beneficiary shareholding in the company. In
order to invoke provisions of section 2(22)(e) of the Act, there
should be a payment by a company to the shareholder in the
nature of loans or advances, then in the hands of shareholder,
said loans or advances shall be deemed to be deemed dividend
to the extent of accumulated profits of the company. In this
7 ITA No. 1882/Chny/2018
case, on perusal of details available on record, we find that the
assessee has paid certain expenses on behalf of M/s. Indo
Shell Mould Ltd. and the same has been adjusted against
receivables from them. If at all, transaction between assessee
and M/s. Indo Shell Mould Ltd. is in the nature of loans or
advances, then same needs to be considered in the hands of
M/s. Indo Shell Mould Ltd. as deemed dividend u/s.2(22)(e) of
the Act. In this case, the Assessing Officer has invoked
provisions of section 2(22)(e) of the Act, in the hands of
company, but not in the hands of shareholder. Therefore, on
this count, additions made by the Assessing Officer cannot be
sustained.
Be that as it may, fact remains that the assessee is
having exclusive contract manufacturing agreement with M/s.
Indo Shell Mould Ltd. As per agreement between the parties
dated 25.07.2011 M/s. Indo Shell Mould Ltd. has paid a sum
of Rs.20 crores as interest free advance for utilizing entire
capacity to fulfill its needs. Since there is a commercial
understanding between the assessee and M/s. Indo Shell
Mould Ltd., the assessee has paid certain expenses of M/s.
8 ITA No. 1882/Chny/2018
Indo Shell Mould Ltd. on their behalf and debited same to the
account of M/s. Indo Shell Mould Ltd. Further, said amount
has been adjusted against receivables from them. From the
above, it is very clear that transaction between the assessee
and M/s. Indo Shell Mould Ltd. is a clear commercial transaction
in the normal course of business of the assessee. Therefore, in
our view, same is outside scope of provisions of section
2(22)(e) of the Act. This view is supported by the decision of
Hon’ble Delhi High Court in the case of CIT vs. Creative Dyeing
& Printing Pvt.Ltd, 318 ITR 476, where it was clearly held that
advances made by a company to a sister concern and adjusted
against dues for job work done by sister company is outside
scope of provisions of section 2(22)(e) of the Act. This legal
position has been accepted by CBDT and issued circular
No.19/2017 dated 12.06.2017 and clarified that trade advances
which are in the nature of commercial transactions would not
fall within the ambit of word ‘advance’ u/s.2(22)(e) of the Act.
Further, this issue is also covered in favour of the assessee by
the decision of the Tribunal in assessee’s own case for
assessment year 2012-13 in ITA No. 1691 & 1973/Chny/2015
dated 03.10.2018, where under identical set of facts and
9 ITA No. 1882/Chny/2018
identical transaction between the assessee and M/s. Indo Shell
Mould Ltd., the Tribunal held that transactions between the
assessee and company are normal commercial transaction,
which is outside scope of provisions of section 2(22)(e) of the
Act. Therefore, considering facts and circumstances of the
case and consistent with a view taken by the co-ordinate
Bench, we are of the considered view that there is no error in
the reasons given by the learned CIT(A) to delete additions
made by the Assessing Officer towards deemed dividend
under section 2(22)(e) of the Act. Hence, we are inclined to
uphold findings of the learned CIT(A) and reject ground taken
by the revenue.
The next issue that came up for our consideration from
ground no.5 & 6 of revenue appeal is additions towards belated
payment of employees contribution of PF & ESI u/s.36(1)(va)
r.w.s 43B(b) of the I.T Act, 1961.
The learned A.R for the assessee submitted that this
issue is squarely covered in favour of the assessee by the
decision of the Hon'ble Jurisdictional High Court of Madras in
the case of CIT Vs. M/s. Industrial Security & Intelligence India
10 ITA No. 1882/Chny/2018
Pvt. Ltd. in TCA. Nos.585 and 586 of 2015 dated 24.7.2015,
where it was categorically held that employees contribution
towards PF & ESI after due date under respective Act, but
before due date of filing of return of income under Income Tax
Act is allowable as deduction.
The learned DR fairly agreed that this issue is covered by
the decision of the Hon'ble Jurisdictional High Court in the case
of CIT Vs. M/s. Industrial Security & Intelligence India Pvt. Ltd
(supra). However, he strongly supported order of the Assessing
Officer in light of circular No.22 of 2015 dated 17.12.2015 and
submitted that decision of the Hon’ble High Court of Madras is
prior to issue of circular issued by CBDT and the Hon’ble High
Court has no occasion to consider same and therefore, he
submitted that issue is not squarely covered in favor of the
assessee by the decision of the Hon’ble High Court of Madras
and hence, there is no merit in the arguments of the assessee
that issue is squarely covered in favour of the assessee.
We have heard both the parties, perused material
available on record and gone through orders of the authorities
below. The issue of deduction towards belated payment of
11 ITA No. 1882/Chny/2018
employees contribution to PF & ESI is no longer res integra.
The various High Courts including the Hon'ble High Court of
Madras in the case of CIT Vs. M/s. Industrial Security &
Intelligence India Pvt. Ltd., in TCA No.585 & 586 of 2015 dated
24.07.2015 had considered an identical issue and held that
belated payment of employees contribution to PF & ESI, after
due date as prescribed in relevant Act, but before due date of
filing return of income u/s.139(1) of the Income Tax Act, 1961
is allowable as deduction. This legal position has been
reiterated by several High Courts including the Hon’ble
Karnataka High Court in the case of M/s.Essae Teraoka
Pvt.Ltd. Vs. DCIT (246 CTR 286) and the Hon’ble Rajasthan
High Court in the case of CIT vs. State Bank of Bikaner &
Jaipur (2014) 363 ITR 70 and the Hon’ble Bombay High Court
in the case of CIT vs. Nipso Fabriks Ltd. (350 ITR 327).
Further, the Hon'ble Supreme Court in the case of CIT vs.
Rajasthan State Beverages Corporation Ltd. (2017) 250
Taxmann 16 has considered an identical issue while dismissing
SLP filed by the Revenue and held that amount claimed on
payment of PF & ESI having been deposited on or before due
date of filing of returns, same could not be disallowed u/s.43B
12 ITA No. 1882/Chny/2018
or u/s.36(1)(va) of the Act. Insofar as circular No.22/2015
dated 17.12.2015 issued by the CBDT, we find that it has
clarified allowabiity of employer’s contribution to funds for
welfare of the employees in terms of section 43B(b) of the Act
and therefore, not relevant for considering employees
contribution to the funds. Therefore, we are of the considered
view that the Assessing Officer has erred in disallowing
belated payment of employees contribution to PF & ESI
u/s.36(1)(va) of the Act. The learned CIT(A), after considering
relevant facts, has rightly deleted additions made by the
Assessing Officer. Therefore, we are inclined to uphold findings
of the learned CIT(A) and reject ground taken by the revenue. In the result, appeal filed by revenue is dismissed. 13.
Order pronounced in the open court on 8th September, 2021
Sd/- Sd/- ( वी. दुगा� राव ) ( जी. मंजुनाथ ) (V.Durga Rao) ( G.Manjunatha ) $या�यक सद&य /Judicial Member लेखा सद&य / Accountant Member चे$नई/Chennai, )दनांक/Dated 8th September, 2021 DS आदेश क� ��त+ल,प अ-े,षत/Copy to: 1. Appellant 2. Respondent 3. आयकर आयु.त (अपील)/CIT(A) 4. आयकर आयु.त/CIT 5. ,वभागीय ��त�न2ध/DR 6. गाड� फाईल/GF.