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Income Tax Appellate Tribunal, “B” BENCH : KOLKATA
Before: Hon’ble Sri N.V.Vasudevan, JM & Dr.Arjun Lal Saini, AM]
Date of Hearing : 13.04.2017. Date of Pronouncement : 03.05.2017. ORDER Per N.V.Vasudevan, JM This is an appeal by the Assessee against the order dated 30.9.2014 of CIT(A)- Central III, Kolkata, relating to AY 2009-10.
Gr.No.1 raised by the Assessee reads as follows: “1) That the Ld.CIT(A) erred in upholding the disallowance of Rs.4,20,437/- u/s 36(1 )(va)/2(24)(x) on account of the employees contribution to provident fund by rejecting the plea cf the assessee in view of Hon'ble Delhi High Court decision on the ground that the said decision is not of the jurisdiction High Court or the Apex Court. The disallowance of Rs.4,20,437/- made by the AO and confirmed by the Ld.CIT(A) is bad in law needs to be deleted.”
The Assessee is a company engaged in the business of manufacturing and trading. The Assessee as an employer withheld the provident fund contribution payable by its employees from their salaries payable, as their share of contribution to Provident Fund (PF) and Employees State Insurance (ESI). As per section 36(1)(va) of the Act, the sum so withheld as employees contribution to PF & ESI, if it is not paid on or before the due date as provided under the relevant law governing the provident fund, will not be allowed as deduction. It is the plea of the assessee that the employees’ contribution to PF & ESI had been paid by the assessee on or before the due date of filing the return of income for the relevant assessment year u/s 139(1) of the Act and therefore deduction claimed should be allowed as provided under the proviso to section 43B of M/s. Narayani Sons Pvt. Ltd. A.Y. 2009-10 1 the Act. The said plea of the assessee was rejected by the AO for the reason that the proviso to section 43B of the Act cannot be read into the provision of section 36(1)(va) of the Act. On appeal by the assessee, the CIT(A) confirmed the order of the AO. The Assessee had placed reliance on the decision of the Hon’ble Delhi High Court in the case of CIT vs AIMIL Ltd. & Ors. 229 CTR 418 (Del) wherein it was held that employees’ contribution to PF should be allowed as deduction which is paid on or before the due date of filing the return of income u/s 139 of the Act. This was not accepted by the Revenue authorities.
Aggrieved by the order of CIT(A) the Assessee has raised ground no.1 before the Tribunal.
At the time of hearing it was brought to our notice that the Hon’ble Calcutta High Court has also taken the view that employees’ contribution to PF paid on or before the due date of filing the return of income u/s 139(1) of the Act should be allowed as deduction. In this regard the decision of the Hon’ble Calcutta High Court in the case of M/s. Akzo Nobel India Ltd. Vs CIT in ITA 110 of 2011 order dated 14.06.2016 and in the case of CIT vs Vijayshree Ltd., of the Hon’ble Calcutta High Court in GA No.2607 of 2011 order dated 06.09.2011 was filed before us. In the order in the case of Vijayshree Ltd., (supra), the Hon’ble Calcutta High Court held as follows :
“The only issue involved in this appeal is as to whether the deletion of the addition by the Assessing Officer on account of Employees’Contribution to ESI and PF by invoking the provision of Section 36(1)(va) read with Section 2(24)(x) of the Act was correct or not. It appears that the Tribunal below, in View of the decision of the Supreme Court in the case of Commissioner of Income Tax vs. Alom Extrusion Ltd., reported in 2009 Vol.390 ITR 306, held that the deletion was justified. Being dissatisfied, the Revenue has come up with the present appeal. After hearing Mr. Sinha, learned advocate, appearing on behalf of the appellant and after going through the decision of the Supreme Court in the case of Commissioner of Income Tax vs. Alom Extrusion Ltd., we find that the Supreme Court in the aforesaid case has held that the amendment to the second proviso to the Sec. 43(B) of the Income Tax Act, as introduced by Finance Act, M/s. Narayani Sons Pvt. Ltd. A.Y. 2009-10 2 2003, was curative in nat.ure and is required to be applied retrospectively with effect from 1 st April, 1988. Such being the position, the deletion of the amount paid by the Employees' Contribution beyond due date was deductible by invoking the aforesaid amended provisions of Section 43(B) of the Act. We, therefore, find that no substantial question of law is involved in this appeal and consequently, we dismiss this appeal.”
In view of the aforesaid decision of the Hon’ble Calcutta High Court, we are of the view that the deduction claimed should be allowed as the employees contribution to the provident fund had admittedly been paid on or before the due date for filing return of income u/s.139(1) of the Act. The learned DR attempted to argue that the decision of the Hon’ble Calcutta High Court is not correct and that some of the other High Courts have taken a different view on the issue. We are of the view that the decision of the jurisdictional high court is binding on us and therefore, respectfully following the same, we allow Gr.No.1 and delete the addition made.
Gr.No.2 raised by the Assessee reads as follows:
“2) That the Ld.CIT(A) erred in confirming the disallowance of Rs.2,63,945/- made by the AO under sec.14A read with Rule 8D ignoring the judgments of the jurisdictional ITAT & High Court. The CIT(A) further failed to appreciate that no dividend income was earned during the year. The disallowance of Rs.2,63,945/- made by the AO under sec.14A and confirmed by the CIT(A) is bad in law needs to be deleted.”
The issue raised in ground no.2 is with regard to disallowance of expenses incurred in earning exempt income. The AO disallowed a sum of Rs.2,63,945/- u/s 14A r.w.8D(2)(iii) of the Rules. The plea of the assessee before CIT(A) was that there was no exempt income during the previous year and therefore there can be no disallowance u/s 14A of the Act. The CIT(A) rejected the claim of the assessee and in doing so placed reliance on the CBDT Circular No.5 of 2014 dated 11.2.2014 wherein it was held that the disallowance u/s 14A of the Act can be made even in the year where there is no exempt income earned or received by the assessee. M/s. Narayani Sons Pvt. Ltd. A.Y. 2009-10 3
Before us the ld. Counsel for the assessee submitted that the CBDT Circular on which the CIT(A) placed reliance is contrary to the decision of Hon’ble Delhi High Court in the case of Cheminvest Ltd. Vs CIT 317 ITD 33 (Delhi) wherein it was held that there can be no disallowance of expenses u/s.14A of the Act, if there is no exempt income during the relevant previous year. It was brought to our notice that the Hon’ble ITAT Kolkata in the case of REI Agro Ltd. Vs. DCIT 144 ITD 141 (Kol- Trib) has held that it is only the investments which yields dividend during the previous year that has to be considered while adopting the average value of investments for the purpose of Rule 8D(2)(iii) of the Rules. The aforesaid view of the Tribunal has since been affirmed as correct by the Hon’ble Calcutta High Court in G.A.No.3581 of 2013 in the appeal against the order of the Tribunal in the case of REI Agro Ltd. (supra). In the light of the admitted factual position that the assessee had not earned or received any dividend income during the previous year, we are of the view that there can be no disallowance u/s 14A of the Act. Accordingly the addition made u/s 14A of the Act is directed to be deleted. Gr.No.2 is also allowed.
In the result, appeal by the Assessee is allowed. Order pronounced in the Court on 03.05.2017.