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Income Tax Appellate Tribunal, “SMC” BENCH: KOLKATA
Before: Shri Pradip Kumar Choubey & Shri Rakesh Mishra, Accountant
ORDER / आदेश Per Rakesh Mishra, AM: This is an appeal preferred by the assessee against the order of the Addl/JCIT(A)-Thane (hereinafter referred to as the “Ld. Addl./Jt. CIT(A)”] dated 21.02.2024 for the AY 2014-15.
The grounds of appeal raised by the assessee are as under: 1. a) For that on the facts and circumstances of the case, the reasons on which the assessment was reopened was based on vague & incorrect information and in that view of the matter the reopening of assessment suffered from fundamental infirmity and hence the impugned order deserves to be cancelled.
Assessment Year: 2014-15 Norben Tea & Exports Ltd. b) For that on the facts and circumstances of the case, when no addition was permissible nor was it made by the AO pursuant to the reasons which were recorded u/s 147 for reopening the assessment, then the AO did not hold valid jurisdiction to continue with the reopened assessment and thereby make additions on entirely different grounds than the recorded reasons; and in that view of the matter the assessment framed u/s 147 was ab-initio void & bad in law and therefore deserves to be quashed. 2.a) For that on the facts and circumstances of the case, the Ld. CIT(A) grossly erred on facts and in law in confirming the addition of Rs. 13,30,802/- made by the AO by way of delayed payment of employee’s contribution to EPF u/s 36(1)(va) of the Act. b) For that on the facts and circumstances of the case and without prejudice to the above, the appellant being a tea manufacturing company whose income is subjected to Rule 8, the AO ought to be directed to restrict the disallowance of delayed payment of Employees contribution to PF and ESI to 40% of the impugned sum of Rs. 13,30,802/-. c) For that on the facts and circumstances of the case and without prejudice to the above, the delayed payment of Employees contribution to PF and EsI be allowed as expense u/s 37(1) of the Act. 3.a) For that on the facts and circumstances of the case, the Ld. CIT(A) grossly erred on facts and in law in confirming the disallowance of prior period expense of Rs. 23,34,965/-, when the same had already been suo-moto disallowed by the appellant, thereby resulting in double disallowance. b) For that on the facts and circumstances of the case, the Ld. CIT(A) failed to appreciate that the appellant had raised fresh claim seeking deletion of prior period expenses of Rs. 23,34,965/- erroneously disallowed in the return of income and thus no further addition/disallowance was permissible in this regard, which was erroneously done by the AO. c) For that on the facts and circumstances of the case, the lower authorities erred in not allowing deduction for prior period expenses of Rs. 23,34,965/- while computing profits of business. d) For that on the facts and circumstances of the case, the AO be directed to not only delete the double disallowance of Rs. 23,34,965/- added to the assessable income but also separately allow deduction for prior period expenses of Rs. 23,34,965/-.
Assessment Year: 2014-15 Norben Tea & Exports Ltd.
For that the appellant craves leave to submit additional grounds and/or amend or alter the grounds already taken either at the time of hearing of the appeal or before.
Brief facts of the case are that the return of income was filed on 22.11.2024 and subsequently it was noticed that certain income chargeable to tax had escaped assessment. Therefore, notice u/s 148 was issued by the AO. The assessee submitted a return showing Nil income in response to the notice. The AO made an addition of Rs. 23,34,965/- on account of prior period expenses, Rs. 13,30,802/- on account of confirmation of employee’s provident fund deposited after the expiry of due dates and disallowed a sum of Rs. 1,19,806/- u/s 14A of the Act and assessed the total income at Rs. 14,50,610/-.
Aggrieved by the assessment order, the assessee filed an appeal before the Ld. Addl./Jt. CIT(A) and in response to the notices issued for hearing, the assessee filed written submission on various dates. The Ld. CIT(A), after considering the reply of the assessee, dismissed the appeal of the assessee. Hence, the appeal before the Tribunal.
In the course of the appeal before us, the assessee furnished documents in support of grounds of appeal
and rival contentions were considered. It was submitted that the assessee is in the tea business. Ground nos.
1. (a) and (b) relating to the reasons for reopening and addition being made entirely on different in the recorded reason were not pressed. Therefore, Ground nos.
1. (a) and (b) are dismissed as not pressed.
6. Ground no.2(a) is relating to the confirmation of addition of Rs. 13,30,802/- made by the AO towards prior period payment of employees’ contribution to EPF u/s 36(1)(va) of the Act. The AO in para 3 at page 2 of the assessment order has tabulated the due date of Assessment Year: 2014-15 Norben Tea & Exports Ltd. deposit and actual date of deposit of the employees’ contribution towards provident fund which was deposited after expiry of due date mentioned in the Provident Fund Act. The contribution works out to Rs. 13,30,802/- which was deposited later and in view of the provision of section 2(24)(x) read with Section 36(1)(va) a sum of Rs. 13,30,802/- was treated as the assessee’s income and added back in the computation of income. However, instead of adding it to the business income, the same has been treated as income from other sources. The assessee disputed the addition before the Ld. Addl./Jt. CIT(A). However, in view of the decision of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. Vs. CIT (2022) 143 taxmann.com 178 (SC) dated 12.10.2022 wherein the provision of Section 36(1)(va) vis-à-vis Section 43B of the Act have been interpreted and it has been held that the employees’ contribution should be paid within the due date specified under the relevant law for the claim of deduction to be allowed. Before us, the assessee contended that the disallowance should be made under the head “income from business or profession” and not under the head “income from other sources”. The Ld. Sr. DR relied upon the order of Ld. Addl./Jt. CIT(A).
We have considered the rival submissions. The employees’ contribution of PF & ESIC is not covered by Section 43B as is held by the decision of Hon’ble Supreme Court and unless the amount is deposited in time, it will not be allowed as a deduction u/s 36(1)(va) of the Act. Section 2(24)(x) defines the income wherein any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees' State Insurance Act, 1948, or any other fund for the welfare of such employees has been defined to be income. The provident fund or ESIC does not relate to the business of the assessee but is a Assessment Year: 2014-15 Norben Tea & Exports Ltd. social security method or the benefit of the employees for which contribution by both the employees as well as the employer are required to be made and which are statutorily required to be deposited within the specified due date. However, since the assessee was treating the same as allowable expenditure u/s 36(1)(va) of the Act, the disallowance made u/s 36(1)(va) falls under Chapter IV-D for computation of business income and since it is an allowable expenditure under the head income from business if such sum is credited by the assessee in the employees’ account in the relevant fund or fund on or before the due date, therefore, the disallowance, if any, can only be made while computing the income referred to section 28 of the Act as provided u/s 36(1). Hence, the addition of Rs. 13,30,802/- made by the AO under the head income from other sources will be substituted by disallowing the expenditure u/s 36(1)(va) read with Section 2(24)(x) of the Act and would only go to the increase the business income of the assessee and corresponding reduction under the head income from other sources. Hence, this ground of appeal is allowed.
Ground no. 2(b) relates to issue of direction to the Ld. AO to restrict the disallowance to 40% of the impugned sum of Rs. 13,30,802/- as the assessee company is a tea manufacturing company whose income is subject to Rule 8 of the Income Tax Rules, 1962. However, since Rule 8 applies to computation of income in the case of tea manufacturing company, the disallowance under the head income from business or profession would inter alia go to increase the business income and consequently proportionate increase of tea income of the assessee. Therefore, this ground of appeal does not require any further adjudication.
Assessment Year: 2014-15 Norben Tea & Exports Ltd.
Ground no. 2(c) relates to delayed payment of employees’ contribution to PF & ESI to be allowed as expenditure u/s 37(1) of the Act. This ground of appeal is not accepted and is dismissed for payment of employees’ contribution of PF & ESI . There is a specific section u/s 36(1)(va) which covers such deduction while Section 37 is a general section and covers any expense which is not an expenditure in the nature of expenditure as described u/s 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee laid out or expended wholly and exclusively for the purpose of the business. Since the payment of PF & ESI are covered by Section 36(1) of the Act, if they are not allowable u/s 36(1)(va) and are disallowed on account of non-fulfillment of the conditions specified therein, further resort cannot be had to the general provisions of section 37(1) of the Act for allowing the delayed payment of employees’ contribution to PF & ESI and this ground of appeal is dismissed.
10. Ground no. 3(a), (b), (c) and (d) relates to double disallowance of Rs. 23,34,965/- being prior period expenses. Before us, in the computation of income for AY 2014-15 filed it was stated that the assessee had suo-moto disallowed such expenses and further disallowance by the AO amounted to double addition. Annexure 2 to the document filed in the course of appeal at page 17 is a computation of total income for the AY 2014-15 and it is mentioned that disallowance of provision of gratuity of Rs. 23,32,148/- was made to the profit as per the profit and loss account. There are other disallowance like depreciation debited to the profit and loss account, interest on delayed payment of TDS, non-payment of professional tax, non-payment of cess and late filing of TDS return and the total disallowance of Rs. 55,95,206/- has been made by the assessee. The assessee has not deducted the same while computing its income. The AO added the sum Assessment Year: 2014-15 Norben Tea & Exports Ltd. of Rs. 23,32,148/- and it was demonstrated before us that in the ledger account relating to provision of gratuity, a copy of which is annexed at page 25 of PB and also filed before the AO, the prior period expenses were Rs. 20,19,919/- to which a sum of Rs. 5,19,644/- was added as provision for gratuity on actuarial basis. A sum of Rs. 2,07,414/- was treated as benefits paid to the employee, which was transferred to the provision account. The closing balance of Rs. 23,32,148/- was accordingly worked out. The AO considered a sum of Rs. 23,34,965/- (which is Rs. 23,34,973/- as per the ledger) as prior period expenses and disallowed while the assessee itself had disallowed a sum of Rs. 23,32,148/- being the closing balance of provision for gratuity. Hence, it was claimed that on the principal of consistency, the addition of Rs. 23,32,148/- made by the assessee only should be considered and the prior period expenses disallowed by the AO which resulted in double taxation should be deleted. The Ld. AR defended the order of the Ld. CIT(A).
We have considered the rival submission and the computation of income. As the assessee had disallowed a sum of Rs 23,32,148/-, which was the closing balance of the provision for gratuity, there was no justification for the AO to further add back the amount of Rs. 23,34,965/- as prior period expenses. The liabilities relating to WBSEDCL had crystalized during the year and so were allowable under the mercantile system of accounting. Further, a sum of Rs. 2,07,415/- was the benefit paid to the employee and ought to have been allowed as the expenditure which the Ld. AO has not done. Therefore, this issue is set aside to the Ld. AO with the direction that on production of ledger account in this regard, the AO should examine the same and delete the addition on account of double addition. Hence, this ground of appeal is allowed for statistical purposes.
Assessment Year: 2014-15 Norben Tea & Exports Ltd. 12. Ground no. 4 is general in nature and does not require separate adjudication. In the result, the appeal of the assessee is partly allowed. 13.
Order is pronounced in the open court on 11th September, 2024
Sd/- Sd/- (Pradip Kumar Choubey /�द�प कुमार चौबे) (Rakesh Mishra/राकेश �म�) Judicial Member/�या�यक सद�य Accountant Member/लेखा सद�य Dated: 11th September, 2024 SM, Sr. PS Copy of the order forwarded to: 1. Appellant- Norben Tea & Exports Ltd., 3rd Floor, Octavius Centre, 15B, Hemant Basu Sarani, Kolkata-700001, 2. Respondent – DCIT, Circle-4(2), Kolkata 3. Ld. CIT(A)- Addl./JCIT-Thane 4. Ld. Pr. CIT- , Kolkata 5. DR, Kolkata Benches, Kolkata (sent through e-mail)