PENMATSA RAMA KRISHNA VARMA,BHIMAVARAM vs. ACIT, CIRCLE-1, RAJAHMUNDRY
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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
PER S. BALAKRISHNAN, Accountant Member :
This appeal filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [CIT(A)] in DIN & Order No.ITBA/NFAC/S/50/2021- 22/1041153996(1), dated 21/3/2022 arising out of the order passed U/s. 143(3) of the Act for the AY 2017-18.
2 2. Brief facts of the case are that the assessee is an individual
and proprietor of Varma Hospitals, Bhimavaram. The assessee
filed his return of income declaring a total income of Rs.
2,02,45,230/- for the AY 2017-18 on 25/10/2017. Subsequently,
the case was selected for scrutiny under CASS and a notice U/s.
143(2) was issued on 28/09/2018 and the same was duly served
on the assessee. In response to the notice u/s. 143(2) and 142(1)
of the Act, the assessee submitted various information called for
by the Ld. AO. The Ld. AO observed from the submissions that
the assessee has received the employee’s contribution of
Provident Fund from its employees amounting to Rs. 6,52,269/-
and which was paid to the relevant fund account after stipulated
due date under respective Act. Similarly, the Ld. AO also
observed that the employee’s contribution from ESI was not
deposited in the relevant account on or before the stipulated due
date under the relevant Act. The Ld. AO therefore disallowed a
sum of Rs. 6,52,269/- and Rs. 95,693/- towards employees
contribution of PF and ESI respectively. The Ld. AO also further
disallowed a sum of Rs. 4,93,020/- claimed by the assessee
towards vehicle maintenance expenses. Further, the Ld. AO also
observed that the assessee has deposited Rs. 93,43,840/- in cash
during the demonetization period in three different bank
3 accounts. Out of the above mentioned cash deposits the Ld. AO
found that an amount of Rs. 47,43,840/- was deposited in
specified bank notes (SBNs). The Ld. AO considered the opening
balance in the books of accounts of the assessee on 8/11/2016
at Rs. 35,92,085/- and the personal cash of Rs. 3,35,840/- at the
residence of Dr. PRK Varma (the assessee) kept at his home to
meet the personal expenditure and treated the balance Rs.
8,16,000/-as unaccounted cash and added it to the total income
of the assessee U/s. 68 of the Act. It is the case of the Ld. AO
that SBNs ceased to be a legal tender w.e.f 8/11/2016 vide
Notification in S.O. No. 3407(E), dated 8/11/2016 and hence
considered the amount deposited as unexplained and taxed u/s.
68 of the Act. Aggrieved by the order of the Ld. AO, the assessee
filed an appeal before the Ld. CIT(A), NFAC.
Before the Ld. CIT(A), the assessee’s representative argued
that Rs. 8,16,000/- cannot be treated as unexplained because it
is accounted in the books of accounts and it cannot be covered
u/s 68 of the Act. Further, the Ld. Assessee’s Representative
also argued before the Ld. CIT (A) regarding the belated payment
of employee’s contribution of PF and ESI and cited various
judicial decisions. Considering the above submissions, the
4 Ld.CIT (A) partly allowed the appeal of the assessee. Aggrieved
by the order of the Ld. CIT(A), the assessee is in appeal before us.
The assessee has raised the following grounds of appeal:
“1. The order of the Ld. CIT(A) is contrary to the facts and also the law applicable to the facts of the case.
The Ld. CIT(A) is not justified in sustaining the addition of Rs. 6,52,269/- made by the AO towards employee’s contribution to PF.
The Ld. CIT(A) is not justified in sustaining the addition of Rs. 95,693/- made by the Assessing Officer towards employee’s contribution to ESI.
The Ld. CIT(A) is not justified in upholding the action of the Assessing Officer in treating the fee of Rs. 8,16,000 collected from patients in SBNs after demonetization as ‘income from other sources’ and bringing the same to tax U/s. 115BBE of the Act.
Any other grounds may be urged at the time of hearing.”
Grounds No. 1 & 5 are general in nature and needs no
adjudication.
With respect to Ground No.2 & 3 regarding the disallowance
of employee’s contribution to PF & ESI amounting to Rs.
6,52,269/- and Rs. 95,693/- respectively, the Ld. AR did not
press these grounds due to the decision rendered by the Hon’ble
Supreme Court in the case of Checkmate Services Private Limited,
Civil Appeal No.2833 of 2016 dated 2nd October 2022. Per contra, the Ld.
DR relied on the orders of the Ld. Revenue Authorities.
We have heard both the parties and perused the material placed on
record. It is apparent from records that the assessee has not deposited
the employee contributions of EPF and ESI to respective fund account
before the due date specified under the provisions of respective Acts, but
deposited the same before the due date of filing of return of income u/s
139(1) of the Income Tax Act, 1961. Hon’ble Supreme Court in it’s latest
judgement in the case of Checkmate Services Private Limited, Civil
Appeal No.2833 of 2016 dated 2nd October 2022, held that delayed
payment of employee contributions of PF / ESI are no longer available for
deduction u/s 43B and should suffer disallowance u/s 36(1)(va). For the
sake of clarity and convenience, relevant part of the order of the Hon’ble
Supreme Court is extracted as under :
“54. In the opinion of this Court, the reasoning in the impugned judgment that the non-obstante clause would not in any manner dilute or override the employer’s obligation to deposit the amounts retained by it or deducted by it from the employee’s income, unless the condition that it is deposited on or before the due date, is correct and justified. The non-obstante clause has to be understood in the context of the entire provision of Section 43B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some leeway in that as long as deposits are made beyond the due date, but before the date of filing the return, the deduction is allowed. That, however, cannot apply in the case of amounts which are held in trust, as it is in the case of employees’ contributions- which are deducted from their income. They are not part of the assessee
6 employer’s income, nor are they heads of deduction per se in the form of statutory pay out. They are others’ income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in terms of such welfare enactments. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. If such interpretation were to be adopted, the non-obstante clause under Section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee’s contribution on or before the due date as a condition for deduction. 55. In the light of the above reasoning, this court is of the opinion that there is no infirmity in the approach of the impugned judgment. The decisions of the other High Courts, holding to the contrary, do not lay down the correct law. For these reasons, this court does not find any reason to interfere with the impugned judgment. The appeals are accordingly dismissed.”
Respectfully, following the ratio laid down by the Hon’ble Supreme
Court, we do not find any reason to interfere with the order passed by
the Ld.CIT(A) and accordingly, dismiss the grounds raised by the
assessee.
Regarding Ground No.4, the Ld. AR argued that the assessee
being a Doctor by profession collected his fees in SBNs and
accounted it in the books of accounts of the assessee and the
cash book was also submitted before the Ld. AO. The Ld. AR
further submitted that the hospital was situated in a semi-urban
area and most of the patients pay the amount by way of cash.
The Ld. AR relied on the decision of the Coordinate Bench of the
Tribunal in the case of ITO vs. Sri Tatiparti Satyanarayana in ITA
7 No. 76/Viz/2021, dated 16/3/2022 regarding the acceptance of
the SBNs. The Ld. AR pleaded that the order of the Ld. CIT (A) be
set-aside on this issue.
Per contra, the Ld. DR submitted that the hospital is a
multi-specialty facility hospital and the patients had multiple
ways other than cash to make payments to the hospital. The Ld.
DR further submitted that the patients who can afford to receive
the services of the multi-specialty hospital also possess the
means to pay their fees through electronic modes. The Ld. DR
therefore pleaded that the order of the Ld. Revenue Authorities be
upheld.
We have heard both the parties and perused the material
available on record and the orders of the Ld. Revenue
Authorities. Admittedly the assessee has deposited cash to the
extent of Rs. 93,43,480/- out of which an amount of Rs.
47,43,840/- was deposited in the denominations of SBNs. The
Ld. AO has not disputed the fact regarding treating the cash
deposits as turnover of the assessee. the Ld. AO based on the
cash book submitted by the assessee treated the amount of Rs.
8,16,000/- as receipts from the patients during the
demonetization period in SBNs and treated the same to be
8 taxable u/s. 68 of the Act, on the premise that SBNs ceased to be
a legal tender w.e.f 8/11/2016 vide Notification in S.O. No.
3407(E), dated 8/11/2016.
Section 5 of the Specified Bank Notes (Cessation of Liabilities
Act, 2017) Act (herein referred as “SBN Act”) clearly states that
on and from the appointed day, no person shall, knowingly or
voluntarily, hold, transfer or receive any specified bank note.
Section 2(1)(a) of the Specified Bank Notes (Cessation of
Liabilities Act, 2017) also defines “appointed day” which means
the 31st Day of December, 2016. As per the SBN Act, no person
is prohibited from receiving/accepting the SBNs on or before
31/12/2016. Further, the guarantee of the Central Government
and the liability of the Reserve Bank of India do not cease to exist
till 31/12/2016. A person receiving SBNs after the
announcement of demonetization where the SBNs ceased to be a
legal tender, solely depends on the discretion of the person
accepting such payment. The assessee has therefore accepted
such SBNs as professional fees and accounted for in the books of
accounts and deposited the SBNs into the bank account on or
before the specified date. We therefore find the contention of the
Ld. Revenue Authorities considering the receipt of SBNs from fees
9 collected as illegal and thereby invoking the provisions of section 68 is not valid in law. We are therefore inclined to quash the decision of the Ld. CIT(A) on this ground and allow the ground raised by the assessee.
In the result, appeal of the assessee is partly allowed. Pronounced in the open Court on the 16th February, 2023.
Sd/- Sd/- (दु�वू� आर.एल रे�डी) (एस बालाकृ�णन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) �या�यकसद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER Dated : 16.02.2023 OKK - SPS आदेश क� ��त�ल�प अ�े�षत/Copy of the order forwarded to:- �नधा�रती/ The Assessee – Penmetsa Rama Krishna Varma, D.No.4/2, 1. Suryanarayana Puram, JP Road, Bhimavaram, Andhra Pradesh – 534202. राज�व/The Revenue – Asst. Commissioner of Income Tax, Circle-1, 2. Aayakar Bhavan, Veerabhadra Puram, Rajahmundry, Andhra Pradesh- 533105. 3. The Principal Commissioner of Income Tax, आयकर आयु�त (अपील)/ The Commissioner of Income Tax (Appeals), 4. NFAC, Delhi. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, �वशाखापटणम/ DR, ITAT, 5. Visakhapatnam गाड� फ़ाईल / Guard file 6. आदेशानुसार / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam
