Mgage India Private Limited, CHENNAI V. DCIT, CHENNAI

CO 31/CHNY/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5566 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 1 month(s) 3 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 17-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 13-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR KUMUDHA
• Assessee Lawyers: JHARNA B HARILAL
• Keywords: Double taxation relief; Permanent establishment; Question of law; Non-deduction of tax; Capital expenditure; TDS
• Section: 43B; 143(3); 142(1); 40(a)(ia); 37(1); 195; 139

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , A BENCH, CHENNAI . , . , BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I.T.A.NOS. 3425/CHNY/2016 & 1754, 1755/CHNY/2017 ( / ASSESSMENT YEARS:2011-12, 2013-14 & 2014-15) THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 4(1), CHENNAI. VS M/S. MGAGE INDIA P. LTD., UNIT NO.1 & 2, I FLOOR, PINNACLE BUILDING, ASCENDAS IT PARK, CSIR ROAD, TARAMANI, CHENNAI 600 113. PAN: AACCA8496P ( /APPELLANT) ( /RESPONDENT) & C.O. NOS. 31, 135, 144/CHNY/2017 (IN ITA NOS. 3425/CHNY/2016 & 1754, 1755/CHNY/2017 ) M/S. MGAGE INDIA P. LTD., UNIT NO.1 & 2, I FLOOR, PINNACLE BUILDING, ASCENDAS IT PARK, CSIR ROAD, TARAMANI, CHENNAI 600 113. VS THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 4(1), CHENNAI. PAN: AACCA8496P ( /APPELLANT) ( /RESPONDENT) /REVENUE BY : MS. DR. KUMUDHA, JCIT /ASSESSEE BY : SMT. JHARNA B HARILAL, CA /DATE OF HEARING : 16.04.2019 /DATE OF PRONOUNCEMENT : 17.05.2019 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THESE APPEALS BY THE REVENUE ARE DIRECTED AGAINST THE ORDERS PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-8, CHENNAI DATED 03.10.2016 IN ITA NO.338/2014-15 FOR 2 ITA NOS.1754, 1755/CHNY /2017 & 3425/CHNY/2016 & CO NOS.144, 135 & 31/CHNY/2017 THE ASSESSMENT YEAR 2011-12, DATED 04.05.2017 IN ITA NO. 57/16- 17 & 353/16-17 FOR THE ASSESSMENT YEARS 2013-14 & 2014-15 RESPECTIVELY, ALL PASSED U/S.250(6) R.W.S. 143(3) OF THE ACT. THE ASSESSEE HAS ALSO RAISED CERTAIN CROSS OBJECTIONS AND THEY ARE IN SUPPORT OF THE ORDERS OF THE LD.CIT(A) SUPRA. 2. REVENUES APPEALS :- THE REVENUE HAS RAISED SEVERAL GROUNDS IN ITS APPEALS HOWEVER THE CRUXES OF THE ISSUES ARE THAT (I) THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE LD.AO AMOUNTING TO RS.49,53,643/-, RS.3,98,99,452/- & RS.44,55,583/- FOR THE ASSESSMENT YEARS 2011-12, 2013-14 & 2014-15 RESPECTIVELY BEING ADVANCE RECEIVED FROM CUSTOMERS FOR SERVICES TO BE RENDERED IN FUTURE. (II) THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE LD.AO AMOUNTING TO RS.1,21,04,400/-, RS.2,20,38,870/-, & RS.73,34,640/- FOR THE ASSESSMENT YEARS 2011-12, 2013-14, & 2014-15 RESPECTIVELY FOR NON-DEDUCTION OF TAX AT SOURCE TOWARDS PAYMENT MADE ABROAD IN FOREIGN CURRENCIES TO FOREIGN ENTITIES WITH RESPECT TO DATA TRANSMISSION SERVICES RENDERED INVOKING SECTION 40(A)(IA) OF THE ACT. 3 ITA NOS.1754, 1755/CHNY /2017 & 3425/CHNY/2016 & CO NOS.144, 135 & 31/CHNY/2017 (III) THE LD.CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE MADE BY THE LD.AO AMOUNTING TO RS.35,47,737/- TOWARDS PAYMENT OF PROFESSIONAL / RETAINER FEES FOR THE ASSESSMENT