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Income Tax Appellate Tribunal, “D” BENCH: KOLKATA
1 ITA No. 1796-1798/Kol/2017 Naaraayani Sons Pvt. Ltd., AYs 2012-13 to 2014-15 आयकर अपील�य अधीकरण, �यायपीठ – “D” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH: KOLKATA (सम�)Before �ी जे. सुधाकर रे�डी, लेखा सद�य एवं/and �ी ऐ. ट�. वक�, �यायीक सद�य) [Before Shri J. Sudhakar Reddy, AM & Shri A. T. Varkey, JM]
I.T.A. Nos. 1796 to 1798/Kol/2017 Assessment Years: 2012-13 to 2014-15
Assistant Commissioner of Income-tax, Vs. M/s. Naaraayani Sons Pvt. Ltd. C.C. 3(2), Kolkata. (PAN: AADCM7262N) Appellant Respondent
Date of Hearing 31.07.2018 Date of Pronouncement 21.08.2018 For the Appellant Shri A. Bhattacharjee, Addl. CIT For the Respondent Shri A. K. Tulsiyan, FCA
ORDER Per Shri A.T.Varkey, JM All these appeals filed by the Revenue are against the separate orders of Ld. CIT(A)- 21, Kolkata dated 04.05.2017 for AY 2012-13 to 2014-15 respectively. Since grounds are identical and facts are common, we dispose of all these appeals by this consolidated order for the sake of convenience.
Ground nos. 1 to 4 of Revenue’s appeal (is common in all the three appeals) are against the order of Ld. CIT(A) in deleting the addition on account of delayed payment of employees contribution towards Provident Fund.
Briefly stated facts are that according to AO the assessee failed to contribute to PF within the due date prescribed by the relevant statute, however, according to assessee, the assessee deposited the said amount before due date of filing of income tax return, thus eligible for benefit u/s. 43B of the Income-tax Act, 1961 (hereinafter referred to as the “Act”). But the AO did not agree and he disallowed the same. On appeal, the Ld. CIT(A) deleted the addition by observing “ it is evident from the facts of the instant case and the judicial pronouncements that employees contribution to PF amounting to Rs.69,58,932/-
2 ITA No. 1796-1798/Kol/2017 Naaraayani Sons Pvt. Ltd., AYs 2012-13 to 2014-15 was made before the due date of filing of return and, therefore, it is allowable expenditure.” Aggrieved, revenue is before us.
We have heard both the parties and perused the records carefully. We note that the issue is squarely covered in favour of the assessee by the decision of Hon’ble Calcutta High Court in the case of CIT Vs. Coal India Ltd. in ITA 12 of 2015 dated 12.08.2015, wherein the Hon’ble High Court has observed as under:
“It is submitted by Mr. Khaitan, learned senior advocate, appearing on behalf of the respondent that whether employees contribution to Provident Fund would call for deduction under Section 43B(b) of the Income Tax Act, 1961 came up for consideration in C.I.T. Circle- I, Kolkata vs. Vijay Shree Ltd.: 224 Taxman 12 [Cal.) wherein Court held that the amount paid for employees contribution beyond due date was deductible by invoking the amended provisions of section 43B of the Income Tax Act, 1961 and thus, the issues stand covered in favour of the assessee. It is to be noted that the jurisdictional Court while passing the judgment in C.I.T. vs. Vijay Shree [supra) had followed the judgment in C.I.T. vs. Alom Extrusions Ltd. 319 ITR 306 [SC) wherein it has been held that amendment to the second proviso to section 43B of the Act as introduced by Finance Act, 2003 was curative in nature and is required to be applied retrospectively with effect from 1st April, 1988. Mr. Khaitan submits save and except the judgment in C.I.T. vs. Gujarat State Road Transport Corporation : 233 Taxmann 398 (Guj) wherein a different view has been taken, all other High Courts have taken a view similar to the judgment passed by the Calcutta High Court. Since we find that the issues stand covered by the judgment of the jurisdictional Court in C.I.T. vs. Vijay Shree [supra], the question no. 1 is answered in the negative, in favour of the respondent and against the appellant. The question no.2 is answered in the affirmative, against the appellant and in favour of the respondent.” Respectfully following the aforesaid decision, we dismiss the ground nos.1 to 4 of revenue’s appeal for all the years under consideration. And since this is the sole issue for AY 2014-15 the appeal of the Revenue is dismissed for AY 2014-15.
