DCIT, CIR-4(1), KOLKATA, KOLKATA vs. M/S BHUBRIGHAT TEA CO. PVT. LTD., KOLKATA

2. At the outset, it was noticed that the appeal of Revenue is delayed by 17 days and condonation petition has been filed explaining the reasons for delay along with supporting affidavit. On query, from the Bench, Ld. Counsel for the assessee has not opposed the condonation rather he conceded that delay can be condoned. In view of the above reasons given in the condonation petition and concession given by the Ld.AR for the assessee, we condone the delay and admit the appeal.

3. First issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by the Assessing Officer for an amount of ₹11,72,020/- on account of cess on green leaf.

4. Briefly stated facts are that assessee is a private limited company and engaged in business of growing and manufacturing of tea. During the year, assessee has claimed expense of ₹11,72,020/- under the head cess on green leaf in its profit and loss account. During the course of assessment proceedings, Assessing Officer observed that the impugned expense relates to 100% agricultural activity and therefore it cannot be allowed as deduction from the composite income. Thus, AO disallowed the same and added to the total income of assessee.

5. Aggrieved, assessee preferred an appeal before Ld. CIT(A) who deleted the addition made by the AO by observing as under:-

ITA No.663/Kol/2015 A.Y. 2006-07 DCIT Cir-4(1) Kol. Vs. M/s Bhubright Tea Co. Pvt.Ltd. Page 3 “5.1 I have examined this issue. This matter has been duly considered by the ITAT, Kolkata, in the case of M/s Apeejay Tea Ltd., pronounced on 5.9.2011. The ITAT Kolkata while dismissing the appeal of the Revenue held as below:- ‘The fact that the SLP is pending before the Hon'ble Supreme Court against the decision of Hon'ble Calcutta High Court in the case of the AFT Industries Ltd. vs. CIT (270 ITR 167) will not have any effect since the Hon'ble Apex Court has neither set aside the orders of the Calcutta High Court nor granted any stay. In the result the appeal of the Revenue is dismissed.’ The Hon'ble ITAT, Kolkata, confirmed the above view at a later date in an order passed on 11.5.2012 in the case of M/s Assambrook Ltd at ITA no.2049/Kol/2010 for AY 2006-07. 5.2 Humbly following the decision of the jurisdictional Tribunal, I delete the addition of Rs.11,72,020/- on account of Cess on Green Leaf made by the AO. The AO is directed accordingly. Ground no. 3 of the appeal is allowed.” The Revenue, being aggrieved, is in appeal before us.

7.1 We also find the Hon’ble jurisdictional High Court has decided the issue in favour of the assessee in the case of Commissioner of Income Tax vs. A.F.T Industries Ltd. (2004), 270 ITR 167 (Cal) but against the same judgment the Revenue has filed SLP in the Hon’ble Apex Court which has been admitted for final adjudication. In view of this, the ld. DR argued that the deduction of the impugned expenditure claimed by the assessee under the head “cess” on green leaf has not been reached to the finality. A.Y. 2006-07 DCIT Cir-4(1) Kol. Vs. M/s Bhubright Tea Co. Pvt.Ltd. Page 4 However, on perusal of record, we find that in identical facts and circumstances, Hon’ble Supreme Court in the case of Commissioner of Income Tax Vs. M/s Apeejay Tea & Co. Ltd. Civil Appeal No.1105 of 2006, order dated 6th August, 2015 has decided the issue in favour of the assessee. The relevant extract of the order is reproduced below:- O R D E R The respondent-assessee had paid cess on green leaf to the Government of Assam which was levied under Assam Taxation (On Specified Land) Act, 1990. In its income tax return, it had claimed the same as deduction which has been allowed by the High court. The relevant discussion in this behalf is as under: - "However, the learned Tribunal had held that the deduction is eligible after computing the income under Rule 8 and the apportionment is to be made only after the income is so computed. Such apportionment cannot be made be fare the deduction. Rule 8 of the Income Tax Rules, 1962 requires that the computation is to be made as if by fiction the entire income out of the tea grown and manufactured as income assessable under the Income Tax Act, 1961. In view of Rule 8 the income so. computed is to be apportioned 60:40 of which 40 is assessable to tax under the Act. It does not provide that after apportionment of the 60% of the income so computed shall again be required to be computed under the Agricultural Income Tax Act. On the other hand, this 60% is exposed and becomes eligible to tax under the Agricultural Income Tax Act without being required to be assessed under the said Act by reason of the fiction so created. Therefore, the cess paid has rightly been excluded while computing the income under Rule 8 of the tea grown and manufactured. In arriving of the aforesaid conclusion the High Court has referred to the various judgments of this Court. We are of the opinion that the High Court has rightly interpreted the scope of Rule 8 of the Income Tax Rules 1962. We, thus, find no merit in this appeal which is, accordingly, dismissed.” Thus from the above order, it is amply clear that the deduction of cess on green leaf expenditure is available from the composite income. Respectfully following the above judgment of Hon’ble Supreme Court, we do not find any merit in this ground of appeal raised by the Revenue and we accordingly dismiss the same. A.Y. 2006-07 DCIT Cir-4(1) Kol. Vs. M/s Bhubright Tea Co. Pvt.Ltd. Page 5

