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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
.. Shri Nitesh Joshi, AR Assessee by Revenue by .. Shri Rajat Mittal, DR .. Date of hearing 12-05-2017 Date of pronouncement .. 31-05-2017 O R D E R PER MAHAVIR SINGH, JM:
Out of these four appeals, three by the assessee and one by the Revenue are arising out of the different orders of CIT(A)-4, Mumbai, in appeal Nos. CIT(A)-4/ITO-2(1)(4)/IT-12/05-06, CIT(A)-4/R2(1)/IT-15/05-06, CIT(A)- 4/ACIT-2(1)/IT-12/06-07 & CIT(A)-4/IT-2/DCIT.2(1)/2011-12 dated 05-01- 2010, 07-01-2010 & 03-09-2012. The Assessments were framed by ITO Ward-
ITA No.1621,1622,1623/Mum/2010& Cable Corporation of India Ltd.; A.Y:02-03,03-04,04-05 2(1)(4), DCIT Circle 2(1), ACIT Circle 2(1), Mumbai for the A.Ys. 2002-03, 2003-04, 2004-05 vide order dated 22-03-2005, 30-01-2006 & 23-11-2006 u/s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’). The penalty was levied by DCIT Circle 2(1), Mumbai under section 271(1)(c) of the Act vide order dated 28-02-2011.
At the outset, it is noticed that in these appeals the registry has raised an objection that there is a short payment of Tribunal fee of No. 9,500/- in each of these three appeals. According to the Registry there is a loss of No. 32,56,35,702/- in AY 2002-03, loss of No. 20,99,56,240/- in AY 2003-04 and a loss of No. 25,45,23,187/- in AY 2004-05. It means that in all the three years’ loss is more than No. 2,00,000/- and according to Registry the appeal fee should have been No. 10,000/-. But assessee has paid No.500 in each of the case. The learned Counsel for the assessee stated that the issue of payment of fee is decided by Hon’ble Bombay High Court in the case of Gilbs Computer Ltd. vs. Income Tax Appellate Tribunal and others (2009) 317 ITR 159 (Bom), wherein the Hon’ble Bombay High Court has clearly held that in the case of loss, such case would be covered by clause d of sub-section 6 of Section 253 of the Act. Hon’ble Bombay High Court observed as under: - “17. Considering the above discussions in our opinion, the expression “more and less” will have to be given the natural meaning. It can only be more than a negative income even if the expression “income” is held to be both positive and negative income. Negative income cannot be more. It will always be less. In that event the language of section 253(6)(a) that would be attracted. The other way of looking at it is if the total income can be considered even to be the loss then the absence of it will not be covered by either (a), (b ) or (c) of sub-section (6). It will be clause (d) of sub-section (6) which will apply. It is no doubt true that on behalf of the respondents, the learned counsel has submitted that ITA No.1621,1622,1623/Mum/2010& Cable Corporation of India Ltd.; A.Y:02-03,03-04,04-05 clause (d) would normally apply to other cases like penalties, interest levy, denying of refund and the like.
However, considering the entire scheme of the Act and the history of the purpose of the amendment, we have no difficulty in holding that either clause (a) or (d ) of sub-section (6) of section 253 would be attracted but considering the earlier discussion regarding that loss would also be covered by the expression “total income”, we would hold that in such a case it would be covered by clause (d). If that be so, the appellants were right in paying court fee of No. 500. In view of that, order dated 21-1-2009 is set aside and appeal is restored to file as properly stamped.”
We find that the assessee has rightly paid a sum of No. 500 as appeal fee for filing of appeal before Income Tax Appellate Tribunal in term of clause d of Sub section 6 of Section 253 of the Act. As the issue is covered, we admit the appeal and adjudicate the same.
