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Income Tax Appellate Tribunal, “D”, BENCH KOLKATA
Before: SHRI A. T. VARKEY, JM &DR. A.L.SAINI, AM
Appellant by :Shri Arindam Bhattacharjee, Addl. CIT(DR) Respondent by : Shri S. Jhajharia, FCA सुनवाईक"तार"ख/ Date of Hearing : 18/04/2018 घोषणाक"तार"ख/Date of Pronouncement : 30/05/2018 आदेश / O R D E R Per Dr. A. L. Saini: The captioned appeal filed by the Revenue, pertaining to Assessment Year 2006-07, is directed against an order passed by the Ld. Commissioner of Income Tax (Appeals) - 10, Kolkata,in Appeal No.460/CIT(A)-10/Wd- 12(4)/2014-15, dated 10.11.2016, which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’),dated 31.12.2008.
The grievances raised by the Revenue as follows:
That on the facts and in the circumstances of the case, CIT(A) erred in allowing the claim u/s 36(1)(va) of the Act by applying the provisions of section 43B of the Act.
2. That on the facts and in the circumstances of the case, CIT(A) erred in allowing belated deposits of employees’ contribution of PF & ESI by wrongly invoking provisions of section 43B of the Act. 3. That on the facts and in the circumstances of the case, CIT(A) erred in disallowing the addition made on account of non-payment of leave encashment without having anything on records to warrant the same.
M/s. J. J. Exporters Ltd. Assessment Year: 2006-07 4. That on the facts and in the circumstances of the case the order of the CIT(A) is erroneous in allowing fresh claim of provision of doubtful debt u/s 115JB of the Act, without referring the matter back to the Assessing Officer for verification. 5. That the appellant craves leave to add, alter/or amend any of the grounds of appeal during the course of hearing.”
3. Ground Nos.1 & 2 raised by the Revenue relates to late payment of employees’ contribution of PF & ESI u/s 36(1)(va) of the Act.
The facts of the case which can be stated quite shortly are as follows: During the assessment proceedings, the Assessing Officer noted that as per Tax Audit Report of the assessee, the assessee has failed to deposit the employees’ contribution of PF & ESI on various occasions during the previous year. The assessee has made default in paying employees’ contribution of PF & ESI and the said default has been tabulated by the Assessing Officer, date wise, in his assessment order Page-2, wherein he noted that on account of employees’ contribution to PF in respect of unit Pooja Creations of Rs.14,59,914/-, is paid by the assessee after due date. In respect of unit Spectrum Silk, the amount of Rs.90,690/- deposited after due date.There was delay in making payment of ESI in respect of unit Pooja Creations to the tune of Rs.3,810/-, and there was delay in depositing an amount of Rs.2,52,240/- on account of PF/ESI.
During the assessment proceedings, the assessee submitted that payment of PF/ESI falls due for payment within 15 days from the close of the month and ‘month’ means month during which the wages/salary is actually disbursed. The assessee has therefore claimed that in their case the due date has to be considered in the month subsequent to which payment has been made and, as such assessee claimed that there was no delay on the part of the assessee. The assessee has also cited various case laws in support of their claim.However, the Assessing Officer rejected the contention of the assessee and held that as per section 2(24)(x) of the Income Tax Act 1961, the amount received from employees' as contribution to PF and ESI constitute income in their hand if not deposited within due date of deposit. Further, as per section M/s. J. J. Exporters Ltd. Assessment Year: 2006-07 36(1)(va) of the I.T. Act any sum received by the assessee on account of employees' contribution towards statutory funds is allowable to the assessee only if such sum is credited by the assessee to the employees’ accounts in relevant fund on or before the respective due date. The Assessing Officer noted that the assessee had failed to satisfy the basic conditions laid down in section 36(1)(va) of the Act, therefore, the deduction claimed by the assessee amounting to Rs.18,06,654/- (2,52,240 +15,50,604/- + 3,810/-) was disallowed and added back to the total income of the assessee.
Aggrieved by the stand of the Assessing Officer, assessee carried the matter in appeal before the CIT(A), with success. The Revenue is not satisfied and is in further appeal before this Tribunal.
Learned Departmental Representative did not have much to say but he nevertheless relied upon the order of the assessing officer. On the other hand, the ld. counsel for the assessee has defended the order passed by the ld. CIT(A).
