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Income Tax Appellate Tribunal, “A” BENCH : KOLKATA
Before: Hon’ble Sri N.V.Vasudevan, JM & Shri M.Balaganesh, AM]
Per N.V.Vasudevan, JM
This is an appeal by the Revenue against the order dated 22.07.2013 of CIT(A)- Central-II, Kolkata, relating to AY 2005-06.
2. Grounds of appeal
raised by the revenue read as follows :- "1. That, on the facts and in circumstances of the case and in law, the CIT(Appeals) erred in holding that the order passed by the Assessing Officer u/s 154 of the Income Tax Act, 196/ is beyond jurisdiction and bad in law. "
2. That, on the facts and circumstances of the case, and in law, the Ld.CIT(A) has erred in allowing relief to the assessee company by disposing the case on technical grounds without going into the merits of the case. "
3. That the appellant craves leave to submit additional grounds of appeal, if any, at or before the time of hearing and/or alter, modify, reframe any grounds of appeal at or before the time of hearing."
3. The Assessee is a company. It is engaged in the business of trading in rubber, prophylactics. The assesee filed return of income for A.Y.2005-06 declaring the total loss of Rs.1,12,03,082/-. The AO completed the assessment u/s 143(3) of the Income Tax Act, 1962 (Act) vide order dated 31.12.2007 accepting the loss returned by the ssessee.
4. Subsequently the AO issued a show cause notice u/s 154 of the Act dated 27.07.2011 proposing to rectify certain apparent errors in the order dated 31.12.2007.
M/s. Polar Pharma (India)Ltd. A.Yr.2005-06 According to the AO while completing the assessment there was an item of prior period loss of Rs.7,86,242/- which was claimed as deduction while computing the income as revenue expenditure incidental to the business and therefore the same had to be disallowed while computing the income of the assessee. Similarly the AO also was of the view that a sum of Rs.21,68,000/- which was employee’s contribution to PF and ESI had been paid beyond the due date of payment in accordance with law governing payment of PF and ESI and therefore it ought to have be disallowed and deduction of the said sum while computing the total income ought not to have been allowed in view of the provision of section 36(1)(va) of the Act. Sec.36(1)(va) of the Act provides that any sum received by an Assessee from any of his employees to which the provisions of sub-clause(x) of clause (24) of Sec.2 of the Act apply, if such sum is credited by the Assessee to the employee’s account in the relevant fund or funds on or before the due date. Due date means the date by which the Assessee is required as an employer to credit an employee’s contribution to the employees account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise.
The assessee in reply to the show cause notice, firstly submitted that the mistakes sought to be rectified by the AO cannot be construed as a mistake apparent from the record and therefore jurisdiction u/s 154 of the Act cannot be invoked. It was submitted that a mistake apparent from record must be obvious and patent mistake and not something which can be established by a long drawn process of reasoning. A decision on a debatable point of law is not a mistake apparent from recovery. It was submitted that points which are not examined on facts or in law, cannot be dealt with as a mistake apparent from record. As held in CIT - Vs - Hero Cycles (P) Ltd. 228 ITR 463. Secondly the assessee pointed out that the following facts with regard to the prior period adjustment and employees contribution to PF : 1. Prior period adjustment - The aggregate amount of Rs. 7,86,242/ - includes major items viz bonus payment of Rs. 3,96,200/- and leave encashment of Rs. 2,23,850/-. The company provided bonus in the F.Y. 2003-04 @ 8.33%. However, such bonus was actually paid in September / October 2004 @ 13%. Accordingly, under accounting 2 M/s. Polar Pharma (India)Ltd. A.Yr.2005-06 principle the payment was booked as prior period item in assessment year 2005-06. Moreover, bonus is allowable on payment basis according to the provisions section 43B(c).
As regards leave encashment it was stated that the system of accounting followed at Noida Factory to disburse on retirement of employee was changed to align with the system followed at Head Office. This resulted in making adjustment of Rs. 2,23,850/ - as prior period adjustment. The Assessee pointed out that adjustment for prior period items is common where system of accounting followed is mercantile. The allowability of prior period expenses was clarified by ITAT in the case of Dy CIT - Vs - Indag Rubber Ltd. 280 ITR (AT) 194 (Del).
Employee' contribution to PF /ESI - It is evident from Annexure-Ill of Form No. 3CD that though employee's contribution to PF/ESI was not paid within the due date the same was paid within the due date of filing of return U / s 139. It is submitted that the dispute regarding disallowability u / s 36(1)(va) read with section 43B of the Act has since been set at rest by various IT ATs, High Courts as well as Supreme Court. It has been held that where the assessee has failed to make payment of employee's contribution to PF /ESI within due date as provided in Sec.36(1)(va) of the Act but has made the said payment before due date of filing of return U / s 139, no disallowance of such payment can be made U / s 43B.
The AO however passed an order u/s 154 of the Act dated 19.08.2011 without dealing with the stand taken in the reply to the show cause notice u/s 154 of the Act referred to above and merely holding that the assessee failed to place on record or to show evidences on the basis of which prior period loss could be considered as allowable u/s 37(1) of the Act. The AO also held that employee’s contribution was different from employers contribution which covered u/s 43B of the Act and therefore payment of employees contribution within the due date of filing of the return u/s 36(1)(va) of the Act cannot be the basis to allow belated payment of contribution of PF and ESI. Accordingly the total loss determined in the order u/s 143(3) of the Act was reduced by a sum of Rs.29,54,842/-.
On appeal by the assessee the CIT(A) held that the issues sought to be rectified in the proceedings u/s 154 of the Act were debatable issues on which two views are possible and therefore it cannot be said that there were mistakes apparent on the face of M/s. Polar Pharma (India)Ltd. A.Yr.2005-06 the record which can be rectified in the proceedings u/s 154 of the Act. Accordingly order u/s 154 of the Act was cancelled by CIT(A).
Aggrieved by the order of CIT(A) the revenue has preferred the present appeal before the Tribunal.
We have heard the submissions of the ld. DR, who reiterated the stand of the AO as contained in the order of assessment. The ld. Counsel for the assessee filed before us a copy of the reply given by the assessee to the show cause notice and highlighted the fact that this objection was not considered by AO in the order u/s 154 of the Act. He placed reliance on the order of CIT(A).
We have given a very careful consideration to the rival submissions. The question as to whether the prior period loss which was claimed and allowed as deduction in the assessment proceedings u/s 143(3) of the Act, could be allowed or not in the present assessment year on payment basis cannot be examined in the proceedings u/s 154 of the Act. In any event the claim of the assessee that there was actual payment of the aforesaid sum during the previous year and the loss in question is allowable as deduction u/s 43B(c ) of the Act was not considered by the AO in the order u/s 154 of the Act. In any event this is a debatable issue and therefore proceedings u/s 154 of the Act cannot be appropriate. As far as the employee’s contribution to PF and ESI is concerned the question is as to whether analogy of section 43B of the Act is applicable to the employer’s contribution can be extended to employee’s contribution u/s 36(1)(va) of the Act is a debatable issue. A series of case laws on this issue would also show that this issue is highly a debatable one and outside the purview of the proceedings u/s 154 of the Act. In CIT Vs. AIMIL Limited, the Hon’ble Delhi High Court in of 2006 ITA No.755 of 2008 ITA No. 204 of 2009 ITA No. 1214/2008 with ITA No. 1246/2008 ITA No. 50/2009 ITA No. 78/2009 judgment dated December 23, 2009 had to deal with a case of disallowance u/s.36(1)(va) of the Act. The Hon’ble Court held that if the employees’ contribution is not deposited by the due date prescribed under the relevant Acts and is deposited M/s. Polar Pharma (India)Ltd. A.Yr.2005-06 late, the employer not only pays interest on delayed payment but can incur penalties also, for which specific provisions are made in the Provident Fund Act as well as the ESI Act. Therefore, the Act permits the employer to make the deposit with some delays, subject to the aforesaid consequences. Insofar as the Income-tax Act is concerned, the assessee can get the benefit if the actual payment is made before the return is filed. Contrary view has been expressed by some of Hon’ble High Court on this issue and there is no decision of the jurisdictional High Court on this issue. In such circumstances, the issue had to be regarded as highly debatable. We therefore concur with the view of CIT(A) and find no ground to interfere with the order of CIT(A). Consequently the appeal of the revenue is dismissed.
In the result the appeal of the revenue is dismissed. Order pronounced in the Court on 01.06.2016. Sd/- Sd/- [M.Balaganesh] [ N.V.Vasudevan ] Accountant Member Judicial Member Dated : 01.06.2016. [RG PS] Copy of the order forwarded to:
1.M/s. Polar Pharma (India)Ltd., 113, Park Street, Kolakta0-700016. 2. ITO, Ward-8(3), Kolkata. 3. CIT(A)-Central-II, Kolkata 4. CIT-II, Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.