The first common issue in all these three appeals of assessee is as regards to the order of CIT(A) confirming the action of the AO in disallowing commission paid to M/s Narottam Agencies proprietor Shri DD Vyas amounting to No.3,69,087/- in AY 2002-03, a sum of No. 2,96,063/- in AY 2003-04 and a sum of No. 1,00,000/- in AY 2004-05. The facts and circumstances are identical in all the three years and grounds raised
are also identical worded. Hence, we will reproduce the ground as raised in AY 2002-03 which reads as under: -
1. The learned Commissioner of Income Tax (appeals) erred in upholding the action of the Income tax officer in disallowing the commission of Rs 3,69,087/- paid to M/s Narottam Agencies by treating the same as bogus expenditure. The appellant submits that the commission was paid by account payee cheque and that all the relevant details have been submitted and because
ITA No.1621,1622,1623/Mum/2010& Cable Corporation of India Ltd.; A.Y:02-03,03-04,04-05 of any alleged wrong doing on the part of the payee no disallowance could be made in the case of the appellant.”
Briefly stated facts are that the assessee is manufacture of Cables wire etc. The assessee has claimed payment of commission and brokerage to M/s Narottam Agencies proprietor Mr. DD Vyas. According to AO, there was survey under section 133A of the Act on the business premises of M/s Narottam Agencies and during the survey, it was found that M/s Narottam Agencies is not having infrastructure, technical expertise and another professional competence, whatsoever, to provide services for which he is claiming to received commission from the assessee. According to AO, this commission payment is without any basis. On query from the AO, assessee submitted the following details before the AO : - “a. Copy of their letter regarding nature of services to be provided by Shri Narottam Agencies. c. Copy of credit note in respect of commission paid to Shri. Narottam Agencies.”
It was claimed that the payment of commission of M/s Narottam Agencies is for securing orders from Polarias Software Lab Ltd. The Polarias Software Lab Ltd, denied having any middleman involved in the transaction with Cable Corporation of India Ltd. In view of the enquires conducted after survey operation under section 133A of the Act and confirmation given by Polarias Software Lab Ltd., the AO treated the payment of commission to M/s Narottam Agencies by the assessee company as bogus and added to the total income of the assessee for all the three years. Aggrieved, assessee preferred the appeal before CIT(A), who also confirmed the action of the AO by observing in Para 4 as under: - “4. I have considered the A.O’s order in detail as well as the various arguments put forth by the appellant.
ITA No.1621,1622,1623/Mum/2010& Cable Corporation of India Ltd.; A.Y:02-03,03-04,04-05 However, I am not convinced by the arguments of the appellant. The survey proceedings at the premises of M/s. Narottam Agencies has very clearly brought out the fact that it had no infrastructure /expertise to provide the services for which commission was received and in fact he had paid commission to persons who had no substance and there were cash withdrawals from the accounts of such persons soon after receipt of payments from M/s. Narottam Agencies. The documents sought to be relied upon by the appellant to negate the disallowance made by the A.O. are not third documents which could support the claim made by the appellant. For e.g. agreement between the appellant and M/s. Narottam Agencies is only between them and no third party is involved. Similarly, copy of credit note issued by appellant is only an internal document. Copy of bank statement is only a proof of payment and nothing beyond that to establish proof of rendering of services by the payee. Similarly, copy of contract/ details of dispatches do not establish any service having been rendered by the to the appellant and the A.O. has factually assailed any such claim made by the appellant by his own finding of facts. In view of the above and the detailed investigation by the A.O., I reject the ground rai5e4y the appellant and confirm the action of the A.O. in making the disallowance. This ground of appeal is dismissed.”
Aggrieved, now assessee is in second appeal before Tribunal.
We have heard the rival contentions and gone through the facts and circumstances of the case. Before us, it was claimed that for commercial, administrative and logistic reasons, it was necessary to engage the services of an agent in the process of bidding for contracts. Extensive follow-up has to be done at various levels to monitor the tender process. Once the order is secured, constant follow-up needs to be done to ensure timely payments of the amounts Page 5 of 11
ITA No.1621,1622,1623/Mum/2010& Cable Corporation of India Ltd.; A.Y:02-03,03-04,04-05 by the customers. The assessee explained to the AO that it was extremely necessary to engage services of an agent who is well versed with handling day- to—day matters with the customers. In support of the above, the assessee furnished the following documentary evidence to the AO : - Copy of the letter dated November 23,2000 as acknowledged by Shri Narottam Agencies, under which Shri Narottam Agencies was required to provide certain services to the appellant for securing the order for a fixed commission.
