AMPO VALVES INDIA PVT LTD.,COIMBATORE vs. DCIT CORPORATE CIRCLE 2, COIMBATORE

आदेश / O R D E R

Per A. Mohan Alankamony, AM:-

This appeal by the assessee is directed against the order passed

by the Learned Commissioner of Income Tax (Appeals)-1, Coimbatore

dated 29.05.2017 in Appeal No.09/16-17 for the assessment year

2012-13 passed U/s.143(3) r.w.s. 92CA(3) of the Act.

2 ITA No.2045/Chny/2017 (i) The Ld.CIT(A) has erred in confirming the order of the Ld.AO who had invoked the provisions of Section 37 of the Act, and thereby disallowed Rs.8,26,526/- being the penalty imposed

by the RBI for furnishing incorrect particulars. (ii) The Ld.CIT(A) has erred in confirming the order of the Ld.AO who had disallowed Rs.1,20,654/- towards belated payment of

employees’ contribution of ESI & PF as per the provisions of Section 2(24)(x) r.w.s. 36(1)(va) of the Act. (iii) The Ld.CIT(A) has erred in confirming the order of the Ld.AO who had disallowed Rs.2,75,70,065/- towards non-deduction

of TDS on professional fees paid to non-resident M/s. AMPO, Spain by invoking the provisions of Section 40(a)(ia) of the Act.

industrial valves, filed its return of income for the assessment year 2012-13 electronically on 01.12.2012 declaring total income of Rs.1,31,57,150/- under normal provisions of the Act and book profit of

Rs.2,34,69,881/- U/s.115JB of the Act. Initially the return was processed U/s.143(1) of the Act and subsequently the case was selected for scrutiny under CASS. Finally assessment order was

3 ITA No.2045/Chny/2017 passed U/s.143(3) r.w.s 92CA(3) of the Act on 19.03.2016 wherein the Ld.AO made the above mentioned additions.

Rs.8,26,526/- towards penalty paid to RBI. However, in the income tax computation statement under the normal provisions the same was claimed as deduction. On query it was explained that the assessee

had committed certain clerical mistakes in the form FCGPR submitted to the RBI and therefore the penalty was levied by the RBI for a sum of Rs.8,26,526/-. The Ld.AO opined that the explanation 1 to Section 37

of the Act would be applicable in the case of the assessee and therefore disallowed the same as allowable deduction. On appeal, the Ld.CIT(A) concurred with the view of the Ld.AO by observing that the payment was made due to an offense committed by the assessee and

thereby confirmed his order.

4.1 At the outset, we don’t find any merit in the order of the Ld.AO as

well as the Ld.CIT(A) on this issue. From the facts of the case, it is apparent that the penalty was levied due to some clerical mistake

4 ITA No.2045/Chny/2017 committed by the assessee in the form submitted before the RBI. The genuine clerical mistake committed by the assessee cannot be treated as an offense under the Banking Regulations Act. Therefore we are of

the view that explanation 1 to Section 37 of the Act will not be attracted in the case of the assessee. Hence we hereby direct the Ld.AO to delete the addition of Rs.8,26,526/-.

observed by the Ld.AO that the assessee had not remitted the employees contribution to Provident & ESI fund amounting to Rs.1,20,654/- within the due date of the relevant Act. Therefore

invoking Section 2(24)(x) r.w.s. 36(1)(va) of the Act, the Ld.AO disallowed the same as deduction and added to the income of the assessee. While doing so, the Ld.AO relied in the decision of the Hon’ble Kerala High Court in the case CIT Vs. Merchem Ltd., reported

in 61 taxmann.com page 119 and the decision of the Hon’ble Gujarat High Court in the case CIT Vs. Gujarat State Road Transport Corporation reported in 41 taxmann.com page 100 (366 ITR 170). On

appeal, the Ld.CIT(A) confirmed the order of the Ld.AO.

5 ITA No.2045/Chny/2017

5.1 At the outset we do not find any infirmity in the orders of the

Ld.Revenue Authorities on this issue. On the identical issue, the

Chennai Bench of the Tribunal has also held the issue in favour of the

Revenue in ITA No.2105/Mds/2015 vide order dated 21.06.2017. The

gist of the order is reproduced herein below for reference:-

“5.2 I have heard the rival submissions and carefully perused the materials available on record. We do not find any merit in the submission of the assessee on this issue. Section 36(1)(va) of the Act specifically provides that if the assessee remits the employee’s contribution to Provident Fund within the due date mentioned in the relevant Act P.F Act, then the deduction will be allowable. The relevant portions of Section 36(1)(va) is reproduced herein below for reference:-

36(1)(va) any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee’s account in the relevant fund or funds on or before the due date.