YEAR 2011- 12. (IV) THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE LD.AO AMOUNTING TO RS.20,75,000/- FOR NON-DEDUCTION OF TAX AT SOURCE TOWARDS PAYMENT OF PREMIUM CONTENT WHICH IS IN THE NATURE OF BANK GUARANTEE FOR THE ASSESSMENT YEAR 2013-14. (V) THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE LD.AO AMOUNTING TO RS.12,87,368/- U/S.36(I)(VA) R.W.S. 2(24)(X) OF THE ACT TOWARDS BELATED PAYMENTS MADE ON EMPLOYEES CONTRIBUTION TO PROVIDENT FUND FOR THE ASSESSMENT YEAR 2013-14. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS AS APPLICATION SERVICE PROVIDER IN INTERNET AND MOBILE SPACE, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEARS 2011-12, 2013-14 & 2014-15 ON 28.09.2011, 30.11.2013 & 29.11.2014 ADMITTING TOTAL INCOME OF RS.71,04,992/-, RS.6,69,94,480/- & RS.17,73,31,290/- RESPECTIVELY. 4 ITA NOS.1754, 1755/CHNY /2017 & 3425/CHNY/2016 & CO NOS.144, 135 & 31/CHNY/2017 THE CASES WERE ELECTED FOR SCRUTINY AND NOTICE U/S.143(2) & 142(1) OF THE ACT WAS ISSUED. FINALLY ASSESSMENT ORDERS WAS PASSED U/S.143(3) OF THE ACT ON 28.03.2014, 31.03.2016 & 31.12.2016 FOR THE ASSESSMENT YEARS 2011-12, 2013-14 & 2014-15 RESPECTIVELY WHEREIN THE LD.AO MADE SEVERAL ADDITIONS. 4. GROUND NO.2(I) : ADDITION ON ACCOUNT OF AMOUNT RECEIVED IN ADVANCE DURING THE RELEVANT ASSESSMENT YEARS 2011-12, 2013- 14 & 2014-15 FOR SERVICES TO BE RENDERED IN FUTURE BY TREATING IT AS ACCRUED INCOME:- DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE LD.AO THAT THE ASSESSEE HAS RECEIVED AN AMOUNT OF RS.49,53,643/-, RS.3,98,99,452/- & RS.44,55,583/- DURING THE ASSESSMENT YEARS 2011-12, 2013-14 & 2014-15 RESPECTIVELY FROM ITS CLIENTS. ON QUERY IT WAS EXPLAINED THAT THE ASSESSEE COMPANY HAD ENTERED INTO CONTRACT WITH ITS CLIENTS FOR TRANSMITTING DATA FOR WHICH THE ASSESSEE RECEIVES SERVICE CHARGES EITHER BASED ON NUMBER OF SMS TO BE SENT OVER A PERIOD OF TIME OR FOR TRANSMITTING SMS FOR A PERIOD IRRESPECTIVE OF THE NUMBER OF SMS TRANSMITTED. IT WAS FURTHER EXPLAINED THAT FOR SUCH SERVICE TO BE RENDERED IN FUTURE THE ASSESSEE COMPANY HAD RECEIVES ADVANCE PAYMENT FROM ITS CLIENTS. IT WAS FURTHER EXPLAINED THAT THE COMPANY HAD RECOGNIZED THE ADVANCE RECEIVED AS INCOME AS AND WHEN THE 5 ITA NOS.1754, 1755/CHNY /2017 & 3425/CHNY/2016 & CO NOS.144, 135 & 31/CHNY/2017 SERVICES WERE RENDERED ACCORDING TO THE TERMS OF THE CONTRACT AND UNTIL THEN THE SAME WAS ACCOUNTED AS CREDITORS AND SHOWN IN THE LIABILITY AIDE OF THE BALANCE SHEET. HOWEVER THE LD.AO WAS OF THE VIEW THAT THE ENTIRE AMOUNT RECEIVED BY THE ASSESSEE FOR THE SERVICES TO BE RENDERED IN FUTURE HAS TO BE TREATED AS THE INCOME OF THE ASSESSEE IN THE YEAR IN WHICH SUCH AMOUNT WAS RECEIVED DUE TO THE FOLLOWING REASONS:- (I) THERE IS NO SPECIFIC CLAUSE IN THE AGREEMENT BETWEEN THE ASSESSEE AND THE CLIENT WITH RESPECT TO THE REFUND OF THE ADVANCE PAID IN CASE THE ASSESSEE FAILS TO RENDER THE SERVICES. (II) SINCE THERE IS NO SUCH CLAUSE FOR REFUND IT IS IMPLIED THAT THE ASSESSEE IS ENTITLED TO RETAIN THE ENTIRE ADVANCE AMOUNT RECEIVED IRRESPECTIVE OF THE SERVICES RENDERED. 