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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: HON’BLE SHRI SANDEEP GOSAIN, JM & HON’BLE SHRI N. K. PRADHAN, AM
2 & 1860/Mum/2018 M/s Frigorifico Allana Pvt. Ltd. आदेश / O R D E R Sandeep Gosain, Judicial Member: The present two appeals have been filed by the assessee and revenue are against the order of Commissioner of Income Tax (Appeals)-2, Mumbai dated 19.12.17 for AY 2013-14 respectively.
Since, the facts raised in both the appeals filed by the assessee as well as revenue are identical, therefore for the sake of convenience; they are clubbed, heard and disposed of by this consolidated order.
First of all we take up appeal in AY 2013-14 on the grounds mentioned herein below:- The Commissioner of Income Tax (Appeals) - 2, Mumbai erred:
1. 1. In not adjudicating that no disallowance u/s 14A ought to be done on those investments that have not yielded any income during the year.
2. In not holding that no disallowance u/s 14A ought to be done for long term or strategic investments.
As per the facts of the present case are that assessee is engaged in the business of manufacturing and export of Frozen Foodstuffs, provision of cold storage facilities for frozen foodstuffs and production of polymer bags for exports. The return of income was e-filed by the assessee on 30.11.2013 declaring total income of Rs.2,75,02,95,510/-. The assessment was completed u/s. 143(3) of the I.T Act, 1961 with a disallowance of Rs.34,21,990/- on account of u/s. 14A of the Act, addition u/s.2(24)(x) r.w.s 36(l)(va) of Rs.61,42,479/-, Gifts & compliment expenses of Rs.9,59,081/- and Miscellaneous expenses of Rs.2,21,610/-
Aggrieved by the order of the AO, the assessee preferred appeal before Ld.CIT(A) and Ld. CIT(A) after appreciating the facts of the present case, had partly allowed the appeal of the assessee.
4 & 1860/Mum/2018 M/s Frigorifico Allana Pvt. Ltd. 6. Now before us, the revenue as well as assessee have preferred their respective appeal/ cross objection. Firstly we are dealing with the appeal filed by the assessee.
Ground No. 1 7. This grounds raised by the assessee relates to challenging the order of Ld. CIT(A) in not adjudicating that no disallowance u/s 14A ought to be done on those investments that have not yielded any income during the year.
At the outset, we notice that the assessee has objected to the order of Ld. CIT(A) by submitting that while calculating disallowance u/s 14A of the Act, those investments that have not yielded any income during the year are to be excluded.
After hearing both the parties at length, we find that the Spl. Bench of ITAT in the case of ACIT vrs. Vireet Investments Pvt. Ltd. (2017) 165 ITD 27 taxman.com 415 had held that for computing disallowance only those investments are to be considered for computing average value of investment, which 5 & 1860/Mum/2018 M/s Frigorifico Allana Pvt. Ltd. yielded exempt income during the year. Thus in these circumstances, we restore this ground to the file AO for deciding this ground afresh while considering the directions contained in the decision of Spl. Bench of ITAT in the case of ACIT vrs. Vireet Investments Pvt. Ltd. (2017) 165 ITD 27 taxman.com 415. It is need less to mention that before passing afresh order on this ground, the AO shall provide sufficient opportunity to the assessee. With these directions, the present ground raised by the assessee is allowed for statistical purposes.
Ground No. 2. 10. This ground raised by the assessee is not pressed, therefore this ground becomes infructuous as not pressed.
Consequently, the appeal filed by the assessee stands allowed for statistical purposes.
ITA No. 1860/Mum/2018 for AY 2013-14 12. Now we take up for AY 2013- 14 filed by the revenue on the grounds mentioned herein below:-
6 & 1860/Mum/2018 M/s Frigorifico Allana Pvt. Ltd. 1) "On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in restricting the disallowance made by the AO u/s 14A r.w.Rule 8D of the I.T.Rules, by holding that the disallowance should not exceed the exempt income earned, by ignoring Board Circular No. 5 of 2014 dated 11.02.2014."
2) "On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in deleing disallowance made by the AO u/s 43B of the Act by holding that the employees contribution made to PF & ESIC before filing of return is eligible for deduction, without appreciation the fact the payment made after the due date of the relevant Act, are in contravention to the provisions of sec. 36(1)(va) of the Act."
The appellant craves leave to add to, amend or withdraw the aforesaid ground of appeal.
Ground no. 1 13. We have heard both the counsels on this ground, wherein the revenue has challenged the order of Ld. CIT(A) in restricting the disallowance made by the AO u/s 14A r.w.Rule 8D of the I.T.Rules, by holding that the disallowance should not exceed the exempt income earned, by ignoring Board Circular No. 5 of 2014
7 & 1860/Mum/2018 M/s Frigorifico Allana Pvt. Ltd. dated 11.02.2014. In this respect, we have gone through the judgment of Hon’ble Delhi High Court in the case of Joint Investment Pvt. Ltd (ITA No. 117/2015), wherein it was held that the disallowance u/s 14A of the I.T. Act cannot exceed that the tax exempt income. Thus in the present case also, the situation is identical. The Ld. CIT(A) while relying upon the judgment of Hon’ble Delhi High Court and other judgments as mentioned in its order had rightly conclude that disallowance u/s 14A cannot exceed the tax exempt income. We find no reasons to interfere into the well reasoned judicious finding recorded by Ld. CIT(A). Thus this ground raised by the revenue stands dismissed.
Ground No. 2. 14. This ground raised by the revenue relates to challenging the order of Ld. CIT(A) in deleting disallowance made by the AO u/s 43B of the Act by holding that the employees contribution made to PF & ESIC before filing of return is eligible for deduction.
8 & 1860/Mum/2018 M/s Frigorifico Allana Pvt. Ltd. 15. We have heard counsels for both the parties at length and we have also perused the material placed on record as well as the orders passed by revenue authorities.
Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). Ld. CIT(A) has dealt with this ground in para no. 6.3 to 6.3.4 of its order and the same is reproduced below:- 6.3 The other ground is of disallowance under Section 36(l)(va) of the Income Tax Act, 1961. On perusal of the details of payment of . employee's contribution to Provident Fund, the AO noticed that there is a delay in deposit of the same beyond the due date prescribed u/s.36(l)(va). Such amount according to the opinion of the AO required to be considered as income of the year under the provisions of the section 2(24)(x). Total of such amount is Rs.61,42,479/- as per submission given by assessee. As per submissions made by the appellant before AO, total of payment of employee's contribution to provident Fund which was deposited after some delay considering due date prescribed u/s. 36(l)(va) of Income Tax Act, 1961 is Rs.61,42,479/-. The same is disallowed by AO. 6.3.1 Upon perusal of the facts, contentions of the AO and the appellant, the question emerges as 'whether payments
9 & 1860/Mum/2018 M/s Frigorifico Allana Pvt. Ltd. of employees' contribution to PF made within grace period permissible under relevant law are not and whether the same is covered by provisions of sections 43B and 36(va), respectively or not? Similarly whether deduction in respect of payments of employees' contribution to PF would not be available to. employer, unless employer pays or credits same to account of employees in relevant fund before due date and Whether employer's contribution to PF paid before due date for filing return of income is not hit by section 43B or not? These issues have been further analyzed in the plethora of judgments. 