Income Tax Appellate Tribunal - Mumbai
Wilson Sandhu Logistics (India) P. Ltd, ... vs Assessee on 19 March, 2008
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH 'G' : MUMBAI
BEFORE SHRI D.K. AGARWAL, (JM) AND SHRI R.K. PANDA ,(AM)
S. ITA No. Appellant Respondent Asstt.
No Year
.
1. 4183/Mum/2008 M/s. Wilson Sandhu Addl. Commissioner of 2005-06
Logistics Income tax
(India) Pvt. Ltd. Range-8(3)
2, Swaroop Chambers Room No.220, 2nd Floor
Opp., AAI Import Ware Aayakar Bhavan
House Maharshi Karve Road
Sahar Pipe Line Road, Mumbai-20.
Andheri (E)
Mumbai-400 099.
P.A. No.(AAACW 3666 K)
2. 4017/Mum/2008 Addl. Commissioner of M/s. Wilson Sandhu 2005-06
Income tax Logistics
Range-8(3) (India) Pvt. Ltd.
Assessee by : Shri Hitesh P. Shah
Department by : Shri Mohd. Usman
ORDER
Per D.K. AGARWAL (JM).
These cross appeals by the assessee and the revenue are directed against the order dated 19.03. 2008 passed by the ld. CIT(A) for the Assessment Year 2005-06. Since issues involved are common, both these appeals are disposed of for the sake of convenience.
2. Briefly stated facts of the case are that the assessee company is engaged in the business of international freight forwarding and allied activities. It filed return declaring total income at Rs.5,77,84,190/-. During the course of assessment proceeding it was interalia observed 2 ITA Nos.4183 & 4017/M/08 A.Y: 05-06 by the AO that the assessee had made late payment in respect of employees contribution to PF and Employees State Insurance Scheme. The assessee was asked to explain as to why late payment may not be disallowed. It was interalia explained by the assessee that the assessee was under a bonafide belief that the delayed payment was at par with benefits given to employers contribution u/s.43B the payment of which may be made before the due date of filing of return. Further as per PF Act and ESIC Act payments made within the grace days are regarded as payments made within the stipulated time, therefore, the same may be allowed. The AO after considering assessee's explanation was of the view that the assessee has not paid respective amounts on or before due date, therefore, he added Rs.15,32,448/- being Employees PF and Rs.50,105/- being Employees State Insurance Scheme to the income of the assessee. It was further observed by the AO that the assessee has charged interest of Rs.2,56,748/- on the advances, no interest has been charged on the deposits given to Directors for premises taken on rent. On the other hand the assessee has taken overdraft from the banks apparently for the purpose of business. These overdrafts would have been lower if the interest free deposits mentioned above had not been made by the assessee . The AO following the appellate order for the Assessment Year 2003-04 wherein such disallowance of interest was confirmed by 3 ITA Nos.4183 & 4017/M/08 A.Y: 05-06 the ld. CIT(A) disallowed Rs.6,48,600/- out of interest paid and accordingly completed the assessment at an income of Rs.6,00,15,340/- vide order dt.15.10.07 passed u./s. 143(3) of the Income tax Act, 1961(the Act). On appeal, the ld. CIT(A) while holding that the payment of employees PF and ESIC made within the grace period should be allowed as deduction, confirmed the disallowance of payment made beyond grace period. On disallowance of interest the ld. CIT(A) directed to re-quantify the disallowance as per directions contained in para 3.4 of his order and accordingly partly allowed the appeal.
3. Being aggrieved by the order of the ld. CIT(A) the assessee and revenue both are in appeal before us.
4. Ground No.1 and 2 taken by the assessee read as under :
"1. The ld. CIT(A) erred in partly confirming the disallowance of Interest on Bank Overdraft without appreciating the facts and circumstances of appellant's case.
2. the ld. CIT(A) and the ld. A.O. failed to appreciate the fact that the appellant company was having sufficient interest free funds of its own."
5. The additional ground No.1, 2 and 3 taken by the assessee read as under :
4 ITA Nos.4183 & 4017/M/08
A.Y: 05-06 "1. The ld. CIT(A) as well as the ld.A.O. erred in assuming and presuming that the interest incurred on borrowing, was not made for the purpose of business.
2. The ld. CIT(A) as well as ld. A.O. ought to have appreciated the fact that all the premises taken on lease from the Directors, were used by the Company for its business purposes only.
3. The ld. CIT(A) erred in holding that the Rent in respect of 102, 103-Swaroop Chambers and 224/224(1)-
Krishna Chambers, is slightly higher than the Gool Mansion."
6. Ground No.1 taken by Revenue reads as under :
"1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the disallowance out of interest expenses on account of interest free deposits given to Directors for premises taken on lease from them, without appreciating the facts of the case.
7. At the time of hearing the ld. Counsel for the assessee, at the outset, submits that the assessee has his own interest free funds of Rs.37,43,93,444/- as per balance sheet as on 31.3.2005 appearing at page-2 of assessee's paper book and the said interest free fund is more than the advance given to the Directors. Further the secured loans were utilised for the purpose for which it was taken, therefore, the disallowance of interest made by the AO and sustained by the ld. CIT(A) is liable to be deleted. However, he confirms that this plea was not being taken before the AO or the ld. CIT(A) therefore, in the interest of justice the issue may be set aside to the file of the AO. 5 ITA Nos.4183 & 4017/M/08
A.Y: 05-06
8. On the other hand, the ld. DR while relying on the order of the AO submits that he has no objection if the matter is restored back to the file of the AO.
9. Having carefully heard the submissions of the rival parties and perusing the material available on record we find merit in the plea of the ld. Counsel for the assessee that the issue of disallowance of interest has not been examined in the light of interest free funds available with the assessee. The Hon'ble Supreme Court in Munjal Sales Corporation vs. CIT And Another (2008) 298 ITR 298 (SC) held ( page 298 headnote) "..that since the opening balance of the profits of the assessee-firm as on April 1, 1994,, was Rs.1.91 crores, and the profits were sufficient to cover the loan given to a sister concern of Rs.5 lakhs only, the Appellate Tribunal ought ot have held that the loan given was from the assessee's own funds."
In the light of the ratio of the above decision we are of the view that in the interest of justice the matter should go back to the file of the AO and accordingly we set aside the order passed by the revenue authorities on this account and send back the matter to the file of the AO who shall decide the same afresh and accordingly to law after providing reasonable opportunity of being heard to the assessee. The 6 ITA Nos.4183 & 4017/M/08 A.Y: 05-06 grounds taken by assessee and the revenue are therefore, partly allowed for statistical purposes.
10. Ground No.3 taken by the assessee reads as under :
"The ld. CIT(A) erred in confirming the disallowance of employee's contribution and employer's contribution to provident fund and ESIC made after the grace period without appreciating the fact that the same were made before the due date of filing of return."
11. Ground No.2 taken by the revenue reads under:
"2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in delting the disallowance of Employee's contribution to PF & ESIC made within the grace period as specified in respective Acts."
12. At the time of hearing the ld. Counsel for the assessee after referring to the latest decision of Hon'ble Supreme Court in CIT vs. Alom Extrusions Ltd. (2009) 319 ITR 306(SC) submits that all the payment made before the due date of filing of the return may be allowed.
13. On the other hand the ld. DR supports the order of the AO.
14. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that there is no dispute that the AO has made the disallowance of employees 7 ITA Nos.4183 & 4017/M/08 A.Y: 05-06 contribution to PF Rs.15,32,448/- and Employees State Insurance Scheme Rs.50,105/- on the ground that the said amounts have not been paid before the due date as provided under section 36(1)(va) r.w.s. u/s.2(24)(x) of the Act. The ld. CIT(A) following the decision of the Co-ordinate Benches of the Tribunal that if the payments of employees contribution to PF and ESIC are made within the grace period, provided under the relevant Act, the disallowance of the same is not justified, held that the addition in respect of delayed payment of employees contribution to PF and ESIC within the grace period is deleted and the payments made beyond grace period is upheld.
15. In CIT vs. Alom Extrusions Ltd. supra, the short question before Their Lordships was "Whether omission (deletion) of second proviso to section 43B of the Income tax Act, 1961, by the Finance Act, 2003, operated w.e.f. April 1, 2004, or whether it operated retrospectively w.e.f. April 1, 1988 ?" . It has been held ( placitum 18 page 316 of 319 ITR):
"For the aforestated reasons, we hold that the Finance Act, 2003, to the extent indicated above, is curative in nature, hence, it is retrospective and it would operate with effect from April 1, 1988 (when the first proviso came to be inserted). For the above reasons, we find no merit in this batch of civil appeals filed by the Department which are hereby dismissed with no order as to costs."8 ITA Nos.4183 & 4017/M/08
A.Y: 05-06 Thus, the issue before the Hon'ble Supreme Court was different than the issue before us. That being so, and keeping in view that it is nobody's case that the amended provisions of section 43B are not applicable to the assessee's case which pertains to the AY 05-06, we keeping in view, the consistent view of the coordinate Benches of the Tribunal uphold the finding of the ld. CIT(A) in deleting the disallowance of employees contribution to PF and ESIC if paid within the grace period and in upholding the disallowance if paid beyond the grace period. The grounds taken by the assessee and revenue are, therefore, rejected.
16. In the result, both the appeals stand partly allowed for statistical purposes.
Order pronounced in the open court on 12.2.2010.
Sd/- Sd/-
(R.K. PANDA) ( D.K. AGARWAL )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 12.2.2010.
Jv.
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT(A) Concerned, Mumbai
The DR " " Bench
True Copy
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.
9 ITA Nos.4183 & 4017/M/08
A.Y: 05-06
Details Date Initials Designation
1 Draft dictated on 28.1.10 Sr.PS/PS
2 Draft Placed before author 29.1.10 Sr.PS/PS
3 Draft proposed & placed before the JM/AM
Second Member
4 Draft discussed/approved by JM/AM
Second Member
5. Approved Draft comes to the Sr.PS/PS
Sr.PS/PS
6. Kept for pronouncement on 12.2.10 Sr.PS/PS
7. File sent to the Bench Clerk 15.2.10 Sr.PS/PS
8 Date on which the file goes to the
Head clerk
9 Date of Dispatch of order