M/S. POWERWARE INDIA PVT. LTD.,BHUBANESWAR vs. ITO, WARD-1(2), BHUBANESWAR

Brief facts of the case are that the AO observed that the assessee has paid Rs.1,46,587/- to K1 Security Services for providing security services without deducting TDS under the provisions of Section 194C of the Act. He also observed that the assessee has paid interest of Rs.61,055/- to Tata Finance Ltd. without deducting TDS u/s.194A of the Act. Therefore, by invoking the provisions of Section 40(a)(ia) of the Act, he disallowed Rs.2,07,642/- (Rs.1,46,587 + Rs.61,055/-).

On appeal, the CIT(A) observed that the assessee submitted that the payees have already paid the taxes on their incomes which include the receipts from the assessee. He observed that no evidence was furnished in support of the same. He also observed that the second proviso to section 40(a)(ia) of the Act was effective only from the A.Y.2013-2014 and cannot come to the rescue of the assessee for the assessment year 2012-2013. 5. Ld. AR of the assessee submitted that the Hon’ble Delhi High Court in the case of CIT Vs. Ansal Land Mark Township (P) Ltd., 377 ITR 635 (Del) has held that the second proviso to Section 40(a)(ia) of the Act is declaratory and curative in nature and has retrospective effect from 01.04.2005. Hence, he submitted that the CIT(A) was not justified in observing that the second proviso to Section 40(a)(ia) of the Act was not applicable to the assessee in present year under appeal. He submitted that he has no objection if the matter is remanded back to the file of AO to verify whether the payees have paid the taxes on the amount receipt from the assessee or not. If the AO finds that the payees have paid the taxes on the amount received from the assessee on the basis of evidence to be filed by the assessee before the AO, then no disallowance u/s.40(a)(ia) of the Act should be made.

On the other hand, ld. DR relied on the orders of lower authorities.

I find that the disallowance has been made by the AO for Rs.2,07,642/- on the ground that no TDS was deducted by the assessee from the payments made u/s.194C and Section 194A of the Act. I find that 3 the CIT(A) has held that the second proviso to Section 40(a)(ia) of the Act which provides that if the payees have already paid taxes on their income which include the receipt from the assessee then no addition u/s.40(a)(ia) of the Act is to be made, is prospective and applicable from the assessment year 2013-2014 and not the present assessment year of the assessee which is 2012-2013. I find that the Hon’ble Delhi High Court in the case of Ansal Land Mark Township (P) Ltd., 377 ITR 635 (supra) has held that the second proviso to Section 40(a)(ia) of the Act is declaratory and curative in nature and has retrospective in operation w.e.f 01.04.2005. Therefore, I find that the order of the CIT(A) to that extent is not tenable. Further, I find that the CIT(A) observed that no evidence was produced before him to show that the recipient of the amount have paid the due taxes by showing the amounts as their income in their return of income filed by them. Therefore, I feel it fit and proper to restore this issue to the file of AO for examination as to whether the recipient of the amount have paid taxes on the amounts received from the assessee or not. If the AO finds that the recipients of the amount have paid due taxes on the amount received from the assessee, then no disallowance u/s.40(a)(ia) of the Act should not be made by the AO. The assessee is also directed to file all evidences in support of the claim that the recipients of the amount have paid due taxes on the amount received from him. With this observations, this ground of appeal of the assessee is allowed for statistical purposes.

In ground No.2 of the appeal, the grievance of the assessee is that the CIT(A) is not justified in sustaining the addition of Rs.1,25,576/- u/s.36(1)(va) of the Act

Brief facts of the case are that the AO observed that the assessee has not deposited the employee share of EPF within the due dates prescribed in the said Act. The details of which are as under :-

Ld.AR of the assessee relied on the decision of the Hon’ble Delhi High Court in CIT Vs. AIMIL Limited [2010] 321 ITR 508 (DEL), wherein it was held that the employees’ contribution towards EPF and ESI etc. deposited after the due date but before the time allowed for filing the return u/s.139(1) will not call for any disallowance u/s.36(1)(va) of the Act. On the other hand, ld. DR supported the orders of lower authorities.

I find that the Hon’ble Karnataka High Court in the case of Essae Teraoka (P) Ltd.vs DCIT, (2014) 366 ITR 408 vide judgment dated

Learned counsel for the assessee submits that the Tribunal was not justified in not following its earlier order dated 20.12.2001 passed in the case of M/s. Sintra Ltd. v. ACIT I.T.Appeal No.