8. Next issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by the AO for ₹2,44,399/- on account of late deposit of employees contribution to PF Authorities.

9. During the course of assessment proceedings, AO observed from the tax audit report that assessee has failed to deposit the employees contribution to PF account for ₹2,44,399/- within due date as specified under the relevant PF Act. Accordingly, AO disallowed the same u/s. 36(1)(va) of the Act and treated the same as income of assessee u/s 2(24(x) of the Act.

10. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted the amount of PF was deposited within the time as specified under the Assam Tea Plantation Provident Fund Scheme and Deposit link insurance fund scheme. As per the scheme, there was time limit to deposit the employee contribution within a month and the amount of PF was deposited within the specified time i.e. within one month from the month of deduction. The assessee before Ld. CIT(A) further filed the necessary details as under:- Month Employees contribution Date of deposit June 2005 72,555 27.07.05 December 05 90,001 27.01.06 March 06 81,843 29.04.06 Total addition: 2,44,399 In addition to above, assessee submitted that the amount of employees PF fund was deposited before the filing of return of income as specified u/s 139(1) of the Act. Thus, the assessee has complied with the provision of clause (b) of Section 43B of the Act. Ld. CIT(A) after considering the submission of assessee has deleted the addition made by the AO by observing as under:- “4.2 I am in agreement with the views the AR of the appellant. The entire amount of Rs.2,44,399/- has been paid before the grace period of one month allowed under the Assam Tea Plantation Provident Fund Scheme & Deposit Link Insurance Fund Scheme. Moreover, I also find that the entire amount of Rs.2,44,399/- has been paid before the stipulated due date of fling of return of income u/s.139(1). The appellant has also cited several supporting judgments A.Y. 2006-07 DCIT Cir-4(1) Kol. Vs. M/s Bhubright Tea Co. Pvt.Ltd. Page 6 of various courts. Therefore, the addition of Rs.2,44,399/- on account of delayed payment of PF will not sustain. Accordingly Ground No.2 of the al is allowed.”

11. Before us both the parties relied on the order of Authorities Below as favourable to them.

12. We have heard the rival contentions of both the parties and perused the material available on record. The A.O. made additions towards belated payment of employees' contributions to PF. According to the A.O., employees' contribution to provident fund is deductible under the provisions of section 36(1)(va) of the Act, if the same is paid on or before the due date specified under the provident fund Act. The A.O. further was of the opinion that in view of the clear provisions of section 2(24)(x) r.w.s. 36(1)(va) of the Act, any recovery from employees towards provident fund contribution is deemed to be income of the assessee, if the employer failed to pay the same to the provident fund account of the employee within due date specified under the provisions of PF Act. It is the contention of the assessee that second proviso to section 43B of the Act provides that no deduction shall be allowed unless such sum has actually been paid on or before due date as specified in explanation to 36(1)(va) of the Act which was omitted by the Finance Act, 2003 w.e.f. 1.4.2004 and accordingly, there was no special provision regarding employees' contribution to PF. It is further contended that as per the amended provisions of section 43B of the Act, any sum payable by the assessee as an employer by way of contribution to PF shall be allowed, if the same is paid on or before the due date of filing of return of income u/s 139(1) of the Act. The only issue to be resolved is whether the assessee would be entitled to claim deduction for the employees' contribution made to PF after the due date prescribed under the PF Act, but before the due date prescribed for filing of income-tax return in the light of the provisions contained in section 36(1)(va) of the Act and section 43B(b) of the Act. It is the contention of the assessee that there is no distinction between employer and employee contribution after A.Y. 2006-07 DCIT Cir-4(1) Kol. Vs. M/s Bhubright Tea Co. Pvt.Ltd. Page 7 omission of second proviso of section 43B of the Act by Finance Act, 2003 w.e.f. 1.4.2004. In this regard we find that the allowability of employees contribution to provident fund is governed by the provisions of section 36(1)(va) of the Act which reads as under : Other deductions. 236. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28— -------- (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 thereunder or under any standing order, award, contract of service or otherwise;] From the above provisions it is clear that the deduction will be allowed to the assessee when the sum is credited to the employee’s account under the provident fund Act. 12.1 Section 43B of the Act provides for certain deductions to be allowed only on actual payment basis which reads as under : [Certain deductions to be only on actual payment. 2543B. 26Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of— 27[(a) any sum payable by the assessee by way of tax28, duty, cess or fee, by whatever name called, under any law for the time being in force, or] (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 employees, 29[or] The provisions of sub clause (b) of section 43B of the Act covers any sum payable by the assessee as an employer by way of contribution to any A.Y. 2006-07 DCIT Cir-4(1) Kol. Vs. M/s Bhubright Tea Co. Pvt.Ltd. Page 8 Provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees. The proviso to section provides that any sum paid by the assessee on or before the due date of furnishing return of income u/s 139(1) of the Act, then no disallowance can be made under the provisions of section 43B of the Act. A careful consideration of section 43B of the Act makes it clear that an extension is granted to the assessee to make the payment of PF contributions or any other fund till the due date of furnishing return of income u/s 139(1) of the Act. From the above facts we notice that the legislature has given different treatment for the allowability of employees and employers contribution to the provident fund account. But we further note that the Courts have not differentiated the employees & employers contribution to provident fund as far as allowability of the same is concerned under the provisions of section 43B of the Act. The Hon'ble Karnataka High Court, in the case of Essae Teraoka (P.) Ltd. v. Dy. CIT [2014] 366 ITR 408/222 Taxman 170 (Mag.)/43 taxmann.com 33 took the view that the word ‘contribution’ occurring in section 43B of the Act would include employees' contribution to PF in the light of the definition of the word contribution as per the provisions of section 2(c) of the PF Act. As per the said section, contribution would mean both employer's contribution and employees' contribution. Accordingly, it was held that the provisions of section 43B of the Act allowing deduction for payment made before the due date of filing of Income-tax return cannot be ignored. Similarly, the ITAT Hyderabad Tribunal in the case of Tetra Soft (India) (P) Ltd. v. ACIT [2015] 70 SOT 66/61 taxmann.com 299 held that when assessee remitted employees' contribution to PF within due date of filing return of income u/s 139(1) of the Act, amount of employees' contribution to PF cannot be disallowed. Similar view was upheld by the Chennai bench of the ITAT, in the case of Asstt. CIT v. Farida Shoes (P.) Ltd. [2016] 46 CCH

29. The coordinate bench held that if assessee had not deposited employees' contribution towards provident fund up to the due A.Y. 2006-07 DCIT Cir-4(1) Kol. Vs. M/s Bhubright Tea Co. Pvt.Ltd. Page 9 date as prescribed under relevant statute, but before due date of filing of return no disallowance could be made in view of the provisions of section 43B of the Act. In the case of CIT v. Udaipur Dugdh Utpadak Sahakari Sangh Ltd. [2013] 35 taxmann.com 616/217 Taxman 64 (Mag.)/[2014] 366 ITR 163 (Raj.), the Hon'ble High Court of Rajasthan, after referring to the apex court decision in the case of CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306/185 Taxman 416 & CIT v. Vinay Cement Ltd. [2007]213CTR 268 (SC) held that the deductions should be allowed for the payment of employees' contribution made before the due date of filing of return. Similarly, in the case of CIT v. State Bank of Bikaner, the Hon'ble Rajasthan High Court held that contribution paid after the due date under the respective Act, but before filing the return of income u/s 139(1) of the Act cannot be disallowed u/s 43B of the Act and or u/s 36(1)(va) of the Act. 12.2 Considering the facts and circumstances of this case and also following the judicial precedents as discussed above, we are of the view that there is no distinction between employees' and employer contribution to PF, and if the total contribution is deposited on or before the due date of furnishing return of income u/s 139(1) of the Act, then no disallowance can be made towards employees' contribution to provident fund. Hence, we are inclined not to interfere in the order of ld. CIT(A). Therefore, the ground of appeal filed by the Revenue is dismissed.

12. Next issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made of ₹2.93 crores on account of unexplained cash credit u/s 68 of the Act.

13. During the year, assessee has received a loan of ₹2.39 crores from M/s Sugam Distributors Pvt. Ltd. (SDPL for short). The assessee in support of loan taken from SDPL has filed copy of PAN and address of the lonee. The director of SDPL also appeared before the AO in response to the summons issued u/s. 131 of the Act. But he failed to explain the amount of loan given by it on the plea that he assumed charge of director in SDPL in November, 2006. The A.Y. 2006-07 DCIT Cir-4(1) Kol. Vs. M/s Bhubright Tea Co. Pvt.Ltd. Page 10 director also failed to explain the source of money deposited in the bank account of SDPL. The assessee also filed copy of loan confirmation from SDPL. The assessee also submitted that SDPL has been merged with M/s AHW Steel one of the company of Bajoria Group of companies. However, the AO disregarded the contention of assessee by observing as under:- “… … The contention of the A/R is not accepted when the identity of the loanee was not established and when the creditworthiness could not be proved by the Director. Besides, this the receipts of the loanee company has not been proved to be genuine. The whole thing was predetermined by the assessee company. Even in the time of audit u/s.44AB the identity was not given to the auditor. The intention of the assessee also became clear when the company is merged with group of company. Therefore, the entire amount of loan in respect of Sugam Distributors is considered the own money of the assessee enrooted through different bank a/c. being the amount is concealed by the assessee from income, it is added back with total income as income from other sources.”

