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Income Tax Appellate Tribunal, DELHI BENCH ‘F’ : NEW DELHI
Before: SHRI KULDIP SINGH & SHRI ANADEE NATH MISSHRA
way of consolidated order to avoid repetition of discussion.
The Appellant, Deputy Commissioner of Income-tax, Central Circle 1, New Delhi (hereinafter referred to as ‘the Revenue’) by filing the aforesaid appeals sought to set aside the order dated 08.04.2013 passed by the Commissioner of Income-tax (Appeals)-III, New Delhi qua the assessment years 2003-04 & 2005-06 on the grounds inter alia that :-
ASSESSMENT YEAR 2003-04
“1. On the facts and in the circumstances of the case, the CIT(A) has erred in deleting the addition of Rs.37,53,212/- made by the Assessing Officer on account of late deposit of employee's contribution towards provident fund in view of the provisions of section 2(24)(x) read with section 36(1)( va) of the Income tax Act, 1961.
2. On the facts and in the circumstance of the case. the CIT(A) has erred in deleting the addition of Rs.1,81,159/- made by the Assessing Officer on account of late deposit of employee's contribution towards ESI in view of the provisions of section 2(24)(x) read with section 36(1)(va) of the Income tax Act. 1961.
3. On the facts and in the circumstance of the case, the CIT(A) has erred in deleting the addition of Rs.2,36,825/- made by the Assessing Officer on account of expenditure in lieu of exempt income as per provisions of section 14A, of Income tax Act, 1961 r.w. Rule 80 of the Income tax Rules, 1962.
4. The order of the CIT(A) is erroneous and is not tenable on facts and in law.
ASSESSMENT YEAR 2005-06
On the facts and in the circumstances of the case, the CIT(A) has erred in deleting the addition of Rs.23,52,291/- made by the Assessing Officer on account of late deposit of employee's contribution towards provident fund in view of the provisions
of section 2(24)(x) read with section 36(1)( va) of the Income tax Act, 1961.
2. On the facts and in the circumstance of the case. the CIT(A) has erred in deleting the addition of Rs.6,13,143/- made by the Assessing Officer on account of late deposit of employee's contribution towards ESI in view of the provisions of section 2(24)(x) read with section 36(1)(va) of the Income tax Act. 1961.
On the facts and in the circumstance of the case, the CIT(A) has erred in deleting the addition of Rs.2,36,825/- made by the Assessing Officer on account of expenditure in lieu of exempt income as per provisions of section 14A, of Income tax Act, 1961 r.w. Rule 80 of the Income tax Rules, 1962.
4. The order of the CIT(A) is erroneous and is not tenable on facts and in law. 3. Briefly stated the facts necessary for adjudication of the controversy at hand pertaining to both the appeals are : the assessment for AYs 2003-04 and 2005-06 of the assessee was completed u/s 143(3) at the loss of Rs.3,51,02,917/- and Rs.11,56,925/- respectively. Subsequently, on the basis of search and seizure operation conducted on the HFCL group of cases on 10.05.2007 and at the time of carrying out the survey u/s 133A at the business premises of assessee company, certain documents were found and seized and consequently proceedings u/s 153C were initiated. In response to the notices u/s 143(2) and 142(1) of the Act, assessee furnished various details.
AO noticed during assessment proceedings that the assessee has not discharged its liability specified u/s 2(24)(10) of the Act regarding payment of provident fund and Employees State Insurance (ESI) within specified date and there is a delay in the payment of contribution towards PF for many months. Since the assessee failed to deposit the PF within a stipulated period, the amount of Rs.37,53,212/- for AY 2003-04 and Rs.23,52,291/- for AY 2005-06 is treated as income of the assessee and as such, was not allowed deduction u/s 36(1)(v)(a) and thereby made addition thereof to the income of the assessee.
AO also noticed that delay in payment of ESIC and treated the same as income of the assessee to the tune of Rs.1,81,159/- for AY 2003-04 and Rs.6,13,143/- for AY 2005-06 u/s 36(1)(v)(a) of the Act and made addition thereof.