In support of the aforesaid stand, learned counsel for the appellant relies upon a decision of the Supreme Court in the case of CIT v. Alom Extrusions Ltd. [20091 319 ITR 306/185 Taxman 416. following which the Bombay High Court in the case of CIT v. Ghatge Patil Transports Ltd. [2014] 368 ITR 749/228 Taxman 340/53 taxmaim.com 141 and Punjab and Haryana High Court in the case of CIT v. Hernia Embroidery Mills (P.) Ltd. [20141 366 ITR 167/217 Taxman 207/37 taxmann.com 160 (Puni. & Har.) have held that both the employees' and employer's contributions are covered under the amendment to Section 43B of the Income Tax Act and the Alom Extrusions judgment of the Supreme Court and therefore the Tribunal was right in holding that the payments thereof were subject to benefits of Section 43B of the Act.

Learned counsel for the Income-tax Department, on the other hand submits that the Tribunal has rightly made a distinction in the matter with regard to delay in payment of employees' contribution to the Provident Fund and delayed payment of employer's contribution to Provident Fund. It is submitted that the appeal of the Department has been rejected by the Tribunal making a distinction between the two provisions which appear to be justified. It is urged that only the payment of employer's contribution to Provident Fund is covered by the provision of Section 43B of the Act and employees' contribution is squarely covered by the provisions of Section (2) (24) (x) read with Section 36(l)(va) of the Act. It is, thus, submitted that the Tribunal has rightly decided the present matter and was not obliged to follow a wrong decision earlier rendered in Ms. Sintra's case {supra).

In the case of Alom Extrusions Ltd. {supra), the Apex Court has dealt with the history of Section 43 B of the Act along with its proviso and referred to the fact that the amendments were made therein on account of difficulties felt in complying, with the provisions of the said section vis-a-vis the period prescribed under the Employees Provident Fund Act. Earlier by way of the first

From a perusal of the aforesaid decision, it is evident that it does not specifically refer to the employees' contribution or employer's contribution and both have been treated on the same footing. So far as difficulties in complying with the due date under the EPF Act vis-a-vis the previous year of the Income-tax is concerned, there can be no distinction between the payment of employees or employer's contribution and the same difficulties would be faced for both. In Alom Extrusions' case, the Court has broadly dealt with contribution to be made by the employers to the Labour Welfare Fund without making any distinction between employees and employer's contributions, as the deposits have to be made by the employer of both type of contributions.

The issue as to whether a distinction can be made between the employees' contribution and employer's contribution with regard to applicability of Section 43B of the Act was squarely raised before the Bombay High Court in Ghatge Patil Transports case {supra) and before the Punjab and Haryana High Court in Hernia Embroidery Mills' case {supra) and both the High Courts have answered the same holding that both the employees' and employer's contributions are covered by the amendment of Section 43B of the Act after considering Alom Extrusions'case {supra).

Although technical reading of Section 43B and the provisions of sub-section (2) of Section 24 (x) read with Section 36 (1) (va) of the Act creates the impression that the employees' contribution would continue to be treated differently under a different head of deduction, as the head of deduction is separate under Section 43 B and Section 36 of the Act but on a broader reading of the amendments made to Section 43B repeatedly and the intention of Parliament, there appears to be sufficient justification for taking the view that the employees' and the employer's contribution ought to be treated in the same manner. In Alom Extrusions'case (supra), as pointed out earlier, the Supreme Court has not made any distinction between the two as similar problem of implementation would arise in both the cases, although specific issue was not raised therein; but both the Bombay High Court and the Punjab and Haryana High Court in the above referred cases after considering Alom Extrusions' case (supra) have answered the question treating the two contributions on the same footing.

Thus, I am inclined to respectfully agree with the view taken by the Bombay High Court and the Punjab and Haryana High Court.”

It is also settled position of law that if there are contrary views of different High Courts and none of them is the Hon’ble Juri ictional High Court, then the decision favourable to the assessee should be followed. This view is supported by the decision of Hon’ble Supreme Court in the case of CIT vs. Vegetables Product Ltd., 88 ITR 192 (SC). Therefore, respectfully following the decision of Hon’ble Karnataka High Court in the case of Essae Teraoka (P) Ltd.vs DCIT (supra) and other decisions referred above (supra), I hold that employees contribution to PF and ESI is allowable deduction to the assessee if deposited before due date of filing of return u/s.139(1)of the Act.

In the instant case, it is not in dispute that the contribution to PF was deposited by the assessee before due date of filing the return of income u/s.139(1) of the Act. Therefore, I set aside the orders of lower authorities and delete the disallowance of employees contribution to PF of Rs.1,25,576/- and allow this ground of appeal of the assessee.

In the result, the appeal of the assessee is allowed partly for statistical purposes. Order pronounced in the open court on this 29/11/2017. (N. S. SAINI) ऱेखा सदस्य / ACCOUNTANT MEMBER कटक Cuttack; ददनांक Dated 29/11/2017 प्र.कु.मम/PKM, Senior Private Secretary