M/S AVANTHI BUSINESS MACHINES LTD., HYDERABAD. V. DCIT [ASSTS] CIRCLE -1 [1] HYDERABAD.

ITTA/375/2006

AI Insights

The case involves M/S Avanthi Business Machines Ltd., Hyderabad, appealing against the orders of the Income Tax Appellate Tribunal, Hyderabad, concerning the assessment year 2000-2001. The primary issues in the appeal were the treatment of public issue expenses, the disallowance of deductions for late payments to Provident Fund and Employees State Insurance, and the levying of interest under specific sections of the Income Tax Act. The tribunal's decisions on these matters were contested, leading to this appeal in the High Court of Telangana.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 746433 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 07-06-2023
• Assessment Year: misc
• Other Referred Cases: Brooke Bond India Ltd. v. Commissioner of Income Tax, Commissioner of Income Tax v. Alom Extrusions Ltd., Checkmate Services P. Ltd. v. Commissioner of Income Tax-13
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: J V PRASAD
• Assessee Lawyers: A V A KARTIKEYA
• Keywords: Capital expenditure; Employees' State Insurance; Income Tax; Interest Levy; Late Payment; Provident fund; Public issue expenses; Revenue expenditure
• Section: 147; 143(3); 143(1); 234B; 43B; 37(1); 260A; 201(1A); 35D

Judgement Text

"[ 3311 ] IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD WEDNESDAY,THE SEVENTH DAY OF JUNE TWO THOUSAND AND TWENTY THREE PRESENT THE HONOURABLE THE CHIEF JUSTICE UJJAL BHUYAN AND THE HONOURABLE SRI JUSTICE N.TUKARAMJI INCOME TAX TRIBUNAL APPEAL NO: 375 OF 2006 Appeal Under Section 260 A of the lncome Tax Act, 1961 against order of the lncome Tax Appellate Tribunal, Hyderbad Bench 'A' , Hyderabad in l.T.A. No. 77 lHydl2005 ( Assessment Year 2000-01) daled 24-11-2005(Served on 27.12.2005) Between: M/S Avanthi Business Machines Ltd., Hyderabad., Rep. by Director, No 1-10-72-511A Cheekoti Gardens, Begumpet, Hyd. AND Dcit [Assts] Circle -1 [1] Hyderabad., its M,D. Managing ...Appellant ...Respondent Counsel for the Appellant:SRl. A.V. A SIVA KARTIKEYA FOR SRI A V KRISHNA KOUNDINYA Counsel for the Respondent: SRI J V PRASAD (SC FOR INCOME TAX) The Court made the following: JUDGMENT I THE IION'BLE THE CHIEF JUSTICE UJJAI BHIIYAN AND THE HON'BLE SRI JUSTICE N. TUKARAMJI I.T.T.A.No.375 of 20o6 JUDGMENT: P(.r Lhe u()n'bLe ttt ( ttr ? [ Juslice UL]ol Llhulto n ) Hearrt Mr. A.V.A.Siva Kartikeya, learned counsel for the appellant ald Mr. J.V.Prasad, learned Standing Counsel, Income Tax Department, for the respondent 2. This appea-l has been preferred by the assessee as the appellalt under Section 260A of the Income Tax Act, 1961 (briefly, 'ttre Act' hereinafter) against the order dated 24.ll.2OOS passed by the Income Tax Appellate Tribunal, Hyderabad Bench 'A', Hyderabad (Tribunal) 1n I.T.A.No.77lHyd/2005 for the assessment year 2000-20O1. 3. Though the appeal was admitted on 06.11.2006, no substaltial questions of law have been framed. However, from the nremo of appeal, we find that appellant has I 2 I t ) proposed the following questions as substantial questions of law: i) Whether on the facts alld in the circumstances o[ the case Tribunal was justified in confirming the ordcr of the first appellate authority in not treating the expenditure of Rs. 1,36,482.O0 incurred for public issue of shares as revenue expenditure allowable under Section 37(I) of the Act? ii) Whether on the facts and in the cii'cumstalces of the case Tribunal was justified in conhrming the order of tlr\" Iirst apPellate authority by sustaining the disallowance made by the assessing oflicer under Section 43B of the Act for al amount of Rs'2,74,O27 OO on account of late payment of Provrdent Fund (PF) and Employees State Insurance (ESI)? iii) Whether on the facts and in the circumstalces of the case Tribunal uras justilied in confrrming the order of the first appellate authority by sustaining the interest levied under Sections 201(1A) and 2348 of the Act? 4 . Appellant is an assessee under the Act having the status of a company. Appellant is engaged in the business of manufacturing and sale of binding machines' document laminators and paper shredders. Assessment yea-r under ) consideration is 2000 200 i. Appellant had filed return of income on 28.1 1.2000 for the said assessment year declaring tnxable income at Rs.86,284.00. Initially the return ras processed under Section 1a3(1) of the Act by accepting the same. l-ater on, the same was reopened, whereafter assessment order was passed under Section 143(3) read with Section 147 of the Act. 5. Insofar the first issue is concerned, assessing officer found that appellant had written off an amount of Rs.1,81,342.00 tou,ards public issue expenses which was debited to its profit and loss account. After making necessary disallowance appellant had claimed an amount of Rs.1,36,482.O0 as al allowable expenditure. It was noticed that appeliant had gone in for public issue in the assessment year 1997-1998 and had collected share application money of Rs.94,15,250.00. Appellant had gone in for public: issue to expand its business. Appellant had amortized the public issue expenses and had debited 1/ l0ttt of the same to the profit and loss account under -- 1 !-J -Iffif '.!n i Section 35D of the Act from the assessment year 1997' 1998 onwards. It was however noticed by the assessing officer that the assessee had not employed the public issue money either in extension of business or in setting up of a new unit till the assessment year 2OOL-2OO2. ln that view of the matter, claim of the assessee was disallowed and the amount of Rs. 1,36,482.00 was added back to the income of the assessee. 6. When the order of assessment was assailed before the Commissioner of Income Tax (Appeals) - II, Hyderabad, the first appellate authority vide the appellate order dated 2O.L2.2OO4 held that action of the assessing officer in disallowing the said amount was . fully justilied and accordingly dismissed the appeal on this ground. 7. In further appeal before the Tribunal, it was held that there was no inlirmity in the view taken by the frrst appellate authority. ) 8. In Brooke Bond India Ltd. v. Commissioner of Income Taxr. Suprt-'me Court hacl held that expenses incurred in issue of shares etc., for the purpose of expansion of the capital bast: of an assessee would be a capital expenditure. Expenses incurred would still retain the character of capital expenditure since the expenditure is directly related to the expalsion of the capital base of the assessee. 9. We lurther find that appellant had amortized the public issut: expenses under Section 35D of the Act from the assessment year 1997 -1998 onwards for which assessment year it had debited 1/ 10th of the same to its profit and loss account and which was accordingly aIlowed. As per Section 35D(1) of the Act, where an assessee, being an Indian company or a person (other than a company) and is a resident in h.rdra, incurs, after 31.03.1970, any expenditure specified in sub-section (21 thereof either before commencement of his business or after commencement of his business in connection with the ,'t (199i) 225 It'R 7e8 (sc) 6 l I extension of his undertaking or in connection with his setting up of a new unit, the assessee shall,. in accordance with and subject to the provisions of Section 35D, be . allowed a deduction of al amount equal to I / Iqthof such expenditure for each of the ten successive previous years beginning with the previous year in which the business commenced or, as the case may be, the previous year in which the extension of the undertaking is completed or the new unit commences production or operation. Expenditures specified in sub-section A) include expenditure incurred in connection with the issue for public subscription of shares in or debentures of the assessee, being underwriting commission, brokerage and charges for drafting, gping, printing and advertisement of the prospectus. 10. In this case, appellarr t had amortized the public issue expenses under Section 35D of the Act from the assessment year 1gg7_lg9g i.e., previous year being 1996_ 7997. If that be the position, it would be entifled to the W--7 continued benelit of Section 35D for ten successive previous years beginning from the previous year 1.996- 1997. This would cover the assessment year 20OO-2001 as well 1 1. Consequently, question No.1 is answered in favour of the assessee and against the revenue. 