AO also noticed that the assessee purchased optionally fully convertible debentures of Rs.100 each of Ms. Microwave Communications Ltd. for a sum of Rs.4,73,65,000/- during AY 2003-04 and Rs.4,73,65,000/- for AY 2005-06 and the assessee was called upon to explain as to why the proportionate interest earned was not allowed u/s 14A of the Act. Finding the explanation made by the assessee not tenable, AO by invoking the provisions contained under Rule 8D of the Income-tax Rules, 1962 (for short ‘the Rules’) made an addition of Rs.2,36,825/- for AY 2003-04 and Rs.2,36,825/- for AY 2005-06 and thereby assessed the loss at Rs.3,09,31,721/- and Rs.20,45,334/- for AY 2003-04 and 2005-06 respectively.
Assessee carried the matter before the ld. CIT (A) who has allowed the appeals. Feeling aggrieved, the assessee has come up before the Tribunal by way of filing the present appeals.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
GROUNDS NO.1 & 2
Undisputedly, the assessee has not deposited employees contribution towards provident fund to the tune of Rs.37,53,212/- and ESI to the tune of Rs.1,81,159/- for FY 2002-03 and Rs.23,52,291/- and Rs.6,13,143/- for FY 2004-05 on due date of deposit but deposited the same before due date of filing of the return of income u/s 139(1) of the Act.
In the backdrop of the aforesaid undisputed facts and orders passed by the lower authorities, the first question arises for determination in both the appeals is :-
“as to whether non-deposit of employees contribution towards provident fund and ESI on due date of deposit as provided under the law but deposited before filing the return is allowable expenditure?”
Issue in controversy has already been set at rest by the Hon’ble jurisdictional High Court in cases cited as CIT vs. AIMIL Limited – 321 ITR 508 (Del.) and CIT vs. Pamwi Tissues Ltd. – 313 ITR 137 (Bom.) by deciding in favour of the assessee. The ratio of the judgment in case of CIT vs. AIMIL (supra) is reproduced as under :-
“Case Note : Direct Taxation - Deduction - Contribution to ESI - Present appeal has been filed against order whereby revenue's appeal against order disallowance made by AO was held invalid was rejected - Whether Tribunal was correct in law in deleting addition relating to employees contribution towards Provident Fund and ESI made by Assessing Officer under Section 36(1)(va) of Act? - Held, perusal of order of Tribunal would show that it has relied upon judgment of Supreme Court in case of CIT v. Vinay Cement Ltd., to support its decision to effect that if employers' as well as employee's contribution towards provident fund and ESI is paid before due date of filing of return, no disallowance can be made by AO - Applying ratio of decision of Supreme Court in CIT Vs. Vinay Cement Ltd.; dismissed appeals of Revenue - No substantial question of law arises for our consideration in the present appeal - Appeal is, thus, dismissed - Thus, answer question in favour of assessee and against Revenue - As a consequence, appeals filed by assessees stand allowed and those filed by Revenue are dismissed.”
Following the decision rendered by Hon’ble jurisdictional High Court in case cited as CIT vs. AIMIL (supra), we find no illegality or perversity in the findings returned by ld. CIT (A) in deleting the addition on account of late deposit of employees contribution towards PF and ESI but before due date of filing the return. So, grounds no.1 & 2 are determined against the Revenue.
GROUNDS NO.3 & 4 13. AO by invoking the provisions contained under Rule 8D of the Rules disallowed the proportionate interest u/s 14A (2) of the Act on the purchase of optionally fully convertible debentures of Rs.100 each of M/s. Microwave Communications Ltd. for Rs.4,73,56,000/- for AY 2003-04 and Rs.4,73,56,000/- for AY 2005-06. But the ld. CIT (A) deleted the disallowance made by the AO u/s 14A(2) of the Act.
Ld. AR for the assessee contended that since the assessee has not incurred any expenditure to earn the exempt income, the interest on debentures is fully taxable under the Act and as such provisions contained u/s 14A (2) of the Act are not applicable qua investment made in the optionally fully convertible debentures.
The contention made by the ld. AR is tenable for the reason that when interest receivable on debentures does not fall in the category of exempt income, no addition on account of disallowance of interest as claimed u/s 36(1)(iii) of the Act can be made. So, again, we find no illegality or perversity in deleting the addition made by the AO on account of disallowance of interest claimed u/s 36(1)(iii) of the Act by the CIT (A). So, grounds no.3 & 4 are determined against the Revenue.
In view of what has been discussed above, both the appeals filed by the Revenue are hereby dismissed. Order pronounced in open court on this 9th day of March, 2017.