Income Tax Appellate Tribunal - Cochin
Sfo Technologies P. Ltd, Cochin vs Department Of Income Tax on 9 January, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
COCHIN BENCH, COCHIN
BEFORE S/SHRI N.R.S.GANESAN, JM and CHANDRA POOJARI, AM
I.T.A. No.454/Coch/2014
Assessment Year : 2006-07
The Assistant Commissioner of Vs. SFO Technologies P. Ltd. ,
Income-tax, Circle-4(1), Range- Plot No. 37, CSEZ,
4, Kochi. Kakkanad, Kochi-682 037.
(Revenue-Appellant) (Assessee-Respondent)
Revenue by Smt. Latha V. Kumar, Jr. DR
Assessee by None
Date of hearing 10/12/2014
Date of pronouncement 09/01/2015
ORDER
Per CHANDRA POOJARI, Accountant Member:
This appeal filed by the Revenue is directed against the order dated 30-12-2014 passed by the CIT(A)-II, Kochi for the assessment year 2006-07.
2 At the time of hearing, none appeared on behalf of the assessee nor any adjournment application was filed before the Tribunal. Hence, we proceed to adjudicate this appeal ex parte.
3. The first issue is with regard to deletion of disallowance of Rs.9,20,422/- made by the Assessing officer.
2 I.T.A. No.454/Coch/20143. The brief facts of the case are that the Assessing officer has made this disallowance mainly on account of observation in Form No.3CD wherein it was mentioned that these payments have been made after the due date specified by the relevant Act. The Assessing officer has made this disallowance observing as the following:
"A perusal of Form 3CD revealed that the assessee has paid employees contribution of PF/SI after the due dates. As per Explanation to sec. 36(1)(va) the "due date" is the date specified by the relevant Act. The payment of employees contribution made after the due date is not a admissible deduction. Total amount paid after the due date is EPF of Rs.8,37,101/- and ESI of Rs.83,321/-. This is disallowed u/s. 36(1)(va) r.w.s. 2(24)(x) and Explanation to sec. 36(1)(va)."
4. On appeal, the CIT(A) relied on the judgments of Supreme Court in the case of CIT vs. Vinay Cements Ltd. (213 CTR 268) and in the case of CIT vs. Alom Extrusions Ltd. (319 ITR 508) and Delhi High Court in the case of CIT vs. AIMIL Ltd. (321 ITR 508) wherein it was held that if the employer's contribution as well as employees contribution towards PF and ESI is deposited after the due date, as prescribed under the relevant rules but before the due date for filing the return under the Income Tax Act, then no disallowance could be made in view of the provisions of sec. 43B as amended by the Finance Act, 2003. According to the CIT(A), as a matter of fact, this has laid down as a principle 3 I.T.A. No.454/Coch/2014 where employees contribution have also been covered for the deposit by the due date as defined in sec. 13(1) of the relevant Act and in any case, in view of the deletion of second proviso to sec. 43B, such payments if made before the due date of filing the return, the same are allowable. Against this observation, the Revenue is in appeal before us.
5. We have heard the Ld. DR. We find that a similar issue was considered by the Gujarat High Court in the case of CIT vs. Gujarat State Road Transport Corporation (265 CTR 65) where in it was held as under:
"7.01. Short question which is posed for consideration of this Court is with respect to the disallowance of the amount being employees' contribution to PF Account / ESI Contribution which admittedly which the concerned assessee did not deposit with the PF Department / DSI Department within due date under the PF Act and/or ESI Act.
7.02. To answer the above controversy, the relevant provisions of Income Tax Act, 1961 are required to be referred to.
7.03. "Income" has been defined under section 2(24) of the Act. Under section 2(24)(x), any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the Employees' State Insurance Act, 1948, or any other fund for welfare of such employees, constitute income. Section 2(24)(x) reads as under :-
"Section 2(24)(x) :- Any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the Employees' State Insurance Act, 1948, or any other fund for welfare of such employees."4 I.T.A. No.454/Coch/2014
7.04. Section 36 of the Act provides for deduction in computing the income referred to in section 28. The relevant provisions applicable to the present cases would be Section 36(1)(va). As per sub-section 36(1)(va), assessee shall be entitled to the deduction in computing the income referred to in section 28 with respect to any sum received by the assessee from his employees to which the provisions of subclause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employees' accounts in the relevant fund or funds on or before the "Due Date". As per explanation to section 36(1)(va) for the purpose of the said clause, "Due Date"
means the date by which the assessee is required as an employer to credit the employees' contribution to the employees account in the relevant fund under the Act, Rule, Order or Notification issued thereunder or under any Standing Order, Award, Contract or Service or otherwise.
Section 36(1)(va) reads as under :
"Section 36(1) : The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28--
Section 36(1) (va) : 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 :- for the purpose of this clause, "due date"
means 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 thereunder or under any standing order, award, contract or service or otherwise."
7.05. Another provision which is required to be considered while considering the above controversy would be Section 43B of the Act, which stood prior to the amendment of section 43B of the Act vide Finance Act, 2003 and after the amendment to Section 43B of the Act by Finance Act, 2003. Section 43B of the Act prior to the amendment of Section 43B of the Act vide Finance Act, 2003 reads as under :
5 I.T.A. No.454/Coch/2014"Provided that nothing contained in this section shall apply in relation to any sum referred to in clause (a) or clause (c) or clause (d) or clause (e) or clause (f), which is actually paid by the assessee on or before the due date applicable in T his case for furnishing the return of income under sub- section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return:
Provided further that no deduction shall, in respect of any sum referred to in clause (b), be allowed unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date as defined in the Explanation below clause (va) of subsection (1) of section 36, and where such payment has been made otherwise than in cash, the sum has been realised within fifteen days from the due date."
By the Finance Act, 2003, Second Proviso to section 43B of the Act came to be deleted and even the first proviso to section 43B of the Act came to be amended. The first proviso to section 43B of the Act, after its amendment by the Finance Act, 2003 reads as under :-
"Provided that nothing contained in this section apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return."
7.06. Considering the aforesaid provisions of the Act, as per section 2(24)(x), 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 shall be treated as an 'Income'. Section 36 of the Act deals with the deductions in computing the income referred to in section 28 and as per section 36(1)(va) such sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section 2 apply, the assessee shall be entitled to deduction of such amount in computing 6 I.T.A. No.454/Coch/2014 the income referred to in section 28 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" i.e. date by which the assessee is required as an employer to credit the employee's contribution to the employee's account in the relevant fund, in the present case, the provident fund and ESI Fund under the Provident Fund Act and ESI Act. Section 43B is with respect to certain deductions only on actual payment. It provides that notwithstanding anything contained in any other provisions of the Act, a deduction otherwise liable under the Act in respect of ...... (B) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him. It appears that prior to the amendment of section 43B of the Act vide Finance Act, 2003, an assessee was entitled to deductions with respect to the sum paid by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees (employer's contribution) provided such sum - employer's contribution is actually paid by the assessee on or before the due date applicable in his case for furnishing return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred and the evidence of such payment is furnished by the assessee along with such return. It also further provided that no deduction shall, in respect of any sum referred to in clause (B) i.e. with respect to the employer's contribution, be allowed unless such sum is actually been paid in cash or by issue of cheque or draft or by any other mode on or before the due date as defined in explanation below clause (va) of sub-section (1) of section 36 and where such sum has been made otherwise that in cash, the sum has been realized within 15 days from the due date. By the Finance Act 2003, Second Proviso of section 43B of the Act has been deleted and First Proviso to section 43B has also been amended which is reproduced hereinabove. Therefore, with respect to employer's contribution as mentioned in clause (b) of section 43(B), 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 applicable in his case for furnishing the return of the income under sub-section (1) of section 139, assessee would be entitled to deduction under section 43B on actual payment and such deduction would be admissible for 7 I.T.A. No.454/Coch/2014 the accounting year. However, it is required to be noted that as such there is no corresponding amendment in section 36(1) (va). Deletion of Second Proviso to section 43B vide Finance Act 2003 would be with respect to section 43B and with respect to any sum mentioned in section 43(B) (a to f) and in the present case, employer's contribution as mentioned in section 43B(b). Therefore, deletion of Second Proviso to section 43B and amendment in first proviso to section 43B by Finance Act, 2003 is required to be confined to section 43B one and deletion of second proviso to section 43B vide amendment pursuant to the Finance Act, 2003 cannot be made applicable with respect to section 36(1)(va) of the Act. Therefore, any sum with respect to the employees' contribution as mentioned in section 36(1)(va), assessee shall be entitled to the deduction of such sum towards the employee's contribution if the same is deposited in the accounts of the concerned employees and in the concerned fund such as Provident Fund, ESI Contribution Fund, etc. provided the said sum is credited by the assessee to the employees' accounts in the relevant fund or funds on or before the 'due date' under the Provident Fund Act, ESI Act, Rule, Order or Notification issued thereunder or under any Standing Order, Award, Contract or Service or otherwise. It is required to be noted that as such there is no amendment in section 36(1) (va) and even explanation to section 36(1)(va) is not deleted and is still on the statute and is required to be complied with. Merely because with respect to employer's contribution Second Proviso to section 43B which provided that even with respect to employers' contribution [(section 43(B)b], assessee was required to credit amount in the relevant fund under the PF Act or any other fund for the welfare of the employees on or before the due date under the relevant Act, is deleted, it cannot be said that section 36(1)(va) is also amended and/or explanation to section 36(1)(va) has been deleted and/or amended. It is also required to be noted at this stage that as per the definition of "income" as per section 2(24)(x), 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 the such employees is to be treated as income and on fulfilling the condition as mentioned under section 36(1) (va), the assessee shall be entitled to deduction with respect to such employees' contribution. Section 2(24)(x) refers to any sum received by the assessee from his employees as contribution and does not refer to employer's contribution. Under the circumstances and so long as and with respect to any sum received by the assessee from any of his employees to which provisions of sub-clause (x) of sub-section 24 of section 2 applies, assessee shall not be entitled to 8 I.T.A. No.454/Coch/2014 deduction of such sum in computing the income referred to in section 28 unless and until such sum is credited by the assessee to the employees' account in the relevant fund or funds on or before the due date as mentioned in explanation to section 36(1)(va). Therefore, with respect to the employees contribution received by the assessee if the assessee has not credited the said sum to the employees' account in the relevant fund or funds on or before the due date mentioned in explanation to section 36(1) (va), the assessee shall not be entitled to deductions of such amount in computing the income referred to in section 28 of the Act.
7.07. Now so far as the reliance placed upon the decision of the Hon'blee Supreme Court in the case of Alom Extrusions Ltd. (supra), by the learned ITAT as well as learned advocates appearing on behalf of the assessee in support of their submission that in view of amendment in section 43B pursuant to Finance Act, 2003, by which the second proviso to section 43B has been deleted and therefore even with respect to employees contribution despite section 36(1)(va), and explanation to section 36(1)(va), if the employees' contribution is credited after the due date mentioned in the particular Act but credited on or before the due date by filing return under section 139 of the Act, assessee shall be entitled to the deduction of such amount, is concerned, on considering the controversy before the Hon'ble Supreme Court in the case of Alom Extrusions Ltd. (supra), the said decision would not be applicable to the facts of the present case. In the said case before Alom Extrusions Ltd., the controversy was whether the amendment in section 43B of the Act, vide Finance Act, 2003 would operate retrospectively w.e.f. 1/4/1988 or not. It is also required to be noted that in the case before the Hon'ble Supreme Court, the controversy was with respect to employers' contribution as per section 43(B)(b) of the Act and not with respect to employees' contribution under section 36(1)(va). Before the Hon'ble Supreme Court in the case of Alom Extrusions Ltd. (supra) the Hon'ble Supreme Court had no occasion to consider deduction under section 36(1)(va) of the Act and with respect to employees' contribution. As stated above, the only controversy before the Hon'ble Supreme Court was with respect to amendment (deletion) of the Second Proviso to section 43(B) of the Income Tax Act, 1961 by the Finance Act, 1963 operates w.e.f. 1/4/2004 or whether it operates retrospectively w.e.f. 1/4/1988. Under the circumstances, the learned tribunal has committed an error in relying upon the decision of the Hon'ble Supreme Court in the case of Alom Extrusions Ltd. (supra) while passing the impugned judgement and order and deleting disallowance of the 9 I.T.A. No.454/Coch/2014 respective sums being employees' contribution to PF Account / ESI Account, which were made by the AO while considering the proviso to section section 36(1) (va) of the Income Tax Act.
7.08. Now, so far as the reliance placed upon the decision of the Division Bench of this Court in the case of Alembic Glass Industries Ltd. (supra) is concerned, on facts and considering the provisions of section section 36(1)(va) of the Act as is stands, the said decision would not be applicable to the facts of the case on hand and the controversy in question.
7.09. Now, so far as the reliance placed upon the decision of the Karnataka High Court in the case of Sabari Enterprises (supra) is concerned, on facts and controversy raised in the present appeals, the said decision would not be any assistance to the assessee. In the case before the Karnataka High Court, the dispute was with respect to the employer's contribution and the controversy was whether the amendment to section 43B of the Act would be retrospective in nature or not. In the aforesaid case before the Karnataka High court, there was no dispute with respect to employees' contribution as is there in the present case.
7.10. Similarly, the decision of the Bombay High Court in the case of Pamwi Tissues Ltd. (supra) also would not be applicable to the facts of the case on hand. In the case before the Hon'ble Bombay High Court, the dispute was whether deletion of Second Proviso to section 43B would be applicable retrospectively or not and in that case the dispute was also with respect to employer's contribution. 7.11. Now, so far as the reliance placed upon the decision of the Himachal Pradesh High Court in the case of Nipso Polyfabriks Ltd. (supra); decision of the Karnataka High Court in the case of Spectrum Consultants India (P) Ltd. (supra); decision of the Rajasthan High Court in the case of Udaipur Dugdh Utpadak Sahakari Sandh Ltd. (supra) and decision of the Punjab and Haryana High Court in the case of Hemla Embroidery Mills (P) Ltd. (supra) taking view that where the assessee deposited employees' contribution to ESI and Provident Fund before the due date of filing the return under section 139(1) of the Act, the same would be allowable as deduction, are concerned, With respect and for the reasons stated hereinabove, we are not in agreement with the view taken by the aforementioned High courts. As discussed hereinabove, as there is no amendment in Section 36(1)(va) of the Income Tax Act and considering section 36(1) (va) of the Income Tax Act as it stands, with respect to any sum received by the 10 I.T.A. No.454/Coch/2014 assessee from any of his employees to which the provisions of clause
(x) of sub-section (24) of section 2 applies, assessee shall not be entitled to deduction of such amount in computing the income referred to in section 28 if such sum is not credited by the assessee to the employees' account in the relevant fund or funds on or before the due date as per explanation to section 36(1)(va) of the Act. Merely because Second Proviso to Section 43B of the Act in which there was a reference to due date as defined in explanation below clause (va) of sub-section (1) of section 36, it cannot be held that even section 36(1)(va) is amended and/or even explanation below clause (va) of sub-section (1) of section 36 is also deleted. It can be said that there was a reference to explanation below clause (va) of sub-section (1) of section 36 in second proviso of section 43B (which has been deleted by Finance Act, 2003), only for the purpose of defining due date as per explanation below clause (va) of sub-section (1) of section 36. Therefore, by deleting Second Proviso to section 43B by Finance Act, 2003, it cannot be said that Section 36(1) (va) is amended and/or explanation below clause (va) of subsection (1) of section 36 is deleted, which is with respect to employees' contribution. Under the circumstances, we are not in agreement with the view expressed by the Himachal Pradesh High Court; Karnataka High Court; Rajasthan High Court and Punjab and Haryana High Court in the cases refereed to hereinabove.
7.12. Now, so far as the reliance placed upon the decision of the Hon'ble Supreme Court in the case of Sarabhai Sons Ltd. (supra), by th e learned counsel appearing on behalf of the assessee and his submission that if two views are possible and different High Courts have taken a particular view, this Court may not take a different view, is concerned, we are of the opinion that in the present case, and as discussed hereinabove, only one view is possible as canvassed on behalf of the revenue and as observed by under section hereinabove and we are not in agreement with the view taken by the Himachal Pradesh High Court; Karnataka High Court; Rajasthan High Court and Punjab and Haryana High Court in the cases referred to hereinabove, and therefore, the submission made on behalf of the assessee to follow the decisions of the different High Courts refereed to hereinabove and/or not to take a contrary view cannot be accepted.
8.00. In view of the above and for the reasons stated above, and considering section 36(1)(va) of the Income Tax Act, 1961 read with sub-clause (x) of clause 24 of section 2, it is held that with respect to the sum received by the assessee from any of his employees to 11 I.T.A. No.454/Coch/2014 which provisions of sub-clause (x) of clause (24) of section (2) applies, the assessee shall be entitled to deduction in computing the income referred to in section 28 with respect to such sum credited by the assessee to the employees' account in the relevant fund or funds on or before the "due date" mentioned in explanation to section 36(1)(va). Consequently, it is held that the learned tribunal has erred in deleting respective disallowances being employees' contribution to PF Account / ESI Account made by the AO as, as such, such sums were not credited by the respective assessee to the employees' accounts in the relevant fund or funds (in the present case Provident Fund and/or ESI Fund on or before the due date as per the explanation to section 36(1)(va) of the Act i.e. date by which the concerned assessee was required as an employer to credit employees' contribution to the employees' account in the Provident Fund under the Provident Fund Act and/or in the ESI Fund under the ESI Act.
Consequently, all these appeals are allowed and the impugned judgement and orders passed by the tribunal in deleting the disallowances made by the AO are hereby quashed and set aside and the disallowances of the respective sums with respect to the Provident Fund / ESI Fund made by the AO is hereby restored. The questions raised in present appeal are answered in favour of the revenue. With this, all these appeals are allowed."
6. In view of the above order, we are inclined hold that where any sum received by the assessee from any of its employees as contribution to PF and/or ESI was not credited by the assessee to employees' accounts in the relevant fund or funds on or before the due date as per Explanation to sec. 36(1)(va) of the I.T. Act, the assessee shall not be entitled to deduction thereof. Accordingly, the order of the CIT(A) is reversed on this issue and that of the Assessing officer is restored.
Accordingly, this ground of the Revenue is allowed.
12 I.T.A. No.454/Coch/20147. The second ground of the Revenue is with regard to the deletion of addition of Rs. 24,18,295/- made u/s. 2(22)(e) of the I.T. Act.
8. The brief facts of the case are that the Assessing officer has made this disallowance by observing as follows:
"The assessee has purchased majority shares in some group companies as on 27/03/2006. The assessee company is not a company in which the public is substantially interested. After acquisition of the majority shares the assessee has received certain payments from these companies by way of loan. The receipts are deemed dividend within the meaning of section 2(22)() of the I.T. Act. The details of such receipts are as under:
Crysind Electronics Pvt. Ltd. Rs.7,73,295/-
Sun Generic Cable Pvt. Ltd. Rs.4,91,907/-
Swift Liank Pvt. Ltd. Rs.11,53,093/-
Since these amounts are received by the assessee and it holds more than 10% of the beneficial shares the amount is taxable in the hands of the assessee u/s. 2(22)(e) of the I.T. Act."
9. On appeal, the CIT(A) observed that these amounts were credited and represented salary payments on behalf of the company and thus these payments are in the nature of normal business expenses and cannot be treated as deemed dividend in the hands of the company. Therefore, the CIT(A) held that these payments cannot be treated as deemed dividend and deleted the addition of Rs.24,18,295/-.
13 I.T.A. No.454/Coch/201410. We have heard the Ld. DR. We find that during the first appellate proceedings, the CIT(A) got admitted the ledger account statements and thereafter, he came to the conclusion that the said amount received were credited on the last date of the financial year and represented salary payments made on behalf of the company on account of commercial expediency. These ledger statements were not filed before the Assessing officer and the CIT(A) has also not called for remand report from the Assessing officer. In our opinion, it is proper to remit the issue to the file of the Assessing officer for fresh consideration in the light of the material produced before the CIT(A) on this issue as this was not placed before the Assessing officer for his comments.
Accordingly, this issue is remitted back to the file of the Assessing officer for fresh consideration. This ground of the Revenue is allowed or statistical purposes.
11. In the result, the appeal filed by the Revenue is partly allowed for statistical purposes.
Pronounced in the open court on 09-01-2015
(N.R.S.GANESAN) (CHANDRA POOJARI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Place: Kochi
Dated: 9th Jan 2015
GJ
Copy to:
1. SFO Technologies P. Ltd., Plot No. 37, CSEZ, Kakkanad, Kochi-682 037.
14 I.T.A. No.454/Coch/20142. The Assistant Commissioner of Income-tax, Circle-4(1), Range-4, Kochi.
3. The Commissioner of Income-tax(Appeals)-II, Kochi.
4. The Commissioner of Income-tax,
5. D.R., I.T.A.T., Cochin Bench, Cochin.
6. Guard File.
By Order (ASSISTANT REGISTRAR) I.T.A.T., Cochin