RAJENDRA KUMAR SANCHETI,JAIPUR vs. ITO, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR Jh HkkxpUn] ys[kk lnL; ds le{k BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER vk;dj vihy la-@ITA No. 284/JP/2016 fu/kZkj.k o"kZ@Assessment Year : 2010-11 cuke Shri Rajendra Kumar Sancheti The ITO Vs. 263-264, Johri Bazar, Jaipur Ward- 1(1), Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AGWPS 7304 K vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@Assessee by: Shri Vijay Goyal , CA jktLo dh vksj ls@ Revenue by: Smt. Poonam Rai, DCIT- DR lquokbZ dh rkjh[k@ Date of Hearing : 06/02/2017 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 7 /02/2017 vkns'k@ ORDER PER BHAGCHAND, AM The assessee has filed an appeal against the order of the ld. CIT(A) , Aligarh (Camp Office at Jaipur) dated 18-12-2015 for the assessment year 2010-11 raising following grounds of appeal. ‘’1. On the facts and in the circumstances of the case and in law the ld. CIT(A) erred in confirming the addition of Rs. 2,82,496/-[Rs. 1,39,135+Rs. 1,43,361] made by the AO by applying the provisions of Section 36(1)(va) of I.T. Act, 1961 in respect of employees contribution of PF which was deposited by the assessee after the due date but before filing income tax return or within grace period

2 ITA No.284/JP/2016 Shri Rajendra Kumar Sancheti vs. ITO, Ward- 1(1), Jaipur allowed in assessee's proprietary firms M/s. Four Season Restaurant and M/s. Four Seasons (India) Tours.

2.1 Apropos Ground No. 1 of the assessee, the facts as emerges from

the order of the ld. CIT(A) is as under:-

‘’5.3 I have observed that the Provident Fund contribution collected by the employer has been paid beyond the due date in violation of provisions of Section 36(1)(va). Therefore, he has disallowed such expenditure and made an addition of Rs. 2,82,496/-. In this regard, the appellant has explained that the entire contribution was paid before the due date of filing of return. Further, it has been explained that the payment of PF was made by account payee cheque and the delay is on account of non-clearing of cheques within the due time on account of banking holidays etc.

I have considered the facts of the case and the appellant’s submission. In my opinion, the provisions of Section 36(1) (va) are very clear and deduction for payment of employee’s contribution to PF can be allowed when such sum is credited to the employees account in the fund on or before due date. The said clause defines the due date as the date by which the assessee is required as an employer to credit employees’ contribution to the employees’ account in

3 ITA No.284/JP/2016 Shri Rajendra Kumar Sancheti vs. ITO, Ward- 1(1), Jaipur the relevant funds under any Act/ Rule or notification issued thereunder. The assessee's contention that he has paid the employees’ contribution before the due date for filing the return is misplaced as this applies only to payment of employer’s contribution in accordance with the provisions of Section 43B. It may be noted that the provisions of Section 43B are only concerned with employers’ contribution and not employees’ contribution. The employees’ contribution are governed by only provisions of Section 36(1)(va) which do not provide for payment upto the date of filing the return. The due date defined in Section 36(1)(va) is not the due date for filing of return but the due date as per the provisions of rules relating to the fund.

Further, in this regard, by Circular No. 22/2015 dated 17-12-2015, the CBDT has clarified that deduction in respect of employer’s contribution to provident fund et. Cannot be disallowed if the same has been paid before the due date for filling of return and further clarified that the said circular does not apply to claim of deduction relating to employees’ contribution to welfare funds which are governed by Section 36(1)(va). In view of this circular, it is clear that provisions of Section 43B are not relevant for the purpose of the deduction u/s 36(1)(va) which is at a separate footing and the deduction can be allowed only when the employee’s contribution has been credited on or before the due date prescribed under relevant provident fund Act/ Rules.

Here we must note that if employees’ contribution is allowed to be paid till filing of the return then the interest of the employees would be adversely affected as employees would suffer loss of interest and the employer would be unjustly enriched as he would enjoy those funds without incurring any cost.

In view of the above, the addition of Rs. 2,82,496/- on account of violation of Section 36(1)(va) is confirmed.) This ground of appeal is dismissed.’’

4 ITA No.284/JP/2016 Shri Rajendra Kumar Sancheti vs. ITO, Ward- 1(1), Jaipur

2.2 During the course of hearing, the ld. AR of the assessee prayed for

deletion of addition of Rs. 2,82,496/- for which the ld. AR of the assessee

filed the following written submission.

‘’During the course of assessment proceedings the assessee submitted the detail of deposit of PF contribution of employees and as per such detail the entire contribution was paid before the due date of filing of Income Tax return. The due date of deposit of PF is 15 days from date of payment of wages etc. which in assessee’s case is 7th day of the month following immediate previous month i.e. wages of March are paid by 7th April and so on. As such the due date of payment of PF & ESI was due on 21st of the month i.e. March dues are payable by 21st April and so on. In this regard it is submitted that the payment of PF was made by the assessee by a/c payee cheque and the delay is on account of non clearing of cheques by 1 or 2, bank holidays etc. The assessee is diligent in depositing the payments by 15th of each month however on account of holiday/non-banking day etc. the date sometimes exceeds 15th of the month. The assessee has always paid the amount deducted before due date i.e. 21st of the month. Since the amount has been paid before filing of Return of Income and hence nothing should be disallowed. We rely on the following decisions of Hon’ble Rajasthan High Court:- (i) M/s Central Office Mewar Palace Organization Pvt. Ltd Vs The Joint Commissioner of Income-Tax, Range-2 Udaipur And M/s Central Office Mewar Palace Organization Pvt. Ltd. Versus The Assistant Commissioner of Income Tax ITA No 55,54/2009 order dated 05/01/2017 reported in 2017 (1) TMI 677 (copy enclosed) (ii) Commissioner of Income Tax, Udaipur Versus M/s. Udaipur Dugdh Utpadak Sahakari Sangh Limited, Udaipur : [2014] 366 ITR 163 (Raj) (iii) Commissioner of Income Tax Versus M/s. State Bank of Bikaner & Jaipur and Jaipur Vidyut Vitaran Nigam Ltd. [2014] 363 ITR 70 (Raj) 2) The Hon’ble ITAT Jaipur Bench in the case of ACIT Circle-6, Jaipur Vs Kanhaiya Lal Kalyanmal ITA No 135, 760 & 136/JP/2013 vide order dated 26/01/2014 has held as under:-

5 ITA No.284/JP/2016 Shri Rajendra Kumar Sancheti vs. ITO, Ward- 1(1), Jaipur

2.3 The ld. DR relied on the orders of the authorities below.

2.4 I have heard the rival contentions and perused the materials

available on record. It is noted from the records that similar issue has

been decided by ITAT Jaipur Bench in the case of ACIT vs. Kanhaiya

6 ITA No.284/JP/2016 Shri Rajendra Kumar Sancheti vs. ITO, Ward- 1(1), Jaipur Lal Kalyanmal (ITA No. 135, 760 & 136/JP/2013 order dated 26-01-

2014. Respectfully following the decision of ITAT Jaipur Bench in the

case of ACIT vs. Kanhaiya Lal Kalyanma (supra) and also the case laws

mentioned above, the issue in question is decided in favour of the

assessee being the similar facts and circumstances of the case. Thus

Ground No. 1 of the assessee is allowed

3.1 Apropos Ground No. 2 of the assessee, the facts as emerges from

the order of the ld. CIT(A) is as under:-

‘’5.6 The AO observed that the appellant has shown liability to deposit the service tax of Rs. 8,15,126/- and in this regard, the appellant has explained that the service tax was outstanding as on 31-03-2010 as the same was not realized. This tax was not deposited before filing of the return. The appellant’s contention was that service tax is charged from the party on the bill issued and the same is required to be deposited when it is collected from the party. It has been claimed that service tax was not collected from the parties upto the date of filing of return. Further, the appellant has submitted that as per Rule 6(1) of the service tax, the Service Tax Rules is required to be deposited when the same is collected from the parties.

I have considered the appellant’s submission. First of all, we have to consider the principles of accounting in order to arrive at the correct factual position. As per established norms of accounting, every item of revenue nature has to be credited in the P/L account on accrual basis.When a bill is raised on a party it includes both the service charges as well as the chargeable taxes. Thus, both the service amount as well as the service tax amount should be necessarily credited

7 ITA No.284/JP/2016 Shri Rajendra Kumar Sancheti vs. ITO, Ward- 1(1), Jaipur in the P/L account. It is seen that in that in this case, the service tax of Rs. 8,15,126/- has not been credited in the P/L account which is against the accounting principles. Accordingly, the service tax amount should be added on the receipt side in the P/L account. This will increase the credit side by Rs. 8,15,126/-. Further, as per section 43B, any sum payable by way of taxes or fees etc. shall be allowed in the previous year in which sum is actually paid. Admittedly, this service tax of Rs. 8,15,126/- has not been paid during the relevant year. Therefore, the deduction of Rs. 8,15,126/- is not allowable in this year.

In view of the aforesaid discussion, the credit side would get increase by Rs. 8,15,126/- but debit side not increase by equivalent amount. The net result is that income would increase by Rs. 8,15,126/-.’’

3.2 During the course of hearing, the ld. AR of the assessee prayed for

deletion of addition of Rs. 8,15,126/- for which the ld. AR of the assessee

filed the following written submission.

‘’1.Service-tax not realized from customers hence was not payable as per law. The service tax of Rs. 8,15,126/- was outstanding as on 31.03.20010 and the same was not realized to assessee, therefore the same was not deposited before filing of the return. It is pertinent to mention here that as per provision of service tax the service tax is charged from the party on the bill of service issued to party but the same is required to be deposited when the same is collected from party as per provisions of Rule 6(1) of Service Tax Rules. In the case of the assessee service tax amounting to Rs. 8,15,126/- was not collected up to the date of filing of the return. The assessee maintains books of accounts on accrual basis. Therefore, the service tax payable account shows the tax payable on the gross amount billed and not the amount payable as per the amount received by the assessee. The assessee has paid the service tax on amounts realized hence no disallowance was warranted. Reliance is placed on the following Judgments-

8 ITA No.284/JP/2016 Shri Rajendra Kumar Sancheti vs. ITO, Ward- 1(1), Jaipur (a) Mumbai High Court in the case of Commissioner of Income Tax Vs. Ovira Logistics Pvt. Ltd. (2015) 377 ITR 0129 (Bom) :

Held that:- Section 43B does not contemplate liability to pay the service tax before actual receipt of the funds in the account of the assesee. Liability to pay service tax into the treasury will arise only upon the assessee receiving the funds and not otherwise. Accordingly, when services are rendered, the liability to pay the service tax in respect of the consideration payable will arise only upon the receipt of such consideration and not otherwise. (para 9).

(b) ITAT Mumbai in the case of Ind Global Corporate Finance P. Ltd. Vs. Income Tax Officer (2012) 19 ITR (Trib) 483 (Mumbai)

Held that if the payment for service rendered is not realized, there is no liability as to payment of service tax and once there was no liability for payment of service tax, the provision of s. 43B are not applicable.

a) Delhi High Court in the case of Commissioner Of Income Tax Vs. Noble & Hewitt (India) (P) Ltd. (2008) 305 ITR 0324 : (2008)

Hon’ble Delhi High Court held that assessee following mercantile system of accounting not paying to Government part of service tax collected by it not debiting the same to its P&L a/c as an expenditure nor claiming any deduction in respect of the said amount, the question of disallowing the same under s. 43B does not arise.

(b) ITAT Chennai in the case of Real Image Media Technologies Pvt. Ltd. Vs. ACIT (ITAT Chennai) 306 ITR(AT) 106

Held – The rigour of sec.43B may be applicable in the case of Sales- tax or Excise Duty but the same cannot be said to be the position in

9 ITA No.284/JP/2016 Shri Rajendra Kumar Sancheti vs. ITO, Ward- 1(1), Jaipur case of Service-tax because of two reasons. Firstly, the Assessee is never allowed deduction on account of service tax which is collected on behalf of the Govt., and paid to the Govt. accordingly. Therefore, a service provider is merely acting as an agent of the Govt., and is not entitled to claim deduction on account of service tax. Hence, on this account alone addition under sec.43B could not be made and the same has been correctly deleted by the CIT(Appeals). If there is no liability to make the payment to the credit of Central Government because of non receipt of payments from the receiver of the services, then it cannot be said that such service tax has become payable in terms of clause (a) of sec.43B because that clause specifically mentions “sum payable by the Assessee”. Since service tax was not payable by the Assessee, the rigour of sec.43B could not have been applied to the case of the Assessee.

(a) Pharma search v. ACIT (2012) 53 SOT 1 (Mum.) ( Trib.) Business expenditure—Deduction on actual payment— Assessee in its P&L showed certain receipts for rendering consultancy services after deducting service tax there from— Though the service tax was included in the invoice raised by the assessee on the person from whom service charges were receivable, however, such sum was not received till the end of the financial year 2006-07—AO was of the view that this sum receivable by the Assessee ought also to have been shown as receipts in the profit and loss account and further under the provisions of section 43B of the Act the assessee ought to have made payment of the service tax to the Government because the bills were raised on the customers by the assessee in the month of February and March and that section 43B of the Act will be applicable—AO also made a reference to provisions of section 145A of the Act which says that all receipts should be accounted on inclusive basis and, therefore, made an addition of

10 ITA No.284/JP/2016 Shri Rajendra Kumar Sancheti vs. ITO, Ward- 1(1), Jaipur service tax amount to the total income of the assessee—Held, the rigor of section 43B might be applicable to the 'case of sales-tax or excise duty but the same could not be said to be the position in case of service-tax because of two reasons—Firstly, the assessee is never allowed deduction on account of service tax which is collected on behalf of the Government and is paid to the Government account, accordingly—Therefore, a service provider is merely acting as an agent of the Government, and is not entitled to c/aim deduction on account of service tax— Hence, on this account alone addition under section 43B could not have been made, and the same had been correctly deleted by the Commissioner (Appeals)—Secondly, section 43B(a) uses the express on 'any sum payable'—For making any disallowance, first of all it has to be established that such sum is payable—Since service tax was not payable by the assessee, the rigor of section 43B of the Act could not be applied to its case—Provisions of Sec.43B cannot be invoked unless the Assessee has claimed by way deduction the amounts specified u/s 43B without making actual payment

(4) The similar addition was deleted by Hon’ble ITAT Jaipur Bench in the case of sister concern of the assessee M/s Four Seasons (India) Tours in ITA No 570/JP/2013 vide order dated 12.02.2016. The copy of order is enclosed herewith. The relevant part of the decision is as under:-

“3.2. We have heard the rival contentions and perused the record. In the present case, since service tax was not payable by the assessee, the rigor of section 43B of the Act could not be applied to its case. Apart from the above, we find the Delhi High Court in the case of CIT v. Noble and Hewitt (I) (P.) Ltd. [2008] 305 ITR 324/ 166 Taxman 48 (Delhi) has on identical issue taken the view that provisions of Sec.43B cannot be invoked unless the Assessee has claimed by way deduction the amounts specified u/s.43B without making actual payment. The following were the relevant observations of the Court in this regard: "5. Learned counsel for the Revenue urges that the decision of the Calcutta High Court in Chowringhee Sales Bureau P. Ltd. [1977] 110 ITR 385, covers the point in its favour. We are unable to agree. In that case, it was held that the liability to pay sales tax arose the moment a sale or purchase was effected and if an assessee was maintaining accounts on the mercantile system it would be entitled to deduction of the estimated liability of sales tax, even though such sales tax had not been paid to the sales tax authorities. The question there concerned was the entitlement of the assessee to deduction under section 10(1) and 10(2)(xv) of the Indian Income tax Act,

11 ITA No.284/JP/2016 Shri Rajendra Kumar Sancheti vs. ITO, Ward- 1(1), Jaipur 1922. The decision is clearly distinguishable in its application to the present case. Here we are concerned with an assessee who has not even claimed any deduction on the ground of service tax and has not debited the amount to its profit and loss account. Moreover, the provisions of section 43B of the Act are quite clear in this regard. The decision of the Calcutta High Court in Chowringhee Sales Bureau P. Ltd's case [1977] 110 ITR 385 was not in the context of the applicability of section 43B of the Act. 6. In our opinion, since the assessee did not debit the amount to the profit and loss account as an expenditure nor did the assessee claim any deduction in respect of the amount and considering that the assessee is following the mercantile system of accounting, the question of disallowing the deduction not claimed would not arise. 7. Learned counsel for the Revenue submits that the assessee has sought to evade tax under the mercantile system of accounting. We are of the view that it is not for the Revenue authorities to tell the assessee how to maintain its accounts." Further as far as Service Tax is concerned, as per the law prevailing during the previous year, the liability to pay the same arises only on receipt by the Assessee. Since the liability to pay service tax does not exist in the present case, the service tax cannot be said to be "payable" and therefore provisions of Sec.43-B of the Act could not also be invoked. 3.3. Therefore, we have no hesitation to set aside the order passed by the authorities below. Accordingly, the appeal of the assessee is allowed.”

3.3 The ld. DR relied on the orders of the authorities below.

3.4 I have heard the rival contentions and perused the materials

available on record. It is noted from the records that similar issue has

been decided by ITAT Jaipur Bench in favour of the sister concern of the

assessee M/s. Four Seasons (India) Tours vs. DCIT ( ITA No.

570/JP/2013 vide order dated 12-02-2016). Respectfully following the

decision of ITAT Jaipur Bench in the case of M/s. Four Seasons (India)

12 ITA No.284/JP/2016 Shri Rajendra Kumar Sancheti vs. ITO, Ward- 1(1), Jaipur Tours vs. DCIT,Circle- 6, Jaipur (supra) and also the case laws mentioned above, the issue in question is decided in favour of the assessee being the similar facts and circumstances of the case. Thus Ground No. 2 of the assessee is allowed 4.0 In the result, the appeal of the assessee is allowed Order pronounced in the open court on 07 /02/2017.

Sd/- ¼HkkxpUn½ (Bhagchand) ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 07/02/ 2017 *Mishra आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- Shri Rajendra Kumar Sancheti, Jaipur izR;FkhZ@ The Respondent- The ITO, Ward- 1(1), Jaipur 2. vk;dj vk;qDr¼vihy½@ CIT(A). 3. 4. vk;dj vk;qDr@ CIT, विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. 6. xkMZ QkbZy@ Guard File (ITA No. 284/JP/2016) vkns'kkuqlkj@ By order,

सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत