Income Tax Appellate Tribunal - Delhi
Lakhani Rubber Udyog (P) Ltd, vs Assessee on 12 August, 2005
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `D': NEW DELHI
BEFORE SHRI R.P.TOLANI,JM AND SHRI K.G. BANSAL, AM
I.T.A. Nos.3208, 4527 & 4528/Del of 2007
Asstt. Years: 2003-04, 1999-2000 & 2000-01
ACIT, Range-2, M/s Lakhani Rubber Udyog P. Ltd.
New Delhi. Vs Plot No.130, Sector 24, Faridabad.
AND
I.T.A. No. 3350/Del of 2007
Assessment Year: 2003-04
M/s Lakhani Rubber Udyog P. Ltd ACIT, Circle 2,
Plot No.130, Sector 24, Faridabad. Vs New Delhi.
Appellant Respondent
Assessee by: Shri M.K.Madan
Department by: Shri B.K. Gupta
ORDER
PER R.P. TOLANI, JM:
These are two revenue appeals for Asstt. Years 1999-2000 and 2000- 01 and a set of cross appeal for Assessment Year 2003-04. Common grounds raised in revenue's appeal for Asstt. Years 1999-2000 and 2000-01 are as under:
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"1. On the facts and in the circumstances of the case, the ld. CIT(A) erred in deleting the addition of Rs.18,04,473/- (AY 1999-2000) and Rs.19,36,019/- (AY 2000-01) made by the AO u/s 2(24)(x) read with section 36(1)(va) of the Act on account of late payment of employees' contribution to provident fund and ESI without appreciating the fact that the payments were made beyond the due dates.
2. Whether on the facts and circumstances of the case, ld. CIT(A) was right in allowing depreciation of Rs.10,88,128/- (AY 1999-2000) and Rs.12,81,088/- (AY 2000-01) on the let out building to its sister concern by ignoring the jurisdictional ITAT order passed in ITA No.3011/Del/99 for the AY 1995-96 in the case of M/s Lakhani Footwear, 131, Sector 24, Faridabad."
2. Apropos Ground No.1, learned DR contends that the issue about payment of employees contribution within due date prescribed by PF/ESI Act still continues to be governed by Section 36(va) read with Section 43B of the Income-tax Act. Therefore, the effective provisions for allowing such contribution is to the effect that the payment of employees contribution should be made within the due date prescribed by the PF/ESI Act. In the instant case, the payments have been made belatedly, therefore, AO rightly disallowed payments made for employees contribution. It was contended that the ITAT Benches are allowing both employer and employees contribution as covered by Hon'ble Supreme Court judgment in the case of 3 CIT vs Vinay Cements Ltd., 231 CTR 268, in fact the issue in this case set at rest as under:
"In the present case we are concerned with the law as it stood prior to the amendment of Section 43B. In the circumstances, the assessee was entitled to claim the benefit in Section 43-B for that period particularly in view of the fact that he has contributed to provident fund before filing of the return. Special Leave Petition is dismissed."
This will indicate that Hon'ble Supreme court was dealing with the law which stood prior to the amendment of Section 43B, therefore, the same refers only to employers PF and not employees PF, accordingly it was pleaded that Hon'ble Delhi High Court judgments in the case of P.M. Electronics Ltd., 177 Taxman 1 (Del) and Dharmender Sharma, 297 ITR 320 and the case of George Williamson (Assam) Ltd. 284 ITR 619 (Gauhati) to employers contributions. They do not refer to employees' contribution.
3. Learned DR has filed written note to this effect.
4. Learned counsel for the assessee, on the other hand, contends that in the case of P.M. Electronics (supra), Hon'ble Delhi High Court has dealt with both employer and employees contribution, which is evident from para 1, which is as under:
"This is an appeal u/s 260A of the Income-tax Act, 1961 (hereinafter referred to in short as 'the Act') against judgment dated 12.8.2005 in ITA 4 No.1585/Del/2002 in respect of the assessment year 1998-99. The only issue which arises for consideration is allowability of deduction u/s 36(1)(va) read with section 2(24)(x) and section 43B to the assessee in respect of employer/employees contributions towards provident fund payments which were made after the due date prescribed under the Employees' Provident Fund Act and the Rules made there under before the due date for furnishing the return of income under sub-section (1) of Section 139."
Thereafter, Hon'ble Delhi High Court has relied on Supreme Court judgment in the case of CIT vs Vinay Cement Ltd., 231 CTR 268, CIT vs Dharmender Sharma 297 ITR 320, Madras High Court judgment in the case of CIT vs Synergy Financial Exchange Ltd., 288 ITR 366, Gauhati High Court judgment in the case of CIT vs George Williamson (Assam) Ltd., 284 ITR 619 and by a detailed discussion has held that if the payment in respect of employer and employees contribution is made by the assessee before due date of filing of return, the same shall be allowed. Further, learned counsel contends that all the payments made by the assessee are within grace period, which is accepted by AO in page 4 of his order.
5. We have heard the rival contentions and perused the material placed before us. Hon'ble Delhi high Court in the case of P.M. Electronics (supra) has referred to both employer and employees' contributions and its allowability, if the amount is paid before the due date of the filing of the 5 return. Learned DR has endeavored to make out a case that in the cases of Vinay Cement Co. (supra) and George Williamsons (Assam) Ltd. (supra), the courts were seized with employers' contribution, however, we have to respectfully follow the Hon'ble Delhi High Court judgment in the case of P.M. Electronics (supra). It has not been disputed that the assessee has made payments of employees contribution within due date of filing of return. In view thereof, we uphold the order of CIT(A) on this issue. This ground of revenue is dismissed.
6. Apropos second ground of revenue, learned DR relies on the order of AO.
7. Learned counsel for the assessee contends that depreciation was disallowed under a mistaken impression by AO. Assessee had let out 10% part of the factory premises to its associated concerns for administrative work which facilitated the assessee's group operations, rent was charged from such associated concerns and offered as business income. In the course of assessment proceedings, AO asked about the extent of building let out. Assessee by a chart submitted the same, which is part of the record. AO without asking further questions, by mistake held that 10% is utilized by the assessee and 90% is let out besides the rental income was treated under the head 'Business Income". Assessee preferred first appeal where correct 6 position was explained to CIT(A), who on proper verification corrected the issue of depreciation by holding that 10% area was let out and thereby depreciation to this extent was disallowed:
"5.2 I have carefully considered the submissions of the ld. AR and perused the assessment orders, where the matter has been discussed in para 3 to 7 and the ld. ARs arguments appeared at page 13 of the paper book vide letter addressed to the ACIT, Range-II, Faridabad, on this point from pages 13 to 19 of the said paper book. During the discussions with the ld. AR, he has left the matter regarding the treatment of income from business to income from house property to be decided on merits. Keeping in view the present position of the entire facts and circumstances and the arguments and discussions held by the AO in his assessment order, the income from rented building treated as rental income by the appellant company is considered under the head Income from house property, and, therefore, the action of the AO in disallowing the depreciation on the rented building in these two orders is upheld. However, keeping in view the plea of the appellant that the total area in dispute for the purpose of plot No.131 and 235 comes to 1,27,993 sq. ft i.e. 1/10th of the actual property involved, the depreciation should be disallowed only to the extent of 1/1-th and not the entire depreciation, as the rest of the building are almost clearly the factory premises of the said rented building. Therefore, 1/10th of Rs.12,09,031/- comes to Rs.1,20,903/- and of Rs.14,23,431/- comes to Rs.1,42,343/- and these are disallowed accordingly and the balance disallowances are deleted in both the assessment years."7
8. We have heard the rival contentions and perused the material on record. From the perusal of paper book, it emerges that assessee had supplied details about let out area before AO, besides CIT(A) has carried out enquiries and ascertained that 1/10th area was let out to associated concerns, the finding of CIT(A) is based on factual verification, which is supported by assessee's submissions before AO. In view thereof, we see no infirmity in the order of the CIT(A), which is upheld on this issue.
9. In the result, both the appeals of revenue are dismissed.
10. In Revenue's appeal No.3208/Del/07 for Asstt. Year 2003-04, following grounds are raised:
"1. On the facts and in the circumstances of the case, the ld. CIT(A) erred in deleting the addition of Rs.2,33,576/- made by the AO as the assessee failed to furnish any evidence which can show that the security expenses of directors were incurred wholly and exclusively for business purposes.
2. On the facts and in the circumstances of the case, the ld. CIT(A) erred in deleting the addition of Rs.47,88,425/- made by the AO u/s 2(24)(x0 read with section 36(1)(va) of the Income-tax Act,1961 on account of late payment of employee's as well as employer's contribution to PF, EPF and FPF in terms of second proviso to section 43B without appreciating the fact that the payments were made by the employer beyond the due date prescribed.8
3 On the facts and in the circumstances of the case, the ld. CIT(A) erred in deleting the addition of Rs.13,51,846/- made by the AO on account of under valuation of stock when the entry tax levied was includible in the closing stock of the assessee as per the provisions of Section 145A of the I.T. Act."
4. On the facts and in the circumstances of the case, the ld. CIT(A) erred in deleting the addition of Rs.1,41,018/- made by the AO on account of car expenses as the assessee had itself offered 1/10th of such expenses to be treated as income on account of personal use of cars."
11. Apropos Ground No.1, learned DR contends that any evidence regarding threat to the security of MD was not furnished before AO. Therefore, AO held it to be personal expenditure in nature. Order of AO was relied on.
12. Learned counsel for the assessee contends that AO himself has recorded explanation of the assessee, amount was paid to SP Police, Faridabad for providing armed constable as Escort to the Director of the company. Police authorities will not provide such security unless they verify the claim of threat. Besides, before CIT(A) following documents had been furnished:
(i) Photocopy of letter to the Sr. Superintendent of police, Faridabad.
(ii) Details of expenses.
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(iii) Copies of newspaper cutting
(iv) Photocopy of letter to SHO police Station Mujesar, Faridabad.
(v) Photocopy of letter to the Deputy Commissioner of Police,
Faridabad.
After examination of the entire material, CIT(A) allowed the expenditure by following observations:
"I have carefully considered the submissions of the ld. AR and perused the order of assessment. I have also perused all the documents mentioned at S. Nos. (i)( to (v) enclosed in the paper book, which clearly show that the threats were made to the directors Mr. K.C. Lakhani and Mr. P.D. Lakhani and several FIRs were lodged with the police for protecting them against the extortion money. All these documents show that the directors of the company were directly hit during the normal course of business and in order to facilitate the business activities in a smooth manner, they have to incur expenditure on security by taking the help of the Local police. The appellant company made the payment against the security by account payee cheques. Thus, there is every nexus between the threats and the business of the appellant company. In view of this, the expenditure of Rs.2,33,576/- paid to Haryana Govt. police Department for providing security to the working directors of the company can have no element of personal nature involved or the expenditure is of capital nature but is an expenditure wholly and exclusively incurred for the business purposes. The ld. AR has brought to my notice the order of my predecessor dated 22.4.99 in appeal No.11/98-99 in the case of M/s 10 Lakhani Footwear Ltd. assessment year 1995-96, wherein similar expenditure was incurred and the Board resolution was passed sanctioning such expenditure and it was ruled out to be business expenditure and was, therefore, allowed. On the similar facts and circumstances of the case, the expenditure of Rs.2,33,576/- is also treated to be business ex0endiutre and is, thus allowed u/s 37(1) of the I.T. act and disallowance is accordingly deleted."
13. We have heard the rival contentions and perused the material on record. In our view, assessee has adduced sufficient evidence before CIT(A) in respect of threat to which the MD was exposed. The security of MD is a concern for the business of the assessee company and the police will not provide armed escorts unless the potential of threat is verified. Similar expenditure has been allowed in earlier year. In view thereof, we hold that the security expenses are business in nature. CIT(A) has rightly allowed the same.
14. Apropos Ground No.2, it was contended that the issue in question, being employees' contribution of PF and ESI is similar to Asstt. Year 1999- 2000.
15. The issue of PF/ESI has already been decided in Asstt. year 1999- 2000, following our order on this issue, ground of revenue is dismissed. 11
16. Apropos Ground No.3, learned DR contends that assessee made a debit of Rs.60,93,926/- on account of entry tax as part of its manufacturing expenses. Assessee furnished the details and a substantial amount was found to be attributable to Local Area Development Tax (LADT). AO was of the view that the tax was on purchase/entry of goods and forms integral part of the cost thereof. It was further observed that while valuing the closing stock, the proportionate amount of LADT was not added to the cost of valuation. Accordingly, this addition was made.
17. Learned DR contends that the AO's action is in accordance with the principle of accountancy and the concept of cost of goods. Department relied on the order of AO.
18. Learned counsel, on the other hand, contends that AO was under
mistaken impression that LADT was attributable to the purchase of goods whereas this was a local area development tax levied on inter-state sales and has no relation to entry tax. The tax being leviable on the goods sold in inter-state trade, cannot be called tax on purchases. This issue was agitated by various industrial organizations before Hon'ble Supreme Court, which held it to be unconstitutional inasmuch as the state Government/local bodies had no constitutional power to levy any tax on inter-state sales. Hon'ble Supreme Court in the case of Jindal Stainless Steel Ltd. vs State of Haryana 12 has declared such levy to be unconstitutional. Learned counsel summed up his arguments as under:
(i) Levy in question has become unconstitutional;
(ii) The levy was in respect of inter state sales and material consumed, which can be determined after the year end besides the stock in question cannot be said to be held for local sales or inter-state sales. Therefore, in any case, it will be only after the consumption of such stock and onward sales that the issue about the levy of LADT on such stock can be actually determined. Since the closing stock held cannot be called to be exclusively held for manufacture in respect of onward inter-state sales, LADT cannot be imputed to the closing stock.
(iii) LADT was contingent on determination of inter state sales and corresponding utilization of imported raw material. It was contended that in any case the levy is not attributable to goods, however, the same is dependent on many contingencies, which crystallizes after the year end, therefore, it cannot be towards the cost of the goods.
(iv) Whenever the LADT is refunded, the same will be offered for taxation.
19. We have heard the rival contentions and perused the material on record. Ld. CIT(A) deleted this addition by following observations:
"I have carefully considered the submissions of the ld. AR and perused the order of assessment. The nature of entry tax or LADT being as such it has nothing to do with the goods, it cannot become part of stock as such it has nothing to do with the goods, it cannot become part of stock as it did not 13 relate to it and hence, was not worked out by the appellant company or disclosed in the books of account. Hence, section 145A is not applicable. Similar finding was given by the undersigned in the case of M/s Lakhani India Ltd. in appeal No.36/06-07 vide order dated 29.3.2007 for the assessment year 2003-04. Following this order, the addition of Rs.13,51,846/- on account of under valuation of closing stock on the basis of effecting entry tax is, therefore, deleted."
In our considered view, the addition cannot be sustained as in any case, the Act does not specifically say that this tax is in respect of purchase of all goods, the contention of learned counsel that the levy depends on identification of raw material imported by assessee, which is utilized towards manufacture of goods, which are sold in inter state trade has not been disputed. In our view, the ascertainment of LADT has many contingencies attached to it which can be determined after year end, from this angle also this does not amount to direct levy on the purchases of the goods. In view thereof, we uphold the deletion. This ground of the revenue is dismissed.
20. Apropos fourth ground learned DR relied on the order of AO. Learned counsel for the assessee relied on the order of CIT(A) and further relied on the ITAT order in the case of Haryana Oxygen Ltd., 73 TTJ (Del) 575, wherein it has been held as under:
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"It is only when the corporate character is employed to commit any illegality that the courts will disregard it and the corporate veil will be pierced. In the absence of any maladies on the part of a company, its separate legal entity can't be disregarded. It is not the case of the Revenue that the company committed any illegality in the cloak of its corporate character. Hence, the character of the company, distinct from its directors is intact. Now when the directors and the company are two separate legal entities, the use of car by the director of the company cannot be characterized as non business purposes of the company. No disallowance u/s 37(1) is justified. At the most, the perquisite value on account of personal use of cars can be considered as extra remuneration to the director of the company - ITO vs Ashoka Betelnut Co.(P) Ltd. (1985) 21 TTJ (Mad)™ 465: (1984) 10 ITD 788 (Mad)™ and Daks Copy Services (P) Ltd. vs ITO (1989) 34 CTR)Bom)(SB)604: (1`989) 30 ITD 223 (Bom)(SB) relied on; Saloman vs Saloman & Co. (1997) AC 22 and Delhi Development Authority vs Skipper Construction Co. (P) Ltd. (1996) 4 CLJ 233 applied."
21. We have heard the rival contentions and perused the material. Learned CIT(A) deleted this addition by following observations:
"I have carefully considered the submissions of the ld. AR and perused the order of assessment. It is now established that the company is a juristic entity and if any disallowance out of the personal use of cars is to be made, it can be made only as a perquisite in the hands of the directors and not in the hands of the company. Therefore, the disallowance of Rs.1,41,018/- out of car expenses worked out by the AO, is deleted."15
It has not been disputed that assessee is a legal entity. Reliance on the case of Haryana Oxygen Ltd. (supra) is well founded. In view thereof, order of CIT(A) is upheld on this issue. As such this ground of revenue is dismissed.
22. In the result, appeal of revenue is dismissed.
23. Assessee has raised following ground for Assessment Year 2003-04:
"1. On the facts and circumstances of the case, the ld. CIT(A), Faridabad, was not justified to confirm the addition made by ACIT Range-II, Faridabad for Rs.1,53,319/- in respect of interest paid to the parties for delayed payments."
24. Learned counsel for the assessee requests to admit additional evidence, being in the form of confirmations from parties, who were held as SSI parties and in reality not SSI parties. Learned counsel contends that before AO ands CIT(A), assessee could not file any evidence to the effect that the parties to whom interest was belatedly paid were not SSI parties. Consequently, disallowance was made. The non compliance was attributed to disputes in the two families managing the company, due to which proper compliance could not be made voluntarily. It was contended that now such parties have given confirmation that they are not SSI parties. It was pleaded that in the interest of justice, the additional evidence may be admitted as assessee was prevented by sufficient cause and the matter may be set-aside back to the file of AO to decide the same afresh.
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25. Learned DR opposed the admission of additional evidence and contends that at no stage this plea was raised that there was disputes in the management, no explanation was filed to this effect. Assessee has failed to indicate that these disputes had any effect because the business, accounting and tax proceedings were running smoothly. Therefore, the assessee's plea is a general not supported by any evidence.
26. We have heard the rival contentions. We find merit in the argument of ld. DR. At no stage of proceedings any communication was given by assessee that the alleged dispute between families created any handicap. Learned counsel admits that the business operations were going on regularly. From the assessment and appellate proceedings, it emerges that they were promptly complied with. This being so, we are not impressed with the assessee's justification for admission of additional evidence, which we refuse to admit. On merits, since there is nothing on record to substantiate the claim of the assessee, the ground of the assessee is dismissed.
26. In the result, assessee's appeal is dismissed.
Order pronounced in the open court on 19th June, 2009.
(K.G. BANSAL) (R.P. TOLANI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 19th June, 2009/Vijay
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Copy to:
1. Appellant.
2. Respondent.
3. CIT
4. CIT(A), Faridabad.
5. DR Assistant Registrar