Copy of the Credit Note No.401/002 dated February 20, 2002 issued to Shri Narottam Agencies for crediting their accounts with the amount of commission payable to them We find that the AO required the Polaris Software Lab Ltd. to verify the payment of commission and in turn the reply was given by Polaris Software Lab. Ltd. which is as under:
The full electric contract work in the construction of development center project was entrusted to Cable Corporation of India Ltd. This was on the basis of bill of quantities estimated by our Architect and the selection was based on the best price offered by M/s Cable Corporation Ltd. out of five contractors who had bid for the work. We would also like to confirm that there was no middle man involved in this transaction
After hearing both the sides, we find that M/s Narottam Agencies (through its proprietor, Mr. Vyas) was acting as an agent of the assessee and it represented the assessee in the matters relating to the tender process before Polaris Software Lab. Ltd. As far Polaris Software Lab. Ltd. was concerned, since Mr. Vyas represented before them as the assessee’s representative, it (Polaris Software Lab. Ltd) always presumed that it was dealing with the assessee and accordingly, Polaris Software Lab. Ltd. rightly confirmed that there was no middle man involved in the tender process. The services rendered by Mr. Vyas were in nature of Page 6 of 11
ITA No.1621,1622,1623/Mum/2010& Cable Corporation of India Ltd.; A.Y:02-03,03-04,04-05 administrative services viz, following up for the tenders made by the appellant, providing information on prices charged and offers generally made by competitors, communicating to the appellant the queries raised by Polaris Software in connection with the tenders. For rendering the above administrative services, the service provider is neither required to be professionally/technically qualified nor does he require specific infrastructure. There is neither any evidence on record which proves that the persons to whom Mr. Vyas has paid sub-commission were persons of “no means” nor has the AO explained the basis of such a conclusion. The fact that the sub-agents had withdrawn cash from their bank accounts soon after the payments were received by them from Mr. Vyas does not in any way lead to a conclusion that the commission paid by the appellant was bogus. The reliance placed by the AO on the allegation made that Mr. Vyas claimed to have paid commission to some companies also, which have either closed their operations long time back or have accumulated losses is unjustified. The payment of commission by Mr. Vyas only to companies which have closed the operations or which incur losses does not prove that the commission paid by the appellant to Mr. Vyas was bogus. It is also difficult to fathom why Mr.Vyas would pay commission to only to companies which have closed the operations I which incur losses and not to companies which earn profit. Also, the issue under dispute relates the claim for deduction of commission expenditure and not whether the appellant has accounted for income by way of commission from Mr. Vyas. In these facts, we are of the view that the lower authorities erred in disallowing the commission payment which is in the normal course of business. The genuineness of commission payment is proved by the assessee and hence is allowable. We allow the commission, accordingly, in all the three years. These common issue of all the three appeals of the assessee is allowed.
The next issue in is as regards to the order of CIT(A) in confirming the action of the AO in disallowing the claim of assessee
ITA No.1621,1622,1623/Mum/2010& Cable Corporation of India Ltd.; A.Y:02-03,03-04,04-05 PF payment of employees contribution under section 36(1)(va) of the Act read with section 2(24)(x) of the Act.
