Income Tax Appellate Tribunal - Ahmedabad
Adarsh Plant Protect Ltd.,, Anand vs Assessee on 8 July, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "D" BENCH
Before: Sri D.K Tyagi, Judicial Member
and Shri A.K. Garodia, Accountant Member
ITA No.361 /Ahd/2010
Assessment Year 2002-03
Adarsh Plant Project Ltd. The ACIT (OSD)
604, GIDC, V.U. Nagar Ananad
Anand Vs (Respondent)
PAN: AABCA6650Q
(Appellant)
Revenue by: Sri R.K. Vohra, D.R.
Assessee by: Sri Suresh Gandhi, A.R.
Date of hearing : 08-07-2013
Date of pronouncement : 19-07-2013
आदे श/ORDER
PER : D.K. TYAGI, JUDICIAL MEMBER:-
This is the assessee's appeal against the order of Ld. CIT(A)-IV, Bardoa dated 17-11-2009.
I.T.A No.361/Ahd/2010 A.Y. 2002-03 Page No 2 Adarsh Plant Protect Ltd vs. ACIT(OSD)
2. The first ground taken by the assessee reads as under:-
"1. The Ld. CIT(A) has erred in law and on facts in confirming the disallowance of Rs. 17,236 out of P.F. Contribution as against the disallowance of Rs. 25,495/- as made by the Ld. AO on account of disallowance out of P.F. contribution u/s. 36(1)(iv)."
3. During the assessment from the audit report assessing officer found that assessee had made delayed payment of employee's contribution to the provident fund account totaling to Rs. 25,495/- and disallowed the same u/s 36(1)(iv) of the Act. Before Ld. CIT(A) it was submitted on behalf of the assessee that the Finance Act 2003 deleted the second proviso and amended the first proviso to sec. 43B w.e.f. A.Y. 2004-05 and thus, impugned payments were allowable if paid before filing of return of income and necessary evidence of the payment was enclosed with the return of income. Reliance was also placed on the following grounds:-
Addl. CIT vs. Vestas RRB India Ltd. 2005, 92 ITD-1 (Del) Jt. CIT vs. Devidayal (Sales;) Pvt. Ltd (2004) 3 SOT 814 (Mum)
4. Ld. CIT(A) disposed of this ground of the assessee by observing as under:-
2.2. I have considered the matter. Omission of second proviso to section 43B and amendment to the first proviso to section 43B by Finance Act, 2003 w.e.f. 1.4.2004 was in respect of employer's contribution to the provident fund and not in respect of employees' contribution to the provident fund. Decisions cited by the appellant, i.e. Vestas RRB India Ltd. 93 TTJ (Del) 144 are in respect of employer's contribution to provident fund, etc. for years earlier than A.Y. 2004-05. These decisions were thus about retrospective I.T.A No.361/Ahd/2010 A.Y. 2002-03 Page No 3 Adarsh Plant Protect Ltd vs. ACIT(OSD) application of the amendments carried out by Finance Act, 2003 and were not about allowance of employees' Contribution to PF, Allowance of employees' contribution to provident fund is governed by section 36(1)(va) and not by section 36(1)(iv) and unless employees' contributions to provident fund are paid on or before the 'due date' under the Provident Fund Act, such deduction is not admissible. However, as held by ITAT, Ahmedabad in the case of ACIT vs. Rotex Manufacturing a Engineering Gujarat Pvt. Ltd, [(2004) 090 TTJ (Ahd), 0171], payments within the grace period of five days are to be considered as within the due date stipulated u/s.36(1)(va) and are to be allowed as deduction. The Assessing Officer is directed to allow payments made within the grace period of five days from the due date and disallow the balance delayed payments."
5. After hearing both the parties and perusing the record, we find that issue involved in this ground is now squarely covered by the decision of Hon'ble ITAT Mumbai Bench in the case of L K P Securities Ltd vide ITA No. 638/Mum/2012 dated 17.05.2013 which has been passed by the Tribunal by analyzing the provisions of the Act and after taking into consideration all the judicial pronouncements on the issue. Relevant concluding para of that order on this issue reads as under:-
"6.5 The deducibility of the impugned payments has thus to be seen only with reference to s 36(1)(va), which has not witnessed any material changes since its insertion on the statute by finance Act, 1987 w.e f. 01/4/1988. As such, deduction would be exigible where the payment is made by the due date, i.e., under the relevant Act. In this regard we observe that the AO has not allowed the 'grace period' of five days in case of payments under the Provident Fund Act. This is as the due 'date' is defined under the said Act, which could not be superseded by any circular or notification. Secondly, the extension is only for the limited purpose of non-levy of any penal interest or penalty, and does not operate to alter or redefine or extend the due I.T.A No.361/Ahd/2010 A.Y. 2002-03 Page No 4 Adarsh Plant Protect Ltd vs. ACIT(OSD) date, which stands clearly defined, and is constant/fixed. We have given our careful consideration to the matter. In our view, the payment/s made within the grace period as allowed by virtue of any circular, order, etc. would be eligible for deduction u/s. 36(1)(va). The language of the provision accords primacy to not only the relevant Act, but also to any circular, order, notification, etc. issued thereunder. Two, a 'due dale'. for all practical purposes, as also by definition, is the date by which the relevant action (payment in the instant case) could be performed so as to be considered as eligible, and without inviting any penal consequences. As such, the benefit of the 'grace period' could not be disallowed, and which would rather bring the two enactments in harmony. In so deciding, we also derive support from the decision by the hon'ble jurisdictional high court in the case of Godaveri (Manar) Sahakari Sakhar Kharkhana Ltd. (supra) inasmuch as the hon'ble court has clearly held in favor of allowing the benefit of the grace period aforesaid. The AO is accordingly directed to allow deduction u/s. 36(1)(va) where any payment is made within the grace period. We decide accordingly, and the Revenue gets part relief."
In view of the above, the order passed by Ld. CIT(A) is hereby upheld.
6. Ground No. 2 reads as under:-
"2. The Ld. CIT(A) has erred in law and on facts in confirming the disallowance of Rs. 5,41,558/- as made by the Ld. AO on account of marketing and field expenses."
7. The assessing officer observed during the assessment proceedings that a new head of marketing and field expenses was created during the year. Though sales had decreased to 50 % of last year's sales, expenses were mostly in cash and debited in the accounts in the name of one S.P. Mishra on tour. As per assessing officer, what Shri SP did for marketing and boosting I.T.A No.361/Ahd/2010 A.Y. 2002-03 Page No 5 Adarsh Plant Protect Ltd vs. ACIT(OSD) the sales was not known to the assessee. Assessing officer further observed that out of total sales of Rs. 1.05 croe, about 38 lacs were from sister concern namely Shrijee Farming Agency on commission basis and for remaining sales of about 67 lacs, necessity of incurring marketing and field expenses to the extent of Rs. 5,41,558/- remained unexplained especially when sales have halved. The assessing officer disallowed the entire expenses under the head marketing and field expenses and added to the total income of the assessee. Before Ld. CIT(A) assessee's submission was that in the earlier year expenses under the head commission and discount were totaling to Rs. 7,63,970/-. During the year, assessee appointed salesmen instead of hiring salesmen on commission basis in the earlier years. As far as Sri SP Mishra is concerned, it was submitted that he was marketing manager and had worked for boosting the sales. Ld. CIT(A) however confirmed the action of AO.
8. Further aggrieved now the assessee is in appeal before us.
9. At the time of hearing learned counsel of the assessee relied on the submissions made before the Ld. CIT(A) while Ld. D.R. relied on the order of lower authorities.
10. After hearing both the parties and perusing the record, we find that assessing officer disallowed expenses under the head marketing and field expenses on the ground that out of total sales of Rs. 1.05 crores, about 38 lacs were to the sister concern on commission basis and for remaining sales of 67 lacs there was no justification for incurring expenses to the extent of I.T.A No.361/Ahd/2010 A.Y. 2002-03 Page No 6 Adarsh Plant Protect Ltd vs. ACIT(OSD) Rs. 5,41,558/-. Ld. CIT(A) during the appellate proceedings found that assessee has been debiting every month expenses between the 35,000 to 57,000 with the narration of the " paid to field staff towards marketing expenses for the month of ...". All these expenses were incurred in cash. No further details of these expenses were made available unlike traveling expenses for directors and field staff where full details were maintained by assessee. Ld. CIT(A) was therefore of the view that when entire tour expenses of directors and field staff were booked under the head of traveling expenses, there was no justification for incurring these expenses. Before us also assessee could not give any cogent reason for claiming these expenses. Therefore, we are not inclined to interfere with the order passed by Ld. CIT(A) and the order passed by him is hereby upheld. This ground of the assessee is also dismissed.
11. 3rd Ground taken by the assessee reads as under:-
"3. The Ld. CIT(A) has erred in law and on facts in confirming addition of Rs. 4,73,510/- as against the disallowance made by the Ld. AO amounting to Rs. 10,08,396/- on account of disallowance of interest on loans and advances for non business purpose."
12. The assessing officer during assessment proceedings observed that assessee had claimed interest payment of Rs. 58,17,332/- on borrowing from banks and Rs. 8544/- to others. On the other hand assessee had advanced loans and advances to related and unrelated persons without charging interest. AO prepared list of such persons and after taking into account assessee's explanation in respect of each entry in these lists as I.T.A No.361/Ahd/2010 A.Y. 2002-03 Page No 7 Adarsh Plant Protect Ltd vs. ACIT(OSD) discussed in the assessment order disallowed interest of Rs. 10,08,396/-. Before Ld. CIT(A), it was claimed by assessee that amounts of Rs. 44,07,086/- being loans and advances as per list A were in the nature of advances for purchases, job work, property or for building materials given in the earlier years, therefore these being business transactions question of charging interest on them did not arise. Regarding list C totaling to Rs. 8,65,289/- assessee submitted that there were paid for expenses or for machinery and were not given by way of advances or loan. Assessee also contended that while as per letter issued by the AO amount shown under the head sundry creditors was Rs. 8,65,279/-, while passing order which was taken at Rs. 16,50,351/- The assessee also submitted that AO had charged interest @ 17.5 % amounting to Rs. 7,50,360/- on Rs. 43,87,765/- in list A, which included balance of Rs. 28,72000/- due from Srijee Farming Agency from which assessee has already charged interest amounting to Rs. 5,04,000/-. It was further pointed out by the assessee that though the AO duly narrated these facts in the order he has still doubly charged interest. The assessee's further submission was that it being a limited company having non-interest bearing capital and unsecured loans the disallowance was not warranted nor justified. Assessee also submitted that bank has waived very large amount of interest under OTS by a deed of composition entered on 31-12-2003 to the tune of Rs. 1,31,45,111/- and since assessee- company had to show this waiver as income u/s 41(1) the interest debited though not paid in earlier years now stands reversed at lower rates upto settlement of account at a simple rate of interest at 14 % by the banking under OTS. After taking into consideration the submissions of the assessee, Ld. CIT(A) gave part relief to the assessee.
I.T.A No.361/Ahd/2010 A.Y. 2002-03 Page No 8 Adarsh Plant Protect Ltd vs. ACIT(OSD)
13. Further aggrieved, now the assessee is in appeal before us.
14. At the time of hearing learned counsel of the assessee reiterated the submission made before Ld. CIT(A) and relied on the decision of Bombay High Court in the case of CIT vs. Reliance Utility and Power Ltd reported in 313 ITR 340 for the proposition that if there were funds available both interest free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest free funds generated or available with the company if the interest free funds were sufficient to meet the investment. Since assessee was having interest free funds, no disallowance should have been made by the AO. Ld. DR on the other hand relied on the orders of lower authorities.
15. After hearing both the parties and perusing the record, we find that only contention of the assessee before us is that since assessee was having interest free funds at its disposal, no disallowance of interest amounting to Rs. 10,8,,396/- should have been made by AO. Before Ld. CIT(A) also this argument was advanced on behalf of the assessee, the same was however not accepted by him by observing that assessee has failed to substantiate this claim with any facts and figures. However we feel that this contention of the assessee deserves due consideration and for this purpose, the matter is restored back to the file of AO for fresh adjudication. The assessee is also directed to substantiate his claim before AO with facts and figures in this respect. This ground of the assessee is allowed for statistical purpose.
I.T.A No.361/Ahd/2010 A.Y. 2002-03 Page No 9Adarsh Plant Protect Ltd vs. ACIT(OSD)
16. In the result, assessee's appeal is partly allowed for statistical purpose.
Order pronounced in open court on the date mentioned hereinabove at caption page Sd/- Sd/-
(A.K. GARODIA) ( D.K. TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 19/07/2013 ak
आदे श कȧ ूितिलǒप अमेǒषत / Copy of Order Forwarded to:-
1. अपीलाथȸ / Appellant
2. ू×यथȸ / Respondent
3. संबंिधत आयकर आयुƠ / Concerned CIT
4. आयकर आयुƠ- अपील / CIT (A)
5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड[ फाइल / Guard file.
By order/आदे श से, उप/सहायक पंजीकार आयकर अपीलीय अिधकरण, अहमदाबाद