Explanation:- For the purposes of this clause, “due date” means the date by which the assessee is required as an employer to credit an employee’s contribution to the employee’s account in the relevant fund under any Act, rule, order or notification issued there-under or under any standing order, award, contract of service or otherwise; Further Section 43B of the Act, only provides that deduction will be allowed with respect to employer’s contribution to provident fund if the same is remitted within the due date of filing the return of income. The relevant portion of Section 43B is extracted herein below for reference:-

“[Certain deduction tobe only on actual payment.] 43B “notwithstanding anything contained in any other provisions of this Act, a deduction otherwise allowable under this Act in respect of --- (a)------------------- (b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees” ------------------

6 ITA No.2045/Chny/2017

------------------ ------------------- provided that nothing contained in this section shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return.”

Thus Section 36(1)(va) of the Act refers to employee’s contribution to P.F while as Section 43B of the Act refers to employer’s contribution to P.F, hence Section 43B of the Act has no application with respect to employee’s contribution to P.F. Therefore Section 43B of the Act will not override the provisions of Section 36(1)(va) of the Act with respect to employee’s contribution to provident fund. It is pertinent to mention that though employee’s & employer’s contribution to P.F are remitted by the employer, they are separate and distinct for which independent provisions have been cast under the Act. Employee’s contribution to P.F., is nothing but appropriation of a portion of the salary which is legitimately due to the employee and remitted by the employer in the Government treasury on behalf of the employee in accordance with the provisions of the relevant P.F., Act. Hence it is crystal clear from Section 36(1)(va) of the Act that with respect to remittance of employee’s contribution to recognized Provident Fund, deduction will be allowable to the assessee only if the same is remitted within the due date mentioned in the relevant P.F. Act and with respect to employer’s contribution to recognized Provident Fund, Section 43B of the Act makes it clear that deduction will be allowable if the remittance is made with in the due date of filing the return of income. For the above stated reasons I do not find any infirmity in the order of the Ld. Revenue Authorities. Accordingly, I confirm the Order of the Revenue Authorities on this issue.

7 ITA No.2045/Chny/2017 Following the ratio set by the Hon’ble higher judiciary cited by the

Ld.Revenue Authorities and the above decision of the Tribunal, we

hereby confirm the orders of the Ld.Revenue Authorities on this issue.

perusal of annexure to Form 3CD, it was noticed by the Ld.AO that the

Chartered Accountant had qualified in his report, out of professional

charges paid to non-residents amounting to Rs.2,92,92,565/- a sum of

Rs.17,22,500/- was disallowable U/s.40a(ia) of the Act. Thereafter

relying on the Section 9(1)(vii) and explanation (2) to Section 195 of

the Act, the Ld.AO held that the assessee was liable to deduct TDS for

a sum of Rs.2,75,70,065/- being the amount paid / payable to the

assessee’s subsidy company abroad viz., M/s. Ampo, Spain for

rendering technical assistance to the assessee company. Hence the

Ld.AO invoked the provisions of Section 40(a)(ia) of the Act and

disallowed the amount of Rs.2,75,70,065/- as allowable deduction. On

appeal, the Ld.CIT(A) confirmed the order of the Ld.AO by observing

as under:- “8.1 On a perusal of the above five points, it clearly indicates that the Drawing and Designing charges paid by the appellant company are in the nature

8 ITA No.2045/Chny/2017 of technical services and, therefore, the provisions of Section 9(1)(vii) read with Section 195 of the Act are attracted. The assessee company has failed to deduct TDS on the payment made to the extent of Rs.2,75,70,065/-. Therefore, disallowance made u/s.40(a)(ia) will stands confirmed in the hands of the appellant.”

6.1 Before us the Ld.AR submitted the DTA agreement with

Republic of Portuguese and referred to Article 12, wherein it was

stated that the recipient of the remuneration received for technical

knowledge in Portuguese will be liable to be taxed in India, if such

technical knowledge is made available to the assessee. It was further

submitted that in the case of assessee, no technical knowledge was

made available to the assessee and therefore the recipient of the

remuneration abroad is not liable to be taxed in India. Hence it was

argued that the assessee is not liable to deduct TDS and accordingly

provisions of Section 40(a)(ia) of the Act cannot be invoked. It was

therefore pleaded that the addition made by the Ld.AO invoking the

provisions of Section 40(a)(ia) of the Act may be deleted.

6.2 The Ld.DR on the other hand argued in support of the orders of

the Ld.Revenue Authorities.

9 ITA No.2045/Chny/2017 6.3 We have heard the rival submissions and carefully perused the materials available on record. On perusing the order of the Ld.Revenue Authorities, we find that they have not taken into consideration of the DTA agreement while deciding the issue. Therefore in the interest of justice we hereby remit the issue back to the file of Ld.AO for fresh consideration and to decide the matter in the light of the DTA agreement cited by the Ld.AO.

Order pronounced on the 15th May, 2018 at Chennai.

Sd/- Sd/- (धु�वु� आर.एल रे�डी) (ए. मोहन अलंकामणी) ( Duvvuru RL Reddy ) ( A. Mohan Alankamony ) �या�यक सद�य /Judicial Member लेखा सद�य / Accountant Member

चे�नई/Chennai, �दनांक/Dated 15th May, 2018

RSR आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A) 4. आयकर आयु�त/CIT 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF