Income Tax Appellate Tribunal - Hyderabad
Hyquip Systems Limited, Hyderabad vs Income Tax Officer, Ward-2(3), ... on 20 June, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "A", HYDERABAD
BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
AND SHRI V. DURGA RAO, JUDICIAL MEMBER
ITA No. 2139/Hyd/2017
Assessment Year: 2014-15
Hyquip Systems Ltd., Vs. Income-tax Officer,
Hyderabad. Ward - 2(3), Hyderabad.
PAN - AAACH4964M
(Appellant) (Respondent)
Assessee by : Shri M.V. Anil Kumar
Revenue by : Shri K.J. Rao
Date of hearing : 13-06-2018
Date of pronouncement : 20-06-2018
ORDER
PER V. DURGA RAO, J.M.:
This is an appeal of the Assessee directed against the order of the learned Commissioner of Income-tax (A) - 2, Hyderabad, dated 16/10/2017 for AY 2014-15.
2. The facts are in brief that assessee, engaged in the business of manufacturing and supplying of material handling equipments to all major cement companies, filed its return of income on 30/11/2014 declaring income of Rs. 13,70,350/-. Subsequently, the case was selected for scrutiny and a notice u/s 143(2) dated 31/08/2015 was issued and duly served on the assessee. In response to the said notice, the AR of the assessee furnished the information as called for.
2.1 On examination of the information furnished by the Assessee, the AO observed that the assessee had not paid the employees contribution towards PF amounting to Rs. 16,15,777/- and ESI 2 ITA No. 2139/H/17 Hyquip Systems Ltd., Hyd.
contribution of Rs. 2,63,276/- as per due dates prescribed in the relevant Acts, as such, these amounts need to be disallowed u/s 36(1)(va) of the Act. When the AO asked the assessee to explain the same, the assessee vide letter dated 07/12/2016 stated that the payments towards PF and ESI contribution were paid with a delay, but, paid before filing the return of income for AY 2014-15 and the same were allowable expenditure, therefore, the same may be allowed. The assessee relied on various cases in this regard, which were mentioned by the AO in his order at page 2. AO, however, disallowed the said payments on the ground that payments were not made as per the due dates prescribed under the relevant Act.
3. When the assessee carried the matter in appeal before the CIT(A), the CIT(A) confirmed the order of AO.
4. Aggrieved by the order of CIT(A), the assessee is in appeal before us.
5. Before us, ld. Counsel for the assessee submitted that the impugned amounts towards PF & ESI were paid before filing of the return of income and, therefore, the same cannot be disallowed. For this proposition, he relied on the judgement of the Hon'ble Supreme Court in the case of Pr. CIT, Jaipur Vs. Rajasthan State Beverages Corporation Ltd., [2017] 84 Taxmann.com 185.
6. The ld. DR, on the other hand, relied on the orders of revenue authorities.
7. Considered the rival submissions and perused the orders of revenue authorities as well as material on record. The AO has disallowed the employees contributions of PF amounting to Rs. 16,15,777/- and ESI amounting to Rs. 2,63,276/- by invoking provisions of section 36(1)(va) on the ground that the same was paid 3 ITA No. 2139/H/17 Hyquip Systems Ltd., Hyd.
by the assessee beyond the due date after availing grace period. The contention of the assessee is that the payments were made beyond due date but paid before filing of return of income u/s 139(1) and hence, the same is allowable as deduction u/s 43 of the Act. The Hon'ble Supreme Court in the case of Rajasthan State Beverages Corporation Ltd., (supra), on which reliance placed by the assessee, has held that the amounts claimed on payment of PF and ESI having been deposited on or before due date of filing of return, the same could not be disallowed u/s 43B or u/s 36(1)(va) of the Act.
7.1 The Hon'ble High Court of Allahabad in the case of Sagun Foundry (P) Ltd. Vs. CIT, [2017] 78 Taxmann.com 47 (All.) has observed as under:
Section 36(1)(va) permits deductions in respect to relevant fund of employees.
■ Section 43B permits deductions otherwise allowable under the Income- tax Act in case any sum payable by the assessee is paid actually before the date of filing of return under section 139 and carves out an exception in this regard.
■ Explanation to section 36(1)(va) provides that deduction shall be allowed in respect to the sum paid by the assessee to employee's account, in the relevant fund, on or before due date, i.e., such date by which assessee is required to credit employee's contribution in the relevant fund, under any Act, Rule, Order or Notification issued therein. In the instant case, due date, therefore, shall be the date mentioned in the 1952 Act or 1948 Act or Rules framed thereunder, etc. by which contributions were to be made. Admittedly as per due date under the relevant Acts, contributions were not paid by the assessee. Section 36(1)(va) talks of only employee's contribution and allow deduction in respect thereto in computing 'income' under section 28.