4.1 AT THE OUTSET THE LD.AR SUBMITTED BEFORE US THAT THE ISSUE WAS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO.1030/MDS/2013 AND CO NO.146/MDS/2013 VIDE ORDER DATED 27.02.2014 FOR THE ASSESSMENT YEAR 2009-10 AND IN ITA NO.1651/MDS/2015 AND CO NO.111/MDS/2015 VIDE ORDER DATED 06.01.2016 FOR THE ASSESSMENT 6 ITA NOS.1754, 1755/CHNY /2017 & 3425/CHNY/2016 & CO NOS.144, 135 & 31/CHNY/2017 YEAR 2010-11. THE LD.AR FURTHER POINTED OUT THAT THE LD.CIT(A) FOLLOWING THE DECISION OF THE TRIBUNAL AND ALSO RELYING ON THE DECISIONS OF THE HONBLE JURISDICTIONAL MADRAS HIGH COURT IN THE CASE CIT VS. CORAL ELECTRONICS (P). LTD.,(2005) REPORTED IN 274 ITR 336, CIT VS. P&C CONSTRUCTIONS (P) LTD., (2009) REPORTED IN 318 ITR 113 AND THE DECISION RENDERED BY THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE CIT VS. PUNJAB TRACTORS COOPERATIVE MULTIPURPOSE SOCIETY LTD., (1998) REPORTED IN 234 ITR 105, HELD THE ISSUE IN FAVOUR OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2011-12. IT WAS FURTHER SUBMITTED THAT THE LD.CIT(A) FOR THE ASSESSMENT YEARS 2013-14 & 2014-15 HAD ALSO ARRIVED AT THE SAME CONCLUSION BY FOLLOWING THE EARLIER DECISION OF THE TRIBUNAL. IT WAS THEREFORE PLEADED THAT THE ORDER OF THE LD.CIT(A) MAY BE CONFIRMED. THE LD.DR ON THE OTHER HAND RELIED ON THE RESPECTIVE ORDER OF THE LD.AO. 4.2 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE MATERIALS ON RECORD. FROM THE EARLIER ORDER OF THE TRIBUNAL CITED SUPRA WE FIND THAT THE IDENTICAL ISSUE IN ALL THE RELEVANT ASSESSMENT YEARS IN APPEAL BEFORE US HAS BEEN ALREADY DECIDED BY THE TRIBUNAL WHICH WAS SUBSEQUENTLY FOLLOWED BY THE LD.CIT(A) FOR THE RELEVANT 7 ITA NOS.1754, 1755/CHNY /2017 & 3425/CHNY/2016 & CO NOS.144, 135 & 31/CHNY/2017 ASSESSMENT YEARS. THE RELEVANT PORTION IN THE ORDER OF THE TRIBUNAL UPHOLDING THE ORDER OF THE LD.CIT(A) FOR THE ASSESSMENT YEAR 2009- 10 IN ITA NO.1030/MDS/2013 AND CO NO.146/MDS/2013 ON THE IDENTICAL ISSUE IS REPRODUCED HEREIN BELOW FOR REFERENCE:-- 13. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHORITIES AND DECISIONS RELIED ON. ON READING OF THE ASSESSMENT ORDER AS WELL AS ORDER OF COMMISSIONER OF INCOME TAX (APPEALS), WE FIND THAT ASSESSEE RECEIVED ADVANCE INCOME FROM ITS CUSTOMERS AND WHENEVER SERVICES WERE PROVIDED BY THE ASSESSEE, ASSESSEE ADJUSTS THE ADVANCES RECEIVED FROM CUSTOMERS AND RECOGNIZES THE INCOME IN THE YEAR IN WHICH SERVICES WERE RENDERED. HOWEVER, THE ASSESSING OFFICER TAXED THE ADVANCES RECEIVED BY THE ASSESSEE AND THE COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE SAID ADDITION OBSERVING AS UNDER:- 7.2 I HAVE CONSIDERED THE AO'S OBSERVATIONS AND THE APPELLANTS SUBMISSIONS IN THIS REGARD. SINCE THE APPELLANT MAINTAINS BOOKS ON ACCRUAL SYSTEM, INCOME SHALL BE RECOGNIZED ONLY WHEN IT ACCRUES. IN THE GIVEN CASE, THE INCOME ACCRUES ONLY WHEN THE APPELLANT SENDS THE REQUIRED NO. OF SMS. THEREFORE, THE SERVICE CHARGES RECEIVED IN ADVANCE FOR THE SERVICE TO BE RENDERED IN FUTURE YEARS ARE NOT LIABLE TO TAX IN THE YEAR OF RECEIPT. ONLY ON COMPLETION OF THE SERVICE, THE APPELLANT HAS RIGHT OVER THE AMOUNT THAT WAS RECEIVED IN ADVANCE. .IN VIEW OF THE ABOVE, THE ACTION OF THE AO IS NOT JUSTIFIED IN MAKING THE ABOVE DISALLOWANCE OF RS.1,33,01,684/- AND HENCE DIRECTED TO BE DELETED. THIS GROUND OF APPEAL IS ALLOWED. 14. ON READING OF THE ABOVE