ACIT, TAMBARAM vs. JAHAN LEATHER EXPORTS, CHENNAI

All the appeals of the revenue are directed against the common order passed by the CIT (A) -10, Chennai dated 29.03.2016 and pertains to assessment years 2009-10, 2011-12 & 2012-13. The assessee has filed cross objection for the assessment year 2012-13. Therefore, we heard all the appeals of the revenue and cross objection of the assessee together and disposing off the same by a common order.

Shri Shiva Srinivas, the learned department representative submitted that the assessee paid commission to non-resident without deducting tax.

The learned department representative further submitted that whenever the CIT(A) admits additional evidence , an opportunity shall be given to the assessing officer to controvert the content of the additional evidence.

On the contrary, Shri A.S.Sriraman, the learned counsel for the assessee submitted that the assessee has not filed the agreement before the assessing officer. In fact, the assessing officer observed that in the impugned assessment order that the copy of the agreement executed by the assessee and the foreign agent was not furnished. However, the same was furnished before the CIT(A). The CIT(A) after examining the agreement filed by the assessee allowed the claim of the assessee. Placing reliance on the judgment of the Madras High Court in the case o CIT Vs. Faizan Shoes Pvt.Ltd. reported in (2014) 367 ITR 0155 (Mad). The learned counsel for the assessee submitted that when the assessee entered into an agency agreement with the non- resident to secure orders from various customers for export of goods to foreign currency, the assessee is not liable to deduct tax. The Madras High Court found that the assessee is not liable to deduct tax on the commission paid to the non- resident agent. In view of this judgment of Madras High Court, according to the learned counsel for the assessee, on merit, the assessee is having a good case.

We have considered the rival submissions on either side and also perused the material available on record. On the basis of the copy of the agency agreement filed by the assessee, the CIT(A) concluded that the commission paid to non-resident agents are not taxable in India. However, the copy of the said agreement for payment of agency commission is not filed before the assessing officer. The assessing officer had no benefit of going through the so called agreement. The CIT(A) on the basis of the agreement said to be filed by the assessee allowed the claim of the assessee without giving an opportunity to the assessing officer.

Rule 46A clearly says that whenever an additional evidence was admitted by the CI T(A), an opportunity shall be given to the assessing officer to controvert the contents of the additional evidence. In this case, the CIT(A) has not given any opportunity to the assessing officer after admission of the additional evidence.

We have carefully gone through the judgment of the Madras High Court in the case Faizan Shoes Pvt.Ltd. cited supra. On merit, the Madras High Court found that when the services are rendered outside the country by the non-resident agent, the assessee was not liable to deduct tax on the commission paid to non-resident agent. In the case before us, the assessing officer has no occasion to examine the copy of the agreement. In other words, the assessing officer has no occasion to examine the services said to be provided by the non-resident agent. This Tribunal is of the considered opinion that the judgment of the Madras High Court in Faizan Shoes Pvt.Ltd. (supra) would be applicable if the services rendered by the non-resident agent is similar to one rendered by the agent in Faizan Shoes Pvt.Ltd. (supra).

In the result, all the appeals of the revenue are allowed for statistical purposes.

Now coming to the cross objection of the assessee, the only issue arises for consideration is disallowance of employees contribution towards provident fund and ESI. The assessing officer disallowed the employees’ contribution towards provident fund on the ground that the assessee could not deposit the same on or before the due date provided under the Employees Provident Fund Act. According to the learned counsel for the assessee, Section 43B of the Income Tax Act provides for payment of contribution to provident fund and ESI, before due date for filing of the return of the income under Section 139 (1) of the Act. In the case before us, the assessee has paid the employees and employer’s contribution towards provident fund and ESI before the due date for filing of return of income under Section 139(1) of the Act.

On the contrary, Shri Shiva Srinivas, the learned department representative submitted that the employees’ contribution to provident fund and ESI has to be deposited by the assessee within the due date prescribed in the relevant provisions of law. Employees’ contribution is collected by the assessee from the respective employees and therefore, the same has to be paid within the due date provided under the relevant provisions of law. The assessee after collecting the money from the respective employees towards provident fund and ESI contribution misused the same without paying the same to the government account. Since the assessee could not pay the money which was collected from the respective employees towards provident fund and ESI contribution, the CIT(A) has rightly confirmed the order of the assessing officer.

We have considered the rival submissions on either side and also perused the material available on record. The assessing officer disallowed the claim of the assessee towards the employees’ contribution to provident fund and ESI on the ground that the assessee after collecting money from the respective employees could not pay the same within the time limit prescribed under the relevant provisions of law. The exact date on which the amount was paid, is not available on record.

We have carefully gone through the provisions of Section 43B of the act and also the judgment of the Madras High Court in the case of CIT Vs. M/s.Industrial Security & Intelligence India Pvt.Ltd. (supra). The Madras High Court after relying upon the judgment of the Apex Court in the case of CIT Vs. Alom Extrusions Ltd. reported in 319 ITR 306 and also the judgment of Delhi High Court in the case of CIT Vs. Amil Ltd. reported in 321 ITR 508 found that in case the assessee deposited the employees contribution towards provident fund and ESI after the due date prescribed under the relevant act but before the due date of filing of return of income under Income Tax Act, no disallowance could not be made in view of Section 43B of the Act. This judgment of the Madras High Court is binding on all the authorities in the state of Tamil Nadu and Pondicherry. Therefore, the CIT(A) is not justified in confirming the order of the assessing officer. This Tribunal is of the considered opinion that when the payment was said to be made by the assessee before the due date for filing of the return of income under Section 139(1) of the Act, the CIT(A) ought to have verified the actual date of the payment and allowed the claim of the assessee. Since the date of actual payment of the employees contribution to provident fund and ESI is not available on record, this Tribunal is of the considered opinion that the actual date of payment towards provident fund and the ESI has to be ascertained and thereafter it has to be allowed in case it was paid before the due date for filing of the return of income under Section 139(1) of the Act. Accordingly, the orders of both the authorities below are set aside and the disallowance of employees’ contribution towards provident fund and ESI is remitted back to the file of the Assessing officer. The assessing officer shall examine the actual date of payment by the assessee towards employees’ contribution to provident fund and ESI and thereafter decide the same in accordance with law and in the light of the judgment of the Madras High Court in the case of M/s.Industrial Security & Intelligence India Pvt.Ltd.

In the result, all the three appeals of the revenue and the cross objection of the assessee are allowed for statistical purposes.