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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI RAMIT KOCHAR
सुनवाई क� तार�ख /Date of Hearing : 08-06-2016 घोषणा क� तार�ख /Date of Pronouncement : 17-08-2016 आदेश / O R D E R PER RAMIT KOCHAR, Accountant Member
This appeal, filed by the assessee company, being 3rd October, 2013 passed by learned Commissioner of Income Tax (Appeals)- 22, Mumbai (hereinafter called “the CIT(A)”), for the assessment year 2003-04, the appellate proceedings before the learned CIT(A) arising from the penalty order dated 26th March, 2012 passed by the learned Assessing Officer (hereinafter called “the AO”) u/s 271(1)(c) of the Income Tax Act,1961 (Hereinafter called “the Act”).
ITA7584/Mum/2013 2
The grounds of appeal raised by the assessee company in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called “the Tribunal”) reads as under:-
“1. The Hon'ble Commissioner of Income Tax (Appeal) - 22 [The CIT (A)] eared in upholding the imposing the penalty u/s 271 (1) (c) an amount of Rs.9,94,122/- on account of disallowance of PF and ESIC payment u/s 43B. He has not appreciated the disclosure were made in full and proper manner in the Audit report in FORM 3CD along with return of Income. Further appellant has offered a bona fide explanation that it was in BIFR proceedings, and that the PF & ESIC authorities specifically allowed the appellant to make payment in installment. The appellant prays that the imposing penalty to be deleted.”
The brief facts of the case are that the assessee company filed return of income for the captioned assessment year on 28-11-2003 declaring a loss of Rs.3,37,20,850/- .
4. During the course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act, it was observed by the AO that the assessee has debited an amount of Rs. 6,22,02,224/- towards payment and provisions for employees. The A.O. called for the details of expenses comprised in the above expenses which are to be allowed on payment basis u/s 43B of the Act. It was observed by the A.O. that an amount of Rs. 84,66,255/- were covered under the provisions of Section 43B of the Act which remained unpaid as on date of the filing of the return of income and out of the same the assessee had disallowed of its own an amount of Rs. 56,81,600/- u/s 43B of the Act in the computation of income filed with the Return of income. When the assessee was asked for explanation as to why the balance amount of Rs. 27,84,655/- should not be disallowed as the same was not paid before the due date of ITA7584/Mum/2013 3 filing of return u/s 139(1) of the Act and is thus hit by the provisions of Section 43B of the Act , the assessee submitted that the company went into BIFR in the year 1992 and the Scheme of Revival was announced in the year 1996 and due to the precarious financial condition of the assessee , the assessee took permission of PF and ESIC authorities to pay the dues in installments. However, as per the A.O. since the said amount could be allowed as a deduction u/s 43B of the Act only in the year in which it is paid, the said amount of Rs. 27,84,655/- was disallowed and penalty proceedings were initiated u/s 271 (1)(c) of the Act for concealing the particulars of income and of furnishing of inaccurate particulars of income were initiated by the Revenue.
The penalty notices were issued to the assessee by the AO . The assessee did not furnished any explanation as to why penalty u/s 271(1)(c) of the Act should not be levied. The A.O. observed that the contentions of the assessee have no merit. The assessee has not furnished the full facts with regard to the disallowance u/s 43B of the Act either in the audit report in Form 3CD or in the statement of computation of income filed with the Revenue. It is only when the assessee was asked , the assessee came out with explanation. The A.O. observed that the assessee could not furnish any evidence in respect of the claim that the said payments were allowed to be paid in installments by PF/ESIC authorities. The assessee also could not explain as to how even if the authorities have allowed the assessee to pay the said amount in installments , then the provision of Section 43B of the Act are not attracted and the said amount will not be disallowed keeping in view express mandate of Section 43B of the Act. The assessee failed to furnish convincing information and failed to substantiate that the explanation given was bona fide and was not an afterthought, thus in the opinion of the AO, the assessee has failed to furnish the explanation as are required as per mandate of ITA7584/Mum/2013 4 Section 271(1)(c) of the Act to come out of clutches of penalty leviable. The A.O. relied on the following decisions:-
K.P. Madhusudan v. CIT, (2001)251 ITR 99 (SC) 2. Raghuvir Soni v. ACIT, (2002) 258 ITR 239 (Rajasthan HC) 3. UOI v. Dharmendra Textiles (2008) 174 Taxman 571(SC)
The AO distinguished the reliance placed by the assessee on the decision of Hon’ble Supreme Court in the case of CIT v. Reliance Petroproducts Private Limited (2010) 189 Taxman 322(SC) . Thus, penalty was levied by the A.O. u/s 271(1)(c) of the Act of the minimum amount computed @ 100% of the tax sought to be evaded by the assessee , vide penalty orders dated 26-03-2012 passed by the AO u/s 271(1)(c) of the Act.
Aggrieved by the penalty order dated 26-03-2012 passed by the A.O. u/s 271(1)(c) of the Act, the assessee filed appeal before the ld. CIT(A) .
Before the learned CIT(A) , the assessee made the following submissions:-
“The appellant was registered under BIFR in 1992 and scheme of revival was announced in 1996. The appellant's financial condition was precarious. In the circumstances the appellant had taken approval from the PF and ESIC Authorities to pay the dues under the respective laws in installments. The PF and ESIC Authorities had granted necessary permissions and permitted the appellant to pay the dues in installments. The appellant was under a bonafide and genuine belief that any amount due towards employer’s contribution towards PF and ESIC is not payable since installment has been granted under the respective statutes.
Provisions of s. 43B are attracted only in case any amount is payable. If the amount is not payable on account of installments granted, provisions of s. 43B are not attracted.
ITA7584/Mum/2013 5
Thus it would be seen that the appellant had neither concealed the particulars of income nor furnished inaccurate particulars of income. The factum of installments being granted by the PF and ESIC Authorities is not in dispute. The only issue is whether the employers contribution towards PF and ESIC can be said to be due and payable when installments have been granted by the Authorities under the respective statute. The AO has invoked the provisions of s. 43B for the reason that deduction is available only if the PF and ESIC is paid. The appellants contention is that the provisions of s. 43B can be invoked in case any amount due is payable. Thus the difference in between the AO and the appellant is only on the interpretation of provisions of s. 43B. It is submitted that the provisions of s. 43B provide for disallowance where any 'sum is payable'. Thus the issue of disallowance u/s. 43B is highly debatable and penalty u/s. 271(1)(c) is uncalled for. Reliance is placed on the decision of the Hon'ble Supreme Court in the case of Reliance Petroproducts Ltd. 322 ITR 158 and CIT v MSK Constructions P. Ltd. 2961TR 18 (Mad).”
The ld. CIT(A) rejected the contention of the assessee as the assessee has not paid the dues amounting to Rs. 27,84,655/- to the PF/ESIC before the due date of filing of return of income u/s 139(1) of the Act, hence the said expense cannot be allowed as deduction. With respect to the contention of the assessee that the company has become sick and it was registered with BIFR in 1992 and the approval has been obtained from PF/ESIC authorities but the same does not give any exemption from provisions of section 43B of the Act was the observations of the learned CIT(A) while confirming the penalty levied by the AO. The ld. CIT(A) held that the contention of the assessee that the difference between the A.O. and the assessee was on account of interpretation of section 43B of the Act is highly a debatable issue and hence penalty on such addition is not warranted is also devoid of merits. The learned CIT(A) held that the assessee has not brought on record any material to show that it paid the above dues amounting to Rs.27,84,655/- within the due date granted under the installment scheme approved by the PF/ESIC authorities. The assessee placed reliance in the case of Reliance Petroproducts Private Ltd., 322 ITR 158 and CIT v. MSK Constructions P. Ltd., 296 ITR 18 (Mad.) but the facts are different and hence distinguishable.
ITA7584/Mum/2013 6 The ld. CIT(A) accordingly upheld the action of the A.O. as in his opinion the assessee has not only furnished inaccurate particulars but also there is an attempt to conceal the income and hence explanation 1 to Section 271(1)(c) of the Act is squarely applicable to the facts of the case , whereby penalty levied by the AO u/s 271(1)(c) of the Act was confirmed by learned CIT(A) vide appellate orders dated 03-10-2013 passed by learned CIT(A).
Aggrieved by the appellate order dated 03-10-2013 passed by the ld. CIT(A), the assessee is in appeal before the Tribunal.
The ld. Counsel for the assessee submitted that the A.O. levied the penalty u/s 271(1)(c) of the Act on delay in deposit of employer contribution of PF/ESIC amounting to Rs. 27,84,655/- as the assessee has not deposited the money before the due date of filing the return of income . The ld. Counsel submitted that the assessee has been declared as a sick company in 1992 and scheme of revival was declared in 1996. The ld. Counsel submitted that since the financial condition of the assessee was precarious , the assessee obtained approval from PF/ESIC authorities to the pay the dues under PF/ESIC laws in installments. The learned counsel for the assessee submitted that the assessee incurred huge loss of Rs.3.37 crores in this year also. The assessee relied upon the decision of Hon’ble Bombay High Court in the case of CIT v. S.M. Construction, [2015] 60 taxmann.com 135 (Bombay), ITAT Ahmadabad Bench decision in the case of Gujarat State Road Transport Corporation v. ACIT, [2012] 19 taxmann.com 253 (Ahd.) and the decision of Hon’ble High Court of Punjab and Haryana in the case of CIT v. National Institute of Technical Teacher Training of Research, [2014] 50 taxmann.com 107 (Punjab & Haryana).
The ld. D.R., on the other hand, supported the orders of the authorities below.
ITA7584/Mum/2013 7
We have considered the rival contentions and also perused the material available on record including case laws relied upon by both the parties. We have observed that assessee was a sick company which was registered with BIFR in 1992 and scheme of revival was approved in 1996. The assessee had defaulted on the payments of employer contributions of Rs.27,84,655/- under PF/ESIC laws to PF/ESIC authorities and the same were not paid before the due date of filing of return of income u/s 139(1) of the Act but still deduction of Rs.27,84,655/- was claimed by the assessee in the return of income filed with the Revenue in violation of provisions of Section 43B of the Act. The assessee submitted that the assessee had obtained approval from the PF and ESIC authorities to pay the afore-stated dues under installments scheme and the assessee has duly complied with the terms and conditions of the installment scheme approved by the PF/ESIC authorities and hence no amount was due for payment by the assessee in view of the approved installment scheme. The additions were made to the income of the assessee u/s 43B of the Act by the Revenue as the assessee could not produce the evidence that it has complied with the installment scheme approved by the PF/ESIC authorities, as well also that despite installment scheme approved by PF/ESIC authorities for payment of employers contribution towards PF/ESIC dues, the assessee could not explain that how still Section 43B of the Act is complied with as the said Section stipulates payment to be made before the due date prescribed for filing of return of income u/s. 139(1) of the Act which clearly the assessee company did not complied with so far as employer contribution towards PF/ESIC aggregating to Rs. 27,84,655/- is concerned. The Revenue has levied penalty u/s 271(1)(c) of the Act on the ground that the assessee has not added the said amount of Rs.27,84,655/- on account of non-payment of employer contribution towards PF/ESIC before the due date of filing of return u/s 139(1) of the Act to income of the assessee as per the clear provisions of section 43B of the Act. The assessee has come ITA7584/Mum/2013 8 out with the explanation that the assessee was under the bonafide belief that the assessee has obtained approval of installment scheme from PF/ESIC authorities for payment of employer contribution of PF/ESIC dues with respect to the amount of Rs. 27,84,655/- which has been complied with by the assessee and hence the PF/ESIC authorities have extended the due date of payment and under such belief the assessee has not added the said amount to the income of the assessee u/s 43B of the Act as no amount is payable under PF/ESIC on the grounds that PF/ESIC authorities granted approval of installment scheme for payment of PF/ESIC dues and Section 43B is applicable if PF/ESIC is payable and is not paid before the due date of filing of return of income as stipulated u/s 139(1) of the Act while in the instant case there was no dues payable to PF/ESIC authorities in view of approved installment scheme was the explanation of the assessee. The assessee has come forward with the explanation that it has obtained the approval of the PF/ESIC authorities to pay the employer contributions towards PF/ESIC dues in installments scheme approved by PF/ESIC authorities and the assessee has stated to have complied with the terms and conditions of the said scheme. In our considered view, the assessee has come out with a plausible explanation which is a bonafide explanation that it did not added the employer contribution towards PF/ESIC of Rs.27,84,655/- which was not paid before the due date of filing of return of income u/s. 139(1) of the Act as the assessee company was granted installment scheme to pay employer contribution towards PF/ESIC by PF/ESIC authorities which it stated to have complied with and hence since no amount was due to be payable before the filing of return of income u/s 139(1) of the Act on account of employer contribution towards PF/ESIC in view of the approved installments scheme by PF/ESIC authorities, the assessee did not visualize that any amount is due for payment under PF/ESIC laws and hence Section 43B of the Act which contemplates any sum payable towards employer contribution towards PF/ESIC which is not paid before due date as ITA7584/Mum/2013 9 prescribed u/s 139(1) of the Act for filing of return of income as liable to be disallowed u/s 43B of the Act while in the instant case it was contemplated by the assessee that no amount is due for payment in view of approved installment scheme. In view of the above explanation submitted by the assessee in our considered view , the assessee came out with explanation which was a bonafide explanation which satisfied the mandate of Section 271(1)(c) of the Act and hence penalty u/s 271(1)(c) of the Act against the assessee is not exigible in this case subject to verification of the plea of the assessee that it has been granted installment scheme by the PF/ESIC authorities for payment of employer contributions towards PF/ESIC dues of Rs. 27,84,655/- and the assessee has duly complied with the said approved installment scheme while making payment of employer contribution towards PF/ESIC dues of this amount of Rs.27,84,655/ - within time stipulated under the said approved installment scheme . The assessee is directed to produce the copy of approval letters from PF/ESIC authorities before the A.O. approving installment scheme with reference to employer contribution of Rs. 27,84,655/- towards PF/ESIC dues and the A.O. shall verify the same as per our directions as setout above and thereafter delete the penalty levied u/s 271(1)(c) of the Act after being satisfied that the assessee has duly paid the said employer contribution of Rs.27,84,655/- towards PF/ESIC within time stipulated under the approved installment scheme. We order accordingly.
In the result, assessee’s appeal in 2003-04 is allowed as indicated above.
ITA7584/Mum/2013 10
Order pronounced in the open court on 17th August , 2016. आदेश क� घोषणा खुले �यायालय म� �दनांकः 17-08-2016 को क� गई ।