6.3.2 In support of revenue, there are important judicial pronouncements available. The relevant judgment is discussed below: The Hon*ble Gujarat High Court in the case of Gujarat State Road Transport Corporation 41 Taxmann 100 (Guj HC) has clearly distinguished the facts. Further opined that The employees' contribution to the Employees' Provident Fund (EPF)/ Employees' State Insurance Corporation (ESIC) deposited beyond the due date prescribed under section 36(1 )(va) of the Income- tax Act, 1961 (the Act) would not be eligible for deduction under section 43B of the Act, even if deposited before the due date of filing the tax return. There are many judicial pronouncements in this regard. Further, the HC held that the employees' contribution to the EPF/ESIC was not allowable as a deduction in accordance with the provisions of section 10 & 1860/Mum/2018 M/s Frigorifico Allana Pvt. Ltd. 36(1 )(va) of the Act read with its Explanation if it was deposited beyond the due date. The Hon'ble Gujarat High Court further analysed other earlier judicialpronouncements on the very same issue of the cases, CIT v. Alembic Glass Industries Ltd. [2005] 279 ITR 331 (Gujarat-HC), CIT v. Sabari Enterprises [2008] 298 ITR 141 (Karnataka-HC) and CIT v. Pamwi Tissues Ltd. [2009] 313 ITR 137 (Bombay-HC) 5 CIT v. Nipso Polyfabriks Ltd. [2013] 350 ITR 327 (Himachal Pradesh-HC), Spectrum Consultants India (P) Ltd. v. CIT [2013] 34 taxmann.com 20 (Karnataka-HC), CIT v. Udaipur Dugdh Utpadak Sahakari Sandh Ltd. [2013] 35 taxmann.com 616 (Rajasthan-HC) and CIT v. Hemla Embroidery Mills (P) Ltd. [2013] 37 taxmann.com 160 (Punjab & Haryana-HC) and finally concluded that if it was deposited before the due date of filing of the tax return also such amount shall not be allowed to be claimed as deduction. There are many such judgments are in favour of revenue on non allowability of such claim of the assessee. 6.3.3 - However there are many more judicial pronouncements which are in favour of the assessee's by the apex court and various High courts & Hon'ble Tribunals . The relevant pronouncements are listed as below: (i) [2017] 84 taxmann.com 185 (SC)/[2017] 250 Taxman 16 (SC) PCIT Vs Rajasthan State Beverages Corporation Ltd dated 4th July 2017
11 & 1860/Mum/2018 M/s Frigorifico Allana Pvt. Ltd. Section 43B, read with section 36(l)(va), of the Income-tax Act, 1961 - Business disallowance - Certain deductions to be allowed only on actual payment (PF and ESI contribution) - High Court by impugned order held that amount claimed on payment of PF and ESI having been deposited on or before due date of filing of returns, same could not be disallowed under section 43B or under section 36(1)(va) - Whether SLP against said impugned order was to be dismissed - Held, yes (ii) [2017] 79 taxmann.com 305 (Mumbai - Trib.) IN THE ITAT MUMBAI BENCH 'E1 DCIT Vs Saraswat Co-operative Bank Ltd OCTOBER 31, 2016 Section 43B, read with sections 2(24) and 36(l)(va), of the Income-tax Act, 1961 and Employees Provident Funds Scheme, 1952 -Business disallowance - Certain deductions to be allowed only on actual payment (ESI/PF Contributions) - Assessment year 2007-08 - Whether where assessee deposited employees' contribution to PF with delay but within grace period as allowed by PF statute and before due date of filing return as prescribed under Act, same would be not disallowed under section 43B, read with sections 2(24)(x) and 36(l)(va) - Held, yes. (iii) [2006] 7 SOT 533 (MUM.) IN THE ITAT MUMBAI BENCH 'D' Suizer Pumps India Ltd.vs JCIT, Special Range-19 IT APPEAL NO. 771 (MUM.) OF 2002 [ASSESSMENT YEAR 1998-99] OCTOBER 26, 2005
12 & 1860/Mum/2018 M/s Frigorifico Allana Pvt. Ltd. Section 43B of the Income-tax Act, 1961 - Business disallowance - Certain deductions to be allowed only on actual payment - Assessment year 1998-99 - Whether where administrative charges and employer's contribution to P.P. and FPD etc. had been paid within financial year and in any case before time-limit for filing return under section 139(1), ' same were not hit by provisions of section 43(b) - Held, yes Section 36(1 )(va) , read with section 43B, of the Income-tax Act, 1961 - Employees' contribution - Assessment year 1998-99 - Whether where payment relating to employees' contribution are made beyond due date prescribed under relevant Act, such payments are not deductible by virtue of provisions of section 36(l)(va) - Held, yes (iv) (2013] 40 taxmann.com 155 (Mumbai - Trib.) Hon'ble ITAT , Mumbai Euro Pratik Ispat (P.) Ltd. vs. ACIT IT APPEAL NO. t 7547 (MUM.) OF 2011 A.Y 2007-08] APRIL 5, 2013.
Section 43B, read with section 36(l)(va), of the Income-tax Act, 1961 - Business disallowance - Certain deduction to be allowed only on actual payment [Contribution to provident fund] - Assessment year 2007-08 - Whether both employers and employees' contribution are allowable as deduction if amount of provident fund, etc., though belatedly, but is paid before due date of filing of return under section 139(1) - Held, yes - Whether where such contribution were disallowed in preceding year on ground 13 & 1860/Mum/2018 M/s Frigorifico Allana Pvt. Ltd. that these were not paid before due date of filing return for assessment year 2006-07, naturally deduction would be available on payment of such amounts falling within previous year relevant to assessment year 2007-08 - Held, yes (v) [1997] 63 ITD 182 (MUM.), IN THE ITAT MUMBAI BENCH 'D' Fluid Air (India) Ltd. vs. DCIT IT APPEAL NO. 1974 (MUM.) OF 1996 [ASSESSMENT YEAR 1992- 931 FEBRUARY 5, 1997 , Section 43B, read with sections 2(24)(x) and 36(l)(va), of the Income-tax Act, 1961 -Business disallowance -Certain deductions to be allowed only on actual payment - Assessment year 1992-93 –Assessee deposited employer's as well as employees' contributions towards PF ESI, etc. within 15 days from day of disbursement of salary/wages - Assessing Officer disallowed assessee's claim for payments made on account of employer's contribution, by invoking provisions of section 43B, while he added payment on account of employees' contribution, treating it as deemed income under section 2(24)(x) read with section 36(l)(va) - .Whether provisions of section 43B, section 2(24)(x) read with section 36(l)(va), should be interpreted liberally keeping in view principle of equity and legislative intent behind enacting such prohibitory provisions so that injustice and absurdity could be avoided - Held, yes - Whether sections 36 and 38 read together raise certain amount of ambiguity with regard to period of 15 days from close of month and since benefit of ambiguity should be given to assessee, most of payments having been made
14 & 1860/Mum/2018 M/s Frigorifico Allana Pvt. Ltd. within 9 to 22 days from date of payment of salary and wages, could be deemed to have been made within due date, and, therefore, no disallowance could be made on that account - Held, yes - Whether delay in depositing amounts in question being under a bona fide belief and for want of funds could be said to be due to reasonable cause and therefore, there was no justification in disallowing assessee's claim for payment of its contributions by invoking section 43B and in making addition on account of employees' contribution by treating same as assessee's deemed income under section 2(24)(x) because same should have been allowed as a deduction under section 36(1) (va) -Held, yes Circulars and clarifications -CBDT Circular No. 372, dated 18-12-1983. (vi) [2008] 24 SOT 180 (MUM.) IN THE ITAT MUMBAI BENCH 'K' Madaus Pharmaceutical (P.) Ltd. vs. DCIT IT APPEAL N0. 554 (MUM.) OF 2007 [ASSESSMENT YEAR 2003-04] APRIL 2, 2008. Section 43B, read with sections 2(24)(x), 36(1) (v) and 36(l)(va), of the Income-tax Act, 1961 - Business disallowance - Certain deductions to be allowed only on actual payment Assessment year 2003-04 – Whether payments of employer’s contribution and employees contribution to PF made within grace priod permissible under relevant law are not hit by provisions of sections 43B and 36(va), respectively -Held, yes - Whether deduction in respect of paymenLs of employees' contribution to PF would not be available to. employer, unless employer pays
15 & 1860/Mum/2018 M/s Frigorifico Allana Pvt. Ltd. or credits same to account of employees in relevant fund before due date - Held, yes - Whether employer's contribution to PF paid before due date for filing return of income is not hit by section 43B - Held, yes.
6.3.4 This issue is highly litigious and different courts have held differently. As there are two views are possible in this matter, however respectfully following the jurisdictional judicial pronouncements, the matter is decided in favour of the appellant and the AO is directed to delete the addition made on this issue.
After having gone through the facts of the present case and hearing the parties at length, we find from the records that admittedly there was a delay in depositing of amount of payment of employee’s contribution to the provident fund beyond the due date prescribed u/s 36(1)(va) of the Act and such payment according to the AO, was required to be considered as income of the year under the provision of section 2(24)(x) of the Act. Whereas according to the assessee, the total payment of employees contribution to provident fund which was deposited after some delay considering due date prescribed u/s.
Whereas while deciding the important question which accrued after appreciating the facts put forth by both the parties was i.e. 'whether payments of employees' contribution to PF made within grace period was permissible under relevant law are not and whether the same is covered by provisions of sections 43B and 36(va) respectively or not?
We have also considered the provisions of section 43B, read with section 36(l)(va) of the Income-tax Act, 1961, as per Hon’ble Supreme Court in the case of PCIT vrs. Rajasthan State Beverages Corporation Ltd. (2017) 84 taxman.com 185 (SC) held that certain deductions to be allowed only on actual payment (PF and ESI contribution), thus in this way the courts have already held that amount claimed on payment of PF and ESI having been deposited on or before due date of filing of returns, same could not be disallowed under section 43B or under section 36(1)(va) of the Act and the SLP against said impugned order was also dismissed.
17 & 1860/Mum/2018 M/s Frigorifico Allana Pvt. Ltd. Moreover as per the decision in the case of DCIT Vs Saraswat Co- operative Bank Ltd OCTOBER 31, 2016 [2017] 79 taxmann.com 305 (Mumbai - Trib.) held that Section 43B, read with sections 2(24) and 36(l)(va), of the Income-tax Act, 1961 and Employees Provident Funds Scheme, 1952 -Business disallowance - Certain deductions to be allowed only on actual payment (ESI/PF Contributions) - Assessment year 2007-08 - Whether where assessee deposited employees' contribution to PF with delay but within grace period as allowed by PF statute and before due date of filing return as prescribed under Act, same would be not disallowed under section 43B, read with sections 2(24)(x) and 36(l)(va) - Held, yes.
In the case of Suizer Pumps India Ltd.vs JCIT, Special Range-19 IT APPEAL NO. 771 (MUM.) OF 2002 [ASSESSMENT YEAR 1998-99] OCTOBER 26, 2005 [2006] 7 SOT 533 (MUM.), wherein it was held Section 43B of the Income- tax Act, 1961 - Business disallowance - Certain deductions to be allowed only on actual payment - Assessment year 1998-99 - Whether where administrative charges and employer's contribution to P.P. and FPD etc. had been paid within financial year and in any case before time-limit for filing return under section 139(1), ' same were not hit by 18 & 1860/Mum/2018 M/s Frigorifico Allana Pvt. Ltd. provisions of section 43(b) - Held, yes Section 36(1 )(va) , read with section 43B, of the Income-tax Act, 1961 - Employees' contribution - Assessment year 1998-99 - Whether where payment relating to employees' contribution are made beyond due date prescribed under relevant Act, such payments are not deductible by virtue of provisions of section 36(l)(va) - Held, yes
In the case of Mumbai Euro Pratik Ispat (P.) Ltd. vs. ACIT IT APPEAL NO. 7547 (MUM.) OF 2011 A.Y 2007-08] APRIL 5, 2013 (2013] 40 taxmann.com 155 (Mumbai - Trib.) Hon'ble ITAT , wherein it was held that Section 43B, read with section 36(l)(va), of the Income-tax Act, 1961 - Business disallowance - Certain deduction to be allowed only on actual payment [Contribution to provident fund] - Assessment year 2007-08 - Whether both employers and employees' contribution are allowable as deduction if amount of provident fund, etc., though belatedly, but is paid before due date of filing of return under section 139(1) - Held, yes - Whether where such contribution were disallowed in preceding year on ground that these were not paid before due date of filing return for assessment year 2006-07, naturally deduction would be available on payment of such amounts falling within previous year relevant to assessment year 2007-08 - Held, yes 19 & 1860/Mum/2018 M/s Frigorifico Allana Pvt. Ltd.
In the case of Fluid Air (India) Ltd. vs. DCIT IT APPEAL NO. 1974 (MUM.) OF 1996 [ASSESSMENT YEAR 1992-931 FEBRUARY 5, 1997 [1997] 63 ITD 182 (MUM.), wherein it was held that Section 43B, read with sections 2(24)(x) and 36(l)(va), of the Income-tax Act, 1961 -Business disallowance -Certain deductions to be allowed only on actual payment -Assessment year 1992-93 – Assessee deposited employer's as well as employees' contributions towards PF ESI, etc. within 15 days from day of disbursement of salary/wages Assessing Officer disallowed assessee's claim for payments made on account of employer's contribution, by invoking provisions of section 43B, while he added payment on account of employees' contribution, treating it as deemed income under section 2(24)(x) read with section 36(l)(va) -.Whether provisions of section 43B, section 2(24)(x) read with section 36(l)(va), should be interpreted liberally keeping in view principle of equity and legislative intent behind enacting such prohibitory provisions so that injustice and absurdity could be avoided - Held, yes -Whether sections 36 and 38 read together raise certain amount of ambiguity with regard to period of 15 days from close of month and since benefit of ambiguity should be given to assessee, most of payments having been made within 9 to 22 days from date of payment of salary and wages, could be deemed to have been made within due date, and,
20 & 1860/Mum/2018 M/s Frigorifico Allana Pvt. Ltd. therefore, no disallowance could be made on that account - Held, yes - Whether delay in depositing amounts in question being under a bona fide belief and for want of funds could be said to be due to reasonable cause and therefore, there was no justification in disallowing assessee's claim for payment of its contributions by invoking section 43B and in making addition on account of employees' contribution by treating same as assessee's deemed income under section 2(24)(x) because same should have been allowed as a deduction under section 36(1) (va) -Held, yes
Lastly the Jurisdictional High Court in the case of CIT vrs. Ghatge Patil Transport Ltd. (ITA No. 1002 of 2012 & 1034 of 2012), had also upheld the above proposition by holding that amendment provided by the Finance Act 2003, put on par the benefit of deductions of tax, duty, cess and fee on the one hand with contributions to various employees welfare funds on the other and had also relied upon the decision of Hon’ble Supreme Court in the case of Alom Extrusion Ltd (319 ITR 306).
Moreover no new facts or contrary judgments have been brought on record before us in order to controvert or rebut the 21 & 1860/Mum/2018 M/s Frigorifico Allana Pvt. Ltd. findings so recorded by Ld. CIT(A). Therefore, we see no reasons to interfere into or deviate from the findings recorded by the Ld.CIT(A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, this ground raised by the revenue stands dismissed.
Consequently, the appeal filed by the revenue stands dismissed.
In the net result, the appeal filed by the assessee stands allowed for statistical purposes and appeal filed by the revenue stands dismissed with no order as to cost. Order pronounced in the open court on 27th June, 2019 Sd/- Sd/- (N. K. Pradhan) (Sandeep Gosain) लेखासदस्य / Accountant Member न्याययकसदस्य / Judicial Member मुंबई Mumbai;यदनांकDated : 27.06.2019 Sr.PS. Dhananjay