We have heard the rival contentions and gone through the facts and circumstances of the case. Brief facts are that the assessee claimed employee’s contribution to PF accounting to No. 1,03,83,856/- under section 36(1)(va) read with section 2(24) of the Act. The AO noted that the employee’s contribution to PF and ESI was not within the grace period as provided under the Provident Fund Act and ESI Act. Since the contributions were not paid on due dates, the AO disallowed the same. The CIT(A) also confirmed the same. It was claimed by the assessee before us that these are paid within due date of filing of return of income u/s 139 of the Act and this issue is covered by the decision of the Hon’ble Bombay High Court in the case of CIT vs. Ghatge Patil Transport Ltd. (2014) 368 ITR 749 (Bom), wherein it is held as under: - “13. In that judgment, this Court held that no substantial questions of law would arise since section 43B is inserted in the I.T. Act with effect from 1st April, 1984 by which the mercantile system of accounting with regard to tax, duty and contribution to welfare funds stood discontinued. Under section 43B of the I.T. Act, it became mandatory for the assessee to account for such payment including to welfare funds not on mercantile basis but on cash basis. The judgment further mentions that this situation continued between 1st April, 1984 and 1st April, 1988. It is also noticed that section 43B was again amended and the first proviso thereto has been added which was restricted to tax, duty, cess or fee excluding labour welfare. In view thereof, the second proviso as follows came to be inserted:— “Provided further that no deduction shall, in respect of any sum referred to in clause (b), be allowed unless such sum has actually been paid during the previous year on ITA No.1621,1622,1623/Mum/2010& Cable Corporation of India Ltd.; A.Y:02-03,03-04,04-05 or before the due date as defined in the Explanation below clause (va) of sub-section (1) of section 36.”
The second proviso was further amended with effect from 1st April, 1989 to read as under:— “Provided further that no deduction shall, in respect of any sum referred to in clause (b), be allowed unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date as defined in the Explanation below clause (va) of sub-section (1) of section 36, and where such payment has been made otherwise than in cash, the sum has been realised within fifteen days from the due date.”
14. From a reading of above, it is clear that the employer-assessee would be entitled to deduction only if the contribution to the employee’s welfare fund stood credited on or before the due date and not otherwise. It transpires that Industry once again made representations to the Ministry of Finance to remove this anomaly. The result was that an amendment was inserted which came into force with effect from 1st April, 2004 and two changes were made in section 43B firstly by deleting the second proviso and further amendment in the first proviso which reads as under:— “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.”
ITA No.1621,1622,1623/Mum/2010& Cable Corporation of India Ltd.; A.Y:02-03,03-04,04-05 15. In this manner, the amendment provided by Finance Act, 2003 put on par the benefit of deductions of tax, duty, cess and fee on the one hand with contributions to various Employees’ Welfare Funds on the other. All this came up for consideration before the Hon’ble Supreme Court in the case of Alom Extrusions Ltd. (supra). The Tribunal in the case at hand relied upon the said judgment. There is no reason to fault the order passed by the Tribunal. We are of the view that the decision of the Supreme Court in Alom Extrusions Ltd. (supra) applies to employees’ contribution as well as employers’ contribution. Question Nos.2, 3 & 4 are accordingly answered in favour of the assessee and against the revenue.”
In view of the decision of the Hon’ble Bombay High Court in the case of Ghatge Patil Transport Ltd.(supra), respectfully following the same and in the given facts and circumstances of the case that the PF and ESI of employees’ contribution was paid within the due date of filing of return of income u/s 139(1) of the Act, is allowed. This issue of assessee’s appeal is allowed.
Coming to Revenue’s appeal in for AY 2002- 03, we find that the AO levied the penalty u/s 271(1)(c) of the Act on the following two disallowances: - “i. commission to Narottam Agencies No. 3,69,087/- ii. Employees contribution to P.F./ESIC No. 1,03,83,856/-
The matter was carried to CIT(A) who, deleted the penalty and aggrieved, Revenue is in second appeal before Tribunal.
We have already deleted the quantum addition in for the AY. 2002-03 in this very order, the penalty in any case will not survive. Hence, we confirm the order of CIT(A) deleting the penalty. The appeal of Revenue is dismissed. Page 10 of 11
ITA No.1621,1622,1623/Mum/2010& Cable Corporation of India Ltd.; A.Y:02-03,03-04,04-05 15. In the result, all the appeals of assessee are allowed and Revenue’s appeal is dismissed.
Order pronounced in the open court on 31-05-2017.