14. Aggrieved, assessee preferred an appeal before Ld. CIT(A) who deleted the addition made by AO by observing as under:- “8.3 I have examined the assessment order, the remand report and various submissions made by the AR of the appellant. While making the addition of Rs.2.39 crores, the AO has held the entire amount as the concealed income of the appellant. Although, the section under which this addition has been made has not been mentioned by the AO, the language has doubted the identity, creditworthiness and genuineness for the transaction. It therefore appears that the addition was made u/s 68 of the IT Act. in the remand proceedings. (A) Identity of the creditor During the appellate proceeding, to prove the identity of the creditor, M/s Sugam Distributors P Ltd., the appellant has provided the following documents:- i) PAN, Acknowledgement of IT Returns for AY 2006-07 and audited accounts for the period ending 31/03//2006 ii) Copy of return filed with ROC iii) Copy of the order of Hon'ble Calcutta High Court giving consent to the merger of M/s Sugam Distributors P Ltd. with M/s AHW Steel. The above documents clearly justify the identity of M/s Sugam Distributors P. Ltd. Needless to say, even the Hon'ble High Court of Kolkata has recognized the identity of M/s Sugam Distributors P. Ltd. (B) Genuineness and creditworthiness of the Creditor From the remand report as well as the other documents submitted by the AR of the appellant the following facts emerge: i) The entire loan was received through banking channels ii) In the remand report, the ITI has confirmed after examining the records of M/s Sugam Distributors P. Ltd. that the opening stock of shares as on 01/04/2005 was for Rs.3,44,10,000/- whereas the closing stock as on 31/3/2006 was only A.Y. 2006-07 DCIT Cir-4(1) Kol. Vs. M/s Bhubright Tea Co. Pvt.Ltd. Page 11 Rs.85,29,240/-. This implies that during FY 2005-06, M/s Sugam Distributors P. Ltd. had sold shares to the extent of Rs.2,58,80,760/- which was sufficient to finance the loan of rs.2,39,00,000/- to the appellant company. iii) The parties to whom the shares were sold were clearly identified before the AO as proper ledger account of transaction was maintained and filed both at assessment and remand stage. The detailed sales ledger was available with the AO and it included not only the names and quantity of shares sold but also the names of the parties to whom such shares were sold. The AO was in possession of these details but neither at the remand stage nor at the assessment stage doubted these facts. iv) During the assessment proceedings Shri Manish Saraogi, Director of M/s Sugam Distributors P. Ltd attended but could not provide any details of the loan because he was not a Director when the loan was given. I have examined the annual return filed with the ROC for the relevant period (2004) and I find that at the time loan was given, the concerned Directors of M/s Sugam Distributors P. Ltd. were Shri Ashok Kumar Latt and Shir Ram Kumar Sharma. It was only much later in November, 2006 that Shri Manish Saraogi and Shri Vinod Kumar Nangalia became Directors. It is therefore possible that Shri Manish Saraogi may not be readily conversant with what happened in the period earlier to which he became the Director. 8.4 I am therefore of the view that the appellant company has discharged its onus to establish the identity, creditworthiness and genuineness of the transaction with M/s Sugam Distributors P. Ltd. Under such circumstances, addition of Rs.2,39,00,000/- as unaccounted income of the appellant cannot be sustained. I find support to my point of view from the following judicial decisions;- i) CIT vs. Orissa Corporation (P) Ltd. reported in (1986) 159 ITR 78 (SC) ii) CIT vs. Sahibganaja Electric Cables (P) Ltd. reported in 115 ITR 408 (Cal) iii) CIT vs. Shree Gopal & Co. reported in 204 ITR 285 (Guj) iv) CIT vs. Tania Investments (P) Ltd. reported in 322 ITR 394 (Bom) v) MOD Creations (P) Ltd. vs. ITO reported in 354 ITR 282 (Del) vi) DCIT vs. Rohini Builders reported in 256 ITR 360 (Guj) vii) Nemi Chand Kothari vs. CIT reported in 264 ITR page 254 (Gauhati). In view of the facts and circumstances of the case discussed earlier as well as the judicial pronouncements cited, I am of the view that addition should not sustain. Ground No.7 of the appeal is allowed.” The Revenue, being aggrieved, is in appeal before us.

15. Before us Ld. DR heavily relied on the order of Assessing Officer whereas Ld. AR for the assessee relied on the order of Ld. CIT(A). Ld. AR filed paper book which is running pages from 1 to 122 and submitted that in the remand report the AO has admitted the fact that SDPL was holding shares of during the financial year i.e. 01.04.2005 for ₹3,44,10,000/- whereas the shares held as on 31.03.2006 was for ₹85,29,240/-. Thus, it is clear that SDPL has given loan to assessee for ₹ 2.39 corres out of the sale proceed received by it from the sale of shares held by it. Ld. AR in support of assessee’s claim drew our attention pages D-1 and D-2 of the paper book where the remand A.Y. 2006-07 DCIT Cir-4(1) Kol. Vs. M/s Bhubright Tea Co. Pvt.Ltd. Page 12 report of AO was placed. Ld. AR also produced the copy of bank statement of SDPL wherein the payment made to assessee was reflected. The copy of the bank statement and bank book of SDPL is placed on pages 83 to 90 of the paper book. Ld. AR further submitted that SDPL got merged with AHW Steel by the order of Hon'ble jurisdictional High Court vide dated 22.04.2008 with effect from 01.04.2006. The copy of Hon'ble jurisdictional High Court placed on pages 52 to 270 of the paper book.

The Director of SDPL, namely Shri Manish Saraogi could not explain the entry of the loan provided to the assessee due to reason that he became the Director only in November,2006 and the loan was provided to the assessee before his joining as director in SDPL. Ld. AR relied on the order of Ld. CIT(A).