We have given a careful consideration to the rival submissions and perused the materials available on record, we note that the Assessing Officer disallowed Rs.18,06,654/- on account of delayed payment of the employees’ contribution of PF & ESI, and the observations of the Assessing Officer have been based on the information written in the tax audited report filed by the assessee company. It is admitted fact that in the assessee’s case under consideration, the entire payment of ESI & PF were made before the due date of filing of return of income under section 139 (1) of the Act, therefore, the disallowance made by the Assessing Officer is not justified.
We note thataccording to the Assessing Officer, the PF & ESI were deposited by the assessee after the relevant due date of PF and ESI Act, and, therefore, he made additionunder section 2(24)(x)/ u/s 36(1)(va) of the Act. We note that during the assessment year under consideration, the company M/s. J. J. Exporters Ltd. Assessment Year: 2006-07 had claimed deduction of Rs.18,06,654/-, paid as employees’ contribution of PF & ESI before due date of filing return of income, and if the payment has been made by the assessee before filing the return of income, the claim should be allowed and for that we rely on the judgment of the Hon’ble Supreme Court in the case of CIT vs. Alom Extrusions Ltd. [(2010) 319 ITR 306(SC) wherein it was held that employees’ contribution towards provident fund made before the due date for filing the return of income shall be allowed as deduction u/s 43B of the Act.
Further, it has also been held by the Hon’ble Supreme Court that the said amendment shall be affected w.e.f. 1st April 1988:
In other words, after 1st April, 2004, two changes were made, namely, deletion of the second proviso and further amendment in the first proviso, quoted above. By the Finance Act, 2003, the amendment made in the first proviso equated in terms of the benefit of deduction of tax, duty, cess and fee on the one hand with contributions to Employees' Provident Fund, superannuation fund and other welfare funds on the other. However, the Finance Act, 2003, bringing about this uniformity came into force with effect from 1st April, 2004. We find no merit in these civil appeals filed by the Department for the following reasons: firstly, as stated above, Section 43-B [main section], which stood inserted by Finance Act, 1983, with effect from 1st April, 1984, expressly commences with a non-obstante clause, the underlying object being to disallow deductions claimed merely by making a Book entry based on Mercantile System of Accounting. At the same time, Section 43-B [main section] made it mandatory for the Department to grant deduction in computing the income under Section 28 in the year in which tax, duty, cess, etc., is actually paid. For the afore-stated reasons, we hold that Finance Act, 2003, to the extent indicated above, is curative in nature, hence, it is retrospective and it would operate with effect from 1st April, 1988 [when the first proviso came to be inserted]. For the above reasons, we find no merit in this batch of civil appeals filed by the Department which are hereby dismissed with no order as to costs
We note that the same ratio has been decided by the Hon’ble Punjab & Haryana High Court in the case of CIT vs. Lakhani Footwear Ltd. [ITA No.149 of 2010 (HC P&H), wherein it was held that the assessee collected ESI & PF from its employees but did not pay the same to the respective funds within the due date prescribed in the relevant legislation. The amount was, M/s. J. J. Exporters Ltd. Assessment Year: 2006-07 however, paid before the due date u/s 139(1) for filing the return of income u/s 139(1) of the Act. Therefore, disallowance cannot be made. In view of the above judicial pronouncements, we note that if the employees’ contribution of PF & ESI is deposited before the due date of filing return of income u/s 139(1) of the Act then it would be a sufficient compliance and no disallowance is warranted. That being so, we decline to interfere in the order passed by the ld. CIT(A), his order on this issue is hereby upheld and Ground Nos.1 &2 raised by the Revenue are dismissed.
Ground No.3 raised by the Revenue relates to non-payment of leave encashment.
At the outset itself, the ld. counsel for the assessee has submitted that the amount of Rs.12,11,113/- on account of leave encashment has already been suo-moto disallowed by the assessee in his computation of income, therefore, the same should not be disallowed again otherwise, it would be a double disallowance.
We note that the impugned amount is a part of components added back in the computation of income, as made by the assessee. This is quite clear from the Annexure-A submitted by the assessee before ld CIT(A), wherein computation of income statement is enclosed. The assessee has suo-moto disallowed the amount and the action of the Assessing Officer in adding back the same has resulted in a double addition. Since, the assessee has suomoto disallowed the amount of income, therefore, it should not be disallowed again and, hence, the disallowance made by the Assessing Officer should be deleted. That being so, we decline to interfere in the order of the ld. CIT(A), his order on this issue, is hereby upheld and the Ground No.3 raised by the Revenue is dismissed. M/s. J. J. Exporters Ltd. Assessment Year: 2006-07 10. The Grievance of Revenue in Ground No.4 raised by it is that theorder of the CIT(A), is erroneous in allowing fresh claim of provision of doubtful debt u/s 115JB of the Act, without referring the matter back to the Assessing Officer for verification.
Briefly stated, the relevant material facts about this issue are as follows: The assessee has debited an amount of Rs. 19,57,063/- towards provision for doubtful debts in the profit and loss account. This provision has been added back in the computation of income underthe normal provision. However, in the computation of‘Book Profit’ u/s 115JB of the Act, the assessee has not added back the above provision. As per the explanation to section 115JB the amount set aside to provisions made for meeting liability other than ascertained liability is to be added back to the net profit as per books to arrive at book profit. The provision for doubtful debt is undetermined liability which according to the explanation u/s 115JB should be added to the book profit for computing the liability of MAT. Therefore, the provision for doubtful debts of Rs.19,57,063/- was added by the AO, to net profit, as per profit and loss account for the computation of “Book Profit" for the purpose of taxation under section 115JB of I.T. Act.
On appeal by the assessee, the ld. CIT(A) deleted the addition.Not being satisfied with the order of the ld. CIT(A), the Revenue is in appeal before us.
The ld. DR for the Revenue has primarily reiterated the stand taken for the Assessing Officer which we have noted in ourearlier para and is not being repeated for the sake of brevity. On the other hand, the ld. counsel for the assessee has defended the order passed by the ld. CIT(A).
13 We have given a careful consideration to the rival submissions and perused the materials available on record, we note that as regards the factual merits, it has been brought to our notice that during the year ended 31.03.2006 relevant to Assessment Year 2006-07, the appellant company M/s. J. J. Exporters Ltd. Assessment Year: 2006-07 debited a sum of Rs.19,57,067/- in the Profit & Loss Account asprovision for doubtful debts (vide Schedule – N of the audited accounts) at Page No.39 of the Audited Account enclosed at Annexure – C and a equivalent amount was reduced from the Sundry Debtors (vide Schedule – F of the Audited Accounts) at Page No.35 of the Audited Account enclosed at Annexure-C.
Based on the above facts, the following accounting entries may be made to understand the assessee`s case under consideration:
(1) Provisions for doubtful debt A/c debit Rs.19,57,067 To Sundry Debtors A/c Rs.19,57,067
(2) Profit and Loss A/c debit Rs.19,57,067 To Provisions for doubtful A/c Rs.19,57,067 The net result of these accounting entries is that the in the first accounting entry ‘Provisions for doubtful debtA/c’ gets debit by Rs. 19,57,067/- and in the second accounting entry ‘Provisions for doubtful A/c’ gets credit by Rs. 19,57,067/-, hence the net impact in the ‘Provisions for doubtful A/c is zero. By these accounting entries the sundry debtors are reduced by Rs.19,57,067/- and profit and loss account get a charge to the tune Rs. 19,57,067/-, therefore, it is nothing but writing off the sundry debtors by Rs.19,57,067/-.
After examining the facts as emanating from the example above, we find in agreement with the assessee that though the word used in ‘Provision’, but it represented the amount actually written off in theProfit & Loss Account during the year and in the Books of Account by reducing the Sundry Debtors by an equivalent amount in the Balance Sheet. For that we find support from the judgment of the Hon’ble Apex Court of India in the case of Vijay Bank, as reported in (2010) 323 ITR 166 has held that Provision for Doubtful Debts in the Profit & Loss Account which isreduced by an equivalent amount in the Balance Sheet from sundry Debtors Account is actually the claim for bad debt and is fully allowable.We also note that the claim of the assessee made in M/s. J. J. Exporters Ltd. Assessment Year: 2006-07 appeal is genuine and well supported by the documentation, which was also available before the ld. Assessing Officer.
Considering the factual position and relevant law explained above in the context of the issue under consideration, it seems to us that we can not disturb the order of ld CIT(A), and appeal of the Revenue must be dismissed.
In the result, the appeal of the Revenue is dismissed.
Order is pronounced in the open court on 30.05.2018. (A. T. VARKEY) (A. L. SAINI) "या"यक सद"य / JUDICIAL MEMBER लेखा सद"य / ACCOUNTANT MEMBER कोलकाता /Kolkata; "दनांक Date:30/05/2018 (RS, SPS)