■ So far as section 43B is concerned, it was inserted with effect from 1-4- 1984 to allow deductions provided payments are actually made before filing of return as per due date under section 139(1). 'Income' defined under section 2(24) includes 'profits and gains'. Under section 2(24)(x), any sum received by assessee from his employees as contribution to any provident fund/superannuation fund or any fund set up under Employees State Insurance Act, 1948, or any other fund for welfare of such 4 ITA No. 2139/H/17 Hyquip Systems Ltd., Hyd.
employees, constitute 'income'. In respect to such contributions deduction was allowed under section 36(1)(va) when contributions received by employer is deposited within time prescribed, under relevant labour welfare statute. Prior to 1-4-1984, every assessee was entitled to deduction on mercantile system of accounting as a business expenditure by making provision in his books of account in that regard and this situation continued upto 1-4-1984. An assessee, if maintaining books on accrual system of accounting, even after collecting contribution from his employee, and even without remitting the amount to Regional Provident Fund Commissioner, he would have claimed deduction as 'business expense' by merely making a provision to that effect in his books of account. A similar discrepancy was noticed in the context of sales tax where assessee collected the same and other indirect taxes from his respective customers and claimed deduction only by making provisions in his books without actually remitting the amount to exchequer. To curb this practice, section 43B was inserted with effect from 1-4-1984, whereby mercantile system of accounting with regard to tax, duty and contributions to welfare funds stood discontinued. Now it became necessary for the assessee to account for the aforestated items, not onmercantile basis, but on cash basis. With effect from 1-4-1988 section 43B was again amended and a Proviso was inserted. It provided, inter alia, in the context of any sum payable by the assessee by way of tax, duty, cess or fee, if such an assessee pays such tax, duty, cess or fee even after closing of accounting year but before date of filing of return under section 139(1), assessee would be entitled to deduction under section 43B on actual payment basis and such deduction would be admissible for the accounting year. This proviso, however, was not made applicable to contributions made by the assessee to labour welfare funds. By Finance Act, 1988, with effect from 1-4-1988, Second Proviso came to be inserted. Second Proviso was further amended by Finance Act, 1989 with effect from 1-4-1989.
■ From the above provisions, now assessee becomes entitled to deduction only if contribution stand credited on or before due date, given in labour welfare statutes. However, Second Proviso again created certain difficulties. In many of the companies, financial year ended on 31st March did not coincide with accounting period of labour welfare statutes. In many cases, time to make contribution of funds ended after due date of filing of returns. On the representation of industries, again Parliament, vide Finance Act, 2003, with effect from 1-4-2004, made amendment by deleting Second Proviso and amending First Proviso.
■ The Supreme Court in the case of Alom Extrusions Ltd. (supra) considered the intent, purpose and object in the historical back drop of insertion of section 43B and its progress by way of various amendments 5 ITA No. 2139/H/17 Hyquip Systems Ltd., Hyd.
and held that when the contribution had been paid by the assessee towards provident fund, etc. prior to filing of return under section 139(1), the assessee would be entitled for deduction under section 43B. [Para 27] ■ From the aforesaid judgment of the Supreme Court, the Bench finds that irrespective of the fact that deduction in respect of sum payable by employer's contribution was involved, but the Court did not restrict observations, findings and declaration of law to that context but looking to the objective and purpose of insertion of section 43B applied it to both the contributions, whether by employer or employee. It also observed clearly that section 43B is with a non obstante clause and, therefore, over ride even if, anything otherwise is contained in section 36 or any provision of the Income-tax Act.
■ In view of the aforesaid, the assessee was entitled to deductions under sections 43B and 36(1)(va).
7.2 In view of the above discussion, we hold that no disallowance can be made towards PF/ESI contributions made by the assessee within the FY or before filing of the return. In the given case, assessee has paid the employees contribution to PF & ESI before filing of the return of income and hence, the assessee is allowed to claim the above payments as deduction in the same FY. Therefore, the AO is directed to delete the additions made.
8. In the result, appeal of the assessee is allowed Pronounced in the open court on 20 th June, 2018.
Sd/- Sd/-
(B. RAMAKOTAIAH) (V. DURGA RAO)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Hyderabad, Dated: 20 th June, 2018
kv
6
ITA No. 2139/H/17
Hyquip Systems Ltd., Hyd.
Copy to:-
1) Hyquip Systems Ltd., C/o M. Anandam & Co., CAs., 7A, Surya towers, SP Road, Secunderabad - 500 003.
2) ITO, Ward - 2(3), Hyderabad
3) CIT(A) - 2, Hyderabad
4) Pr. CIT - 2, Hyderabad
5) The Departmental Representative, I.T.A.T., Hyderabad.
6) Guard File