Ground no. 5 of revenue’s appeal for AY 2012-13 is against the action of Ld. CIT(A) in allowing the appeal of the assessee on interest expenditure on TDS debited in the P&L A/c, which is according to AO is penal in nature. Briefly stated the facts according to AO are that the assessee debited Rs.1,97,276/- in P&L A/c. towards interest on TDS. Since, according to AO, the said expense is penal in nature, the said amount needs to be disallowed and he added it to the total income of the assessee. Aggrieved, assessee preferred an appeal before the Ld. CIT(A), who deleted the addition by observing that the interest paid for the delayed payment of TDS being compensatory in nature cannot be penal
3 ITA No. 1796-1798/Kol/2017 Naaraayani Sons Pvt. Ltd., AYs 2012-13 to 2014-15 in nature and hence is an allowable deduction u/s. 37 of the Act. Aggrieved, revenue is before us.
We have heard rival submissions and gone through the facts and circumstances of the case. We note that the issue is squarely covered in favour of the assessee by the decision of coordinate bench of this Tribunal in similar case of DCIT Vs. M/s. Narayani Ispat Pvt. Ltd. in ITA No. 2127/Kol/2014 for AY 2010-11 dated 30.08.2017, wherein the Tribunal has observed as under:
“7. We have heard the rival contentions of both the parties and perused the material available on record. In the instant case, AO has disallowed the interest expenses incurred by the assessee on account of late deposit of service tax and TDS after having reliance on the judgment of Hon'ble Supreme Court in the case of Bharat Commerce Industries Ltd. Vs. CIT (1998) (Supra). The relevant extract of the judgment reads as under : FACTS During the year under consideration, the assessee failed to pay advance tax equivalent to 75 per cent of estimated tax. The Assessing Officer levied interest under section 215 as well as under section 139. The assessee claimed that since taxes which were payable were delayed, the assessee's financial resources increased which were available for business purposes. Hence, the interest which was paid to the Government was interest on capital that would be borrowed by the assessee otherwise. Hence, the amounts should be allowed as deduction. The revenue did not allow such deduction. The High Court affirmed the view. On appeal to the Supreme Court : HELD When interest is paid for committing a default in respect of a statutory liability to pay advance tax, the amount paid and the expenditure incurred in that connection is in no way connected with preserving or promoting the business of the assessee. This is not expenditure which is incurred and which has to be taken into account before the profits of the business are calculated. The liability in the case of payment of incometax and interest for delayed payment of income-tax or advance tax arises on the computation of the profits and gains of business. The tax which is payable is on the assessee's income after the income is determined. This cannot, therefore, be considered as an expenditure for the purpose of earning any income or profits. Interest which is paid for delayed payment of advance tax on such income cannot be considered as expenditure wholly and exclusively for the purpose of business. Under the Act, the payment of such interest is inextricably connected with the assessee's tax liability. If income-tax itself is not permissible deduction under section 37, any interest payable for default committed by the assessee in discharging his statutory objection under the Act, which is calculated with reference to the tax on income, cannot be allowed as a deduction. Therefore, it was to be held that deduction of interest levied under sections 139 and 215 would not be allowable under section 37. In the above judgment, the claim of the assessee for interest expenses was denied as it defaulted to make the payment of advance tax as per the provisions of the Act. The advance tax is nothing but income tax only which the assessee has to pay on his income. In the instant
4 ITA No. 1796-1798/Kol/2017 Naaraayani Sons Pvt. Ltd., AYs 2012-13 to 2014-15 case the default relates to the delay in the payment of advance tax and consequently interest was charged on the delayed payment of advance tax. In the above judgment the Hon’ble Apex Court held that as Income Tax paid by the assessee is not allowable deduction and therefore interest emanating from the delayed payment of income tax (advance tax) is also not allowable deduction. However the facts of the instant case before us are distinguishable as in the case before us the interest was paid for delayed payment of service tax & TDS. The interest for the delay in making the payment of service tax & TDS is compensatory in nature. As such the interest on delayed payment is not in the nature of penalty in the instant case on hand. The issue of delay in the payment of service tax is directly covered by the judgment of Hon’ble Apex Court in the case of Lachmandas Mathura Vs. CIT reported in 254 ITR 799 in favour of assessee. The relevant extract of the judgment is reproduced below : “The High Court has proceeded on the basis that the interest on arrears of sales tax is penal in nature and has rejected the contention of the assessee that it is compensatory in nature. In taking the said view the High Court has placed reliance on its Full Bench's decision in Saraya Sugar Mills (P.) Ltd. v. CIT [1979] 116 ITR 387 (All.) The learned counsel appearing for the appellant-assessee states that the said judgment of the Full Bench has been reversed by the larger Bench of the High Court in Triveni Engg. Works Ltd. v. CIT [1983] 144 ITR 732 (All.) (FB), wherein it has been held that interest on arrears of tax is compensatory in nature and not penal. This question has also been considered by this Court in Civil Appeal No. 830 of 1979 titled Saraya Sugar Mills (P.) Ltd. v. CIT decided on 29-2-1996. In that view of the matter, the appeal is allowed and question Nos. 1 and 2 are answered in favour of the assessee and against the revenue.” In view of the above judgment, there remains no doubt that the interest expense on the delayed payment of service tax is allowable deduction. The above principles can be applied to the interest expenses levied on account of delayed payment of TDS as it relates to the expenses claimed by the assessee which are subject to the TDS provisions. The assessee claims the specified expenses of certain amount in its profit & loss account and thereafter the assessee from the payment to the party deducts certain percentage as specified under the Act as TDS and pays to the Government Exchequer. The amount of TDS represents the amount of income tax of the party on whose behalf the payment was deducted & paid to the Government Exchequer. Thus the TDS amount does not represent the tax of the assessee but it is the tax of the party which has been paid by the assessee. Thus any delay in the payment of TDS by the assessee cannot be linked to the income tax of the assessee and consequently the principles laid down by the Hon’ble Apex Court in the case of Bharat Commerce Industries Ltd. Vs. CIT (1998) reported in 230 ITR 733 cannot be applied to the case on hand. Thus, in our considered view, the principle laid down by the Hon'ble Supreme Court in the case of Bharat Commerce Industries Ltd. (supra) is not applicable in the instant facts of the case. Thus, we hold that the Assessing Officer in the instant case has wrongly applied the principle laid down by the Hon'ble Supreme Court in the case of Bharat Commerce Industries Ltd.(supra). We also find that the Hon'ble Supreme Court in the case of Lachmandas Mathura (Supra) has allowed the deduction on account of interest on late deposit of sales tax u/s 37(1) of the Act. In view of the above, we conclude that the interest expenses claimed by the assessee on account of delayed deposit of service tax as well as TDS liability are allowable expenses u/s 37(1) of the Act. In this view of the matter, we find no reason to interfere in the order of Ld. CIT(A) and we uphold the same. Hence, this ground of Revenue is dismissed.”
5 ITA No. 1796-1798/Kol/2017 Naaraayani Sons Pvt. Ltd., AYs 2012-13 to 2014-15 Respectfully following the aforesaid decision, we confirm the order of Ld. CIT(A) and dismiss the ground no.5 of revenue’s appeal for AY 2012-13 and thus the appeal of Revenue for AY 2012-13 also stands dismissed.
Now the remaining issue is only ground no. 5 of revenue’s appeal for AY 2013-14, which is against the action of Ld. CIT(A) in allowing the expenses on account of truck operating. Briefly stated facts as observed by the AO are that during the year under consideration the assessee debited Rs.1,26,05,952/- towards truck operating expense under the head “Other Expenses”. According to AO, on perusal of details he found that the assessee incurred expense of Rs.1,09,67,750/- out of Rs.1,26,05,952/- by cash on account of salary to truck helpers. On being asked, assessee’s explanations before the AO are as under: “The assessee company is having more than 125 numbers of Tippers of its own and they have engaged under for job work purpose under different principals at their different work places. Most of the work places are mines which are in remote/tribal areas. For operation of Tippers in addition to drivers one helper is required for supporting drivers for necessary activities. The manpower required for helper service generally available in local areas with making payment wages as per their attendance on the basis of managerial report from different work sites. During the F. Y. the assessee company has acquired 24 numbers of high value new Tippers engaged for job work purpose by using multi shift working to achieve the production level imposed by the principals. Similarly, as per requirement the existing vehicles were used in multi shift works in different sites. Amount of expenses debited in P/L Account F. Y. 2011-12 50,00,640.00 F. Y. 2012-13 1,26,05,952.00 i.e. increase of Rs. 76,05,312.00 Expense increase specifically for new purchased vehicles 24 vehicles, average 25 days in a month, wages @ 250/- per day, 2 shifts, 12 months i.e. approx. 36,00,000.00. Supervision charges to Utkal Automobiles the dealer of Mahindra MAN for proper utilization of vehicles and for that payment made Rs.10,60,000.00. Expenses made for Water Servicing manually to the said new vehicles during the year: Rs. 5,78,022.00 In total for new vehicles expenses increase about 52 lacs. Balance of expenses increased due to increase in lab wages rate about 20% and multi shift working with existing vehicles.”
6 ITA No. 1796-1798/Kol/2017 Naaraayani Sons Pvt. Ltd., AYs 2012-13 to 2014-15 8. According to AO, the above explanation put forward by the assessee is devoid of any merit, because no record was maintained by the assessee to substantiate that all the 149 (125 + 24) Tippers have been put to work on average for 25 days in a month and even if worked for 2 shifts for the entire 12 months does not work out to the expense claimed by the assessee. Moreover, according to AO, the said truck helpers are casual wage earners and not subjected within the purview of statutory PF & ESI. Therefore, the genuineness of such huge expense by mode of cash payment to truck helpers remained unverifiable. Further, he also observed that the increase in expense towards wages to truck helpers of Rs. 76,05,312/ - (12605952-5000640) in comparison to immediate previous year and does not commensurate with expense involved for additional 24 new Tippers acquired during the F.Y. Even if it is assumed the new 24 numbers of Tippers worked for 25 days in a month making two shifts and the wages is Rs.250/ - per helper per day, the additional cost comes to Rs. 36,00,000/ - as explained by the assessee does not match with the enhancement of expense is Rs. 76,05,312/-. Therefore, the explanation put forward by the assessee was not convincing enough for the AO. Hence, the AO thought it to be appropriate to disallow 10% of Rs. 1,26,05,952/- which comes to Rs.12,60,595/- and added back to total income of the assessee. Aggrieved assessee preferred an appeal before the Ld. CIT(A), who deleted the ad-hoc disallowance by observing as under: “I have considered the submission filed by the AR and the ratio decided by different judicial authorities. I find that the assessee’s books of accounts are audited. The AO has not pointed out that books of account were not reliable. The AO has also not found that the expenses are not genuine and not relating to the business of the assessee. It is highly illogical to make ad hoc disallowance of 10% of Truck Operating Expenses when books of accounts are audited and the AO has allowed other expenses. Therefore, the appeal of the assessee in this ground is allowed.”
Aggrieved, revenue is before us.
We have heard rival submissions and gone through the facts and circumstances of the case. We note the books of the assessee are audited and the AO has not been able to point out any defect in the books maintained by the assessee. The AO has not rejected the books. In such a scenario, if the AO finds that assessee has not maintained any evidence/material to substantiate the expenses claimed by it, can disallow item wise expenditure claimed. Ad hoc disallowance (10%) of expenditure is not in accordance to
7 ITA No. 1796-1798/Kol/2017 Naaraayani Sons Pvt. Ltd., AYs 2012-13 to 2014-15 law and can be termed as arbitrary exercise of power which has no sanction of law and, therefore, we do not find any infirmity in the order of the Ld. CIT(A) and so we confirm the same. Therefore, the appeal of the revenue is dismissed for AY 2013-14.
In the result, all the appeals of revenue are dismissed.
Order is pronounced in the open court on 21/08/2018 Sd/- Sd/- (J. Sudhakar Reddy) (A. T. Varkey) Accountant Member Judicial Member
Dated: 21st August, 2018
Jd.(Sr.P.S.)
Copy of the order forwarded to:
1 Appellant – ACIT, Central Circle-3(2), Kolkata. 2 Respondent –M/s. Naaraayani Sons Pvt. Ltd.,23A, N. S. Road, 4th floor, Kolkata-700 001. 3 CIT(A)- 21, Kolkata (sent through e-mail) CIT , Kolkata 4 DR, Kolkata Benches, Kolkata (sent through e-mail) 5
/True Copy, By order,
Sr. Pvt. Secretary