THE INCOME TAX OFFICER WARD-6(1)(4), BANGALORE vs. M/S S V EDUSPORTS PVT LTD , BANGALORE

M/s. S V Edusports Pvt. Ltd., No. 201, 3rd Floor, Brigade The Income Tax Officer, Manae, Court No. 111, Ward – 6 (1) (4), vs. Near Standard Chartered Bangalore. Bank, Koramangala, Bangalore – 560 095. PAN: AAMCS7088P APPELLANT RESPONDENT Appellant by : Smt. Srinandini Das, Addl. CIT (DR) Respondent by : Shri Sukesh S. Patil, CA Date of hearing : 14.11.2018 Date of Pronouncement : 16.11.2018 O R D E R

Per Shri A.K. Garodia, Accountant Member

by the revenue are as under. “1. The order of the CIT (Appeals) is opposed to law and the facts and circumstances of the case.

2. On the facts and in circumstances of the case, whether the CIT(A) was right in deleting the addition made u/s 2(24)(x) r.w.s 36(1)(va) in light of the facts that the assessee company had failed to deposit the employee's contribution of PF and SI.

3. For these and such other grounds that may be urged at the time of hearing, it is humbly prayed that the order of the CIT(A) in so far as it relates to the above grounds may be reversed and that of the Assessing Office be restored.

4. The appellant craves leave to add, alter, amend or delete any of the grounds that may be urged at the time of hearing of the appeal.”

Page 2 of 4 3. The ld. DR of revenue supported the assessment order whereas the ld. AR of assessee supported the order of ld. CIT(A). He also placed reliance on a judgment of Hon’ble Apex Court rendered in the case of CIT Vs. Alom Extrusions Ltd. (319 ITR 306). He also submitted copy of a judgment of Hon'ble Karnataka High Court rendered in the case of EssaeTeraoka Pvt. Ltd. Vs. DCIT in dated 04.02.2014 and pointed out that as per this judgment also, the issue in dispute is covered in favour of the assessee.

, appellant's statement of facts, AO's observations / explanations and legal position have been duly considered. 7.1 The Appellant in the course of the Appellate Proceedings has emphasised the fact that the AO was not justified to hold the Employee's Contribution of PF and ESI as income as contemplated u/s. 2(24)(x) r.w.s 36(1)(va) of the Act disregarding the fact that the contribution of the employee and employer was paid on or before the due date specified u/s. 139(1) of the Act for filing the return of income placing the reliance on the decision of the Hon'ble Jurisdictional High Court in the case of M/s EssaeTeraoka Pvt Ltd Vs DCIT, ITA No 480/2013 dated 04th February 2014. 7.2 The relevant findings of the Hon'ble High Court of Karnataka in the case of M/s EssaeTeraoka Pvt Ltd Vs DCIT, ITA No 480/2013 dated 04th February 2014 (supra) relied upon by the Appellant Company are reproduced as under: "19. From bare perusal of sub-para(1) of paragraph-30, it is clear that the word "contribution" is used not only to mean contribution of the employer but also contribution to be made on behalf of the member employed by the employer directly.

20. Paragraph-38 of the PF Scheme provides for Mode of payment of contributions. As provided in sub-para(1), the employer shall, before paying the member, his wages, deduct his contribution from his wages and deposit the same together with his own contribution and other charges as stipulated therein with the provident fund or the fund under the ESI Act within fifteen days of the closure of every month pay. It is clear that the word "contribution" used in Clause(b) of Section 43-B of the IT Act means the contribution of the employer and the employee. That being so, if the contribution is made on or before the due date for furnishing the return of income under sub-section(1) of Section 139 of the IT Act is made, the Page 3 of 4 employer is entitled for deduction." 7.3 The Hon'ble High Court of Karnataka in the case of CIT V/s. M/s. Spectrum Consultants India Pvt Ltd in Writ Appeal No. 4077 of 2013 vide Judgment dated 09-122013 has also held that the provision of section 43B of the Act are applicable in respect of the contributions of the employees and also the Employer are entitled for deduction provided the payment was made on or before the due date specified u/s. 139(1) of the for filing the return of income. The relevant findings of the Hon'ble high Court of Karnataka in the above case are reproduced as under. The contribution payable by the employee shall be equal to the contribution payable by the employer in respect of such employee. However, the employer shall, in the first instance, pay both the contribution payable by himself i.e. the employer's contribution as well as the employee's contribution and thereafter he is entitled to recover by means of deduction from the employee the contribution which he has paid as employee's contribution. Therefore, in law, the payment of contribution by the employer to the fund under the scheme means both employer's contribution and employee's contribution. Whether he deducts the employee's contribution from the salary or not, in law, he is liable to pay the said amount. Therefore, Section 2(24)(x) of the Act makes it clear that the employee's contribution which the employer deducts from his salary before it is paid into the fund, is treated as the income of the employer, and the employer by contributing can get the deduction. That payment must be made within the due date i.e. the due date prescribed under Section 139(1) of the Act. Because it was causing lot of problem as discussed in the judgment of the Apex Court, on a representation made by the industry, subsequent amendment was carried out to mitigate the difficulties caused to the employer tinder Section 438 of the Act. Though such contributions are not paid within the time prescribed under the relevant act, if those contributions are paid before the due date prescribed under Section 139(1) of the Act, the employer shall be entitled to the deductions as provided under Section 36(1) of the Act. While extending such benefit, the Parliament has not made any distinction between the employee's contribution and the employer's contribution. It is for the simple reason, under the provident fund scheme, an employer has to pay both the contribution and then recover from the salary of the employee. Therefore, in view of the aforesaid judgment, we do not find any substance in this appeal. Therefore, the appeal is dismissed. 7.4 The addition made by the AO in respect of the employees contribution as contemplated u/s 2(24) (x) r.w.s 36(1) (va) of the Act is not in accordance with the decision of the Hon'ble High Court of Karnataka. It is not in dispute that the contribution was not made before the due date specified u/s 139(1) of the Act. Therefore the Page 4 of 4 Assessee Company is entitled for the deduction in respect of the contribution of the Employees. In the Hierarchy of the judicial discipline the decision of the Jurisdictions High Court is in the binding nature and the same is required to be followed by the concerned Authorities. Therefore respectfully following the decision of the Hon'ble High Court of Karnataka in the above cases, the addition made by the AO by invoking provision of section 2(24)(x) r.w.s 36(1)(va) of the Act is liable to be deleted. Accordingly the AO is directed to delete the addition made by way of causing disallowance u/s 36(1) (va) r.w.s 2(24) (x) of the Act.”

5. From the above paras reproduced from the order of CIT (A), it is seen that ld. CIT (A) has followed two judgments of Hon'ble Karnataka High Court rendered in the case of EssaeTeraoka Pvt. Ltd. Vs. DCIT (supra) and in the case of CIT Vs. Spectrum Consultants India Pvt. Ltd. in Writ Appeal No. 4077 of 2013 dated 09.12.2013. No difference in facts could be pointed out by ld. DR of revenue in the present case and in these two judgments and hence, we find no reason to interfere in the order of CIT (A) on this issue.