12. As regards the second issue, assessing officer in the assessment order found that appellant had remitted both Provident Fund amounts and payments under Employees State Insurance after the due dates mentioned in the respective statutes but before the due date of filing the return. Accordingly, the above amounts aggregating to Rs.2,74,O27.00 was allor,r,ed and added to the income of the assessee. 13. Section 438 of the Act deats with certain deductions to be allowed only on actual payment. As per Section 438(b) of the Act, notwithstanding anything contained in any other provision of the Act, a deduction otherwise =_tlt . -,'ltll -'.it 8 allowable under the Act in respect of 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 employee shall be allowed irrespective of the prer.ious year in which liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him while computing the income under Section 28 of the Act for that previous year in which the sum was actually paid by him. 14. We may mention that prior to 01.04.2004 there were two provisos below Section 43B of ttre Act. The second proviso is relevant. It said that no deduction would be allowed unless such sum was actually paid on or before the due date of the concerned statute. By the Finance Act, 2003, with effect from Ol.O4.2OO4, the second proviso was omitted and the hrst proviso stood substituted as under: Provided that nothing contained in this section except the provisions of clause (h) shall apply in relation to any sum which is actually paid by the assessee on or 9 before 'Jre due clatc aplrlicable in his case for furnishing the rel urn of inconLc r-rnder sub-section (1) of SecLion 139 in respect o[ tl.rc previous year in which the liability to pay such sum !its incurred as aforesaid and the evidence of such pa 'lncnL is furnisl-red by the assessee along ',r'ith such rctu lr r. 15. Thus, as per the substituted proviso, if the payment is made on or before the due date for filing the return under Section i39(1) of the Act, such sum would be allowed. This provisir)n was examined by a Two Judge Bench of the Supreme Court in Commissioner of Income Tax v. AIom Extrusions Ltd.,2 and it was held that the aforesaid provision introduced by the Finance Act, 2003 should be read as rL'trospective. In other words, an assessee would get the benefit of deduction under Section 43B of the Act even if the payments are made after the due date under the respectrve statutes but before ttre due date of filing the return undcr Section 139(1) of the Act. 16. However, the position has now undergone a change in view of a Three Judge Bench decision of the Supreme I ll 'z1zooe1 : to Ifr{ 3,'16 (sc) I TR IO Court in Checkmate Services P. Ltd. v. Commissioner of Income Tax-13 in which the Larger Bench of the Supreme Court has opined as under: 54. In the opinion of this Court, the reasoning in the impugned judgment that the non-obstante clause would not in arry manner dilute or override the employer's obligation to deposit the amounts retained by it or deducted by it from the employee's income, unless the condition that it is deposited on or before the due date, is correct and justifred. The non-obstante clause has to be understood in the context of the entire provision of Section 43B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some leeway in that as long as deposits are made beyond the due date, but before the -date of liling the return, the deduction is allowed. That, however, cannot apply in the case of anounts which are held in trust, as it is in the case of employees' contributions- which are deducted from their income. They are not part of the assessee employer's income, nor are they heads of deduction per se in the form of statutory pay out. They are others' income, monies, only deemed to be income, ' lzozzl ut rrR 5 t8 (sc) / with the object of ens,.r-ing that they are paid within the due clate specified in ihr: r;arlicular iaw. They have to be depositerl in terms of sttt:h r.l,elfare enactments. It is upon deposit, in Lern- -. o[ those enactments and on or bcforc the due dertes rrirrrclatcd by such concerned law, that tl-rr. amount which is otherwise retained, and d.eemecl:.m income, is trcated as a deduction. Thus, it is an essential conditior. for the deduction that such amounts are depositt'ri on or before the due date. If such intcrpretation n't'rc to be adopted, the non- obstanle clausc uttdcr Section 43B or anything contained in that provision would not absolve the assessee from its liabihty to deposit the employee's contribution on or bef,r-e thc due date as a condition lor deductiort. 16. 1. Thus, Supreme Court has opined that to avail the benefit of Section 43B of the Act, the assessee is required to make the payments Lrnder the welfare legislation within the due dates as prescribed under those legislations. 17. Evidently, in the present case, the payments were made by the appellant aller the due dates prescribed under the respective statutes tl-rough before the due date for frling the return. i2 =r-tII .\".ffi '',fjtl 18. That being the position, question No.2 is answered against the assessee and in favour of the revenue. 19 . This brings us to the third issue as to levy of interest under Section 201(1A) and Section 234F} of the Act. 20. While interest charged under Section 20 I (1A) of the Act is Rs.7,77l.OO, the interest levied under Section 2348 of the Act is Rs. 1,16,671.00. Though learned counsel for the appellant submits that on the issue of whether the assessing officer had the jurisdiction to levy interest under Section 201(1A) of the Act the matter was remanded back to the assessing officer by the Tribunal in the case of Avanthi Business Machines Ltd., Hyderabad v. DCIT (I.T.A.No. 158 lHyd/2OO6 for the assessment year 1997- 1998, dated 14.07.2006l, we are of the view that having regard to the small quantum involved, no useful purPose would be served by remanding the matter back to the assessing ofhcer. Insofar interest under Section 2348 of the Act is concerned, it is al admitted position that '! i I I I i l-) interest levied thcreur-rder, being statutorilv prescribed, is consequential and atrtornatic. However, in view of our answer to question No. 1, the same /ould require a redetermination by the assessing officer 20.1. Question No.3 is answered accordingly. 2L. In view of the above, appeal is disposed of. Miscellaneous applications pending, if any, shall stand closed. However. there shall be no order as to costs. Sd/- K. SRINIVASA RAO JOINT REGISTRAR //TRUE COPY// SECTION OFFICER 1 . The lncome Tax Appellate Tribunal, HYderbad Bench _'A' , Hyderabad 2. The Pr. Commissioner of lncome - Tax ( Central ), 3'o Floor, Posnett Bhavan, Tilak Road, Ramkote, Hyderabad- 3. The Deputy Commissioner of lncome Tax, Central Circle -2 (1) Hyderabad 4. One CC to SRl. A V KRISHNA KOUNDINYA Advocate [OPUC] 5. One CC to SRl. J V PRASAD (SC FOR INCOME TAX) Advocate [OPUC] 6. Two CD Copies. isk G, To, PR I I HIGH COURT UBJ NTRJ DATED:07/06/2023 JUDGMENT ITTA.No.375 of 2006 I.T.T.A. APPEAL IS DISPOSED OF WITHOUT COSTS. i', Il lt tlSB ,,, . t.,, ' .,^.. ..,-,:., -. Jd**- i{) €g "