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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
Per Shri Balakrishnan S, Accountant Member These three appeals are filed by the assessee against the orders of the AO/TPO/DRP passed u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (in short ‘Act’) for the Assessment Year 2012-13, 2013-14 and 2014- 15. Since, the issues involved in these appeals are common, these appeals
2 ITA No.21/Viz/2017, 04/Viz/2018 and 602/Viz/2018 A.Y.2012-13, 2013-14 & 2014-15 M/s Seeds Intimate Apparel India Private Limited, Visakhapatnam
are clubbed, heard together and a common order is being passed for the
sake of convenience as under and the A.Y.2012-13 is being considered as
base year.
Brief facts of the case are that the assessee is engaged in the business
of manufacturing and exporting of inner wear, filed its return of income,
admitting current year loss of Rs.22,78,46,211/-, Rs.7,01,76,492/- and
income of Rs.3,11,830/- for the A.Ys. 2012-13, 2013-14 and 2014-15
respectively. At the outset, the Ld.AR submitted that the assessee has
entered into Advance Pricing Agreement (APA) with Central Board of
Direct Taxes (CBDT), applicable for the F.Y.2016-17 to 2021-22. The Ld.AR
further submitted that the APA was signed on 07.08.2019 and it was not
available before the lower authorities for consideration. The Ld.AR
submitted that the international transaction undertaken by the assessee for
the assessment years under consideration were identical to the assessment
years which are part of APA proceedings. Therefore, he pleaded that the TP
adjustment, if any, required to be made shall be in terms of what has been
agreed by the assessee in APA proceedings. The Ld.AR submitted the copy
of the APA u/s 92CC of the Act. The Ld.AR vehemently relied on the
decision of the coordinate bench of Hon’ble Mumbai Tribunal in the case of
3 ITA No.21/Viz/2017, 04/Viz/2018 and 602/Viz/2018 A.Y.2012-13, 2013-14 & 2014-15 M/s Seeds Intimate Apparel India Private Limited, Visakhapatnam
Celltick Technologies Ltd, Vs DCIT Rg 2(1)(1), Mumbai dated 11.06.2019.
The Ld. AR drew our attention to para 10 of the order Celltick Technologies
Ltd, Vs DCIT (supra).
The Ld.AR therefore placed that the APA entered into subsequently
would also have bearing on the earlier years. The Ld.AR also relied on the
decision of Hon’ble Tribunal, Pune in the case of M/s Abicor Binzel
Production (India) Pvt. Ltd. Vs. DCIT in ITA Nos..2253 to 2255/PUN/2014
for assessment years 2005-06 to 2007-08 dated 15.12.2017.
The Ld.DR did not object to the plea made by the Ld.AR.
We have heard both the parties and perused the material placed on
record.
The coordinate Bench of the Mumbai Tribunal has laid down in para 10 of
the order in the case of Celltick Technologies Ltd, Vs DCIT (supra), which is
extracted below for reference :
“10. Apart there from, we find that the Indian subsidiary of the assessee, viz., M/s Celltick Mobile Media (India) Pvt. Ltd. had for A.Y.2015-16 to A.Y.2019-20 entered into an APA with CBDT. As is discernible from the “APA”, the functions of the subsidiary company inter alia included “marketing and sale of various software solutions” of the assessee company. As per the “APA” the operating profit margin of M/s Celltick Mobile Media (India) Pvt. Ltd. up to its revenue of Rs.50 crore was to be taken at 7% of its “Operating revenue.
4 ITA No.21/Viz/2017, 04/Viz/2018 and 602/Viz/2018 A.Y.2012-13, 2013-14 & 2014-15 M/s Seeds Intimate Apparel India Private Limited, Visakhapatnam
Admittedly, the FAR analysis and overall functions of the subsidiary company i.e. M/s Celltick Mobile Media (India) Pvt. Ltd. had remained the same during the period covered by the “APA” and that for the year under consideration i.e. A.Y.2014-15. Though, the APA in the case of the assessee had been entered into for the period spread over A.Y.2015-16 to A.Y.2019-20, however, as held by the ITAT, Mumbai in the case of 3i India Pvt. Ltd. Vs. DCIT (ITA No.581/Mum/2015, dated 16.09.2016), a subsequent “APA” would also have a bearing on the earlier years. Accordingly, we find that the ALP of the transactions covered by the “APA” upto INR 50cr. was to be taken @7% of its operating revenue. As such, as the operating revenue of M/s Celltick Mobile Media (India) Pvt. Ltd. during the year under consideration viz. A.Y.2014-15 was Rs.31,71,03,165/-, therefore, the ALP of the covered transactions @7% worked out at Rs.2,30,20,874/-. As against the aforesaid ALP, the Indian subsidiary of the assessee viz. M/s Celltick Mobile Media (India) Pvt. Ltd. had shown a profit of Rs.3,65,52,479/- as per its profit and loss account for the year under consideration. Accordingly, we are of the considered view that as the income disclosed by M/s Celltick Mobile Media (India) Pvt. Ltd. is higher than the ALP as per its “APA” for the succeeding years, therefore, no further income on the said count also could be attributed to it.’
In view of the facts discussed above, and respectfully following the decision
of the co-ordinate Bench, we are of the considered opinion that it would be
just and proper to restore these issues to the file of the AO/TPO for the
impugned assessment years. We also direct the AO/TPO that before
deciding the issues raised in the appeals in consideration, it would be
relevant to ascertain the nature of international transactions that have
been carried out for the impugned assessment years and in case of similar
nature, the same can be decided afresh in line with the terms and
conditions of the APA. Needless to say that the assessee should be
provided the opportunity of being heard. Appeals of the assessee are
allowed for statistical purpose with aforesaid directions.
5 ITA No.21/Viz/2017, 04/Viz/2018 and 602/Viz/2018 A.Y.2012-13, 2013-14 & 2014-15 M/s Seeds Intimate Apparel India Private Limited, Visakhapatnam
Ground No.7 in ITA No.4/Viz/2018 for A.Y.2013-14 is as under :
“7. The ld.AO/DRP erred by disallowing employee contribution to Provident Fund of Rs.35,29,321 on account of not depositing the same before the due date specified under the PF Act even though the amounts were deposited before the date of return filing provided under section 139(1).”
At the outset, we find that the issue before us is settled by the
Memorandum Explaining the Provisions in Finance Bill, 2021 wherein it is
stated that amendment to section 36(1)(va) and section 43B of the Act will
take effect from 1/4/2021. The relevant portion of the Memorandum is
extracted herein below for reference.
Rationalisation of various Provisions “Payment by employer of employee contribution to a fund on or before due date Clause (24) of section 2 of the Act provides an inclusive definition of the income. Sub- clause (x) to the said clause provide that income to include any sum received by the assessee from his employees as contribution to any provident fund or superannuation fund or any fund set up under the provisions of ESI Act or any other fund for the welfare of such employees. Section 36 of the Act pertains to the other deductions. Sub-section (1) of the said section provides for various deductions allowed while computing the income under the head “Profits and gains of business or profession‘. Clause (va) of the said sub-section provides for deduction of any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 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. Explanation to the said clause provides that, for the purposes of this clause, "due date” to mean the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued there-under or under any standing order, award, contract of service or otherwise. Section 43B specifies the list of deductions that are admissible under the Act only upon their actual payment. Employer's contribution is covered in clause (b) of section 43B. According to it, if any sum towards employer's contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees is actually paid by the assessee on or before the due date for
6 ITA No.21/Viz/2017, 04/Viz/2018 and 602/Viz/2018 A.Y.2012-13, 2013-14 & 2014-15 M/s Seeds Intimate Apparel India Private Limited, Visakhapatnam
furnishing the return of the income under sub-section (1) of section 139, assessee would be entitled to deduction under section 43B and such deduction would be admissible for the accounting year. This provision does not cover employee contribution referred to in clause (va) of sub-section (1) of section 36 of the Act. Though section 43B of the Act covers only employer‘s contribution and does not cover employee contribution, some courts have applied the provision of section 43B on employee contribution as well. There is a distinction between employer contribution and employee‘s contribution towards welfare fund. It may be noted that employee‘s contribution towards welfare funds is a mechanism to ensure the compliance by the employers of the labour welfare laws. Hence, it needs to be stressed that the employer‘s contribution towards welfare funds such as ESI and PF needs to be clearly distinguished from the employee‘s contribution towards welfare funds. Employee‘s contribution is employee own money and the employer deposits this contribution on behalf of the employee in fiduciary capacity. By late deposit of employee contribution, the employers get unjustly enriched by keeping the money belonging to the employees. Clause (va) of sub-section (1) of Section 36 of the Act was inserted to the Act vide Finance Act 1987 as a measures of penalizing employers who mis-utilize employee‘s contributions. Accordingly, in order to provide certainty, it is proposed to – (i) amend clause (va) of sub-section (1) of section 36 of the Act by inserting another explanation to the said clause to clarify that the provision of section 43B does not apply and deemed to never have been applied for the purposes of determining the ―due date under this clause; and (ii) amend section 43B of the Act by inserting Explanation 5 to the said section to clarify that the provisions of the said section do not apply and deemed to never have been applied to a sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section 2 applies. These amendments will take effect from 1st April, 2021 and will accordingly apply to the assessment year 2021-22 and subsequent assessment years.” 7. In the case of the assessee, it is not disputed that the amount of
employee’s contribution to PF & ESI was deducted by the assessee and
remitted in the Government Treasury within the due date of filing the
return of income under the Income Tax Act, 1961. Since the case of the
assessee relates to assessment year 2013-14 and the amendment though
clarificatory in nature has come into effect from 1/4/2021, for the relevant
7 ITA No.21/Viz/2017, 04/Viz/2018 and 602/Viz/2018 A.Y.2012-13, 2013-14 & 2014-15 M/s Seeds Intimate Apparel India Private Limited, Visakhapatnam
year under consideration it would suffice that the employee’s contribution to PF & ESI deducted by the assessee is remitted in the Government Treasury within the due date of filing of the return of income as prescribed under the Act. Therefore, the disallowance made by the Ld. Revenue Authorities is deserved to be deleted. Hence, we hereby direct the Ld. AO to delete the addition made in the hands of the assessee towards disallowance of payment made in regard to the employee’s contribution to PF & ESI fund. Hence, appeal of the assessee on this ground is allowed.
In the result, appeals of the assessee are allowed for statistical purpose.
Order Pronounced in open Court on 27th July, 2022.
Sd/- Sd/- (दुव्िूरु आर.एऱ रेड्डी) (एस बाऱाकृष्णन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) न्याययकसदस्य/JUDICIAL MEMBER ऱेखा सदस्य/ACCOUNTANT MEMBER Dated : 27 .07.2022 L.Rama, SPS आदेश की प्रतितिति अग्रेतिि/Copy of the order forwarded to:- 1. ननधधाररती/ The Assessee– M/s Seeds Intimate Apparel India Private Limited.Plot No.C, Brandix India Apparel City,SEZ, Pudimadaka Road Atchutapuram Mandal, Visakhapatnam 2. रधजस्व/The Revenue – Asst.Commissioner of Income Tax, Circle-5(1)
8 ITA No.21/Viz/2017, 04/Viz/2018 and 602/Viz/2018 A.Y.2012-13, 2013-14 & 2014-15 M/s Seeds Intimate Apparel India Private Limited, Visakhapatnam
Visakhapatnam 3. The Transfer Pricing Officer-1, Hyderabad 4. ववभधगीय प्रनतननधध, आयकर अऩीऱीय अधधकरण, ववशधखधऩटणम/ DR,ITAT, Visakhapatnam 5.गधर्ा फ़धईऱ / Guard file
आदेशधनुसधर / BY ORDER
Sr. Private Secretary ITAT, Visakhapatnam
9 ITA No.21/Viz/2017, 04/Viz/2018 and 602/Viz/2018 A.Y.2012-13, 2013-14 & 2014-15 M/s Seeds Intimate Apparel India Private Limited, Visakhapatnam
Sl. Description Date Initials No. 1. Date of dictation by the Author Sr.PS 2. Draft placed before the Dictating Member 07.2022 Sr.PS 3. Draft placed before the Second Member Sr. PS 4. Draft approved by the Second Member Sr. PS 5. Date of approved order comes to the Sr. PS .07.2022 Sr. PS 6. Date of pronouncement of order .07.2022 Sr. PS 7. Date of file sent to the Bench Clerk .07.2022 Sr. PS 8. Date on which file goes to the OS .07.2022 B.Clk 9. Date on which file goes to the Sr.PS OS 10 Date of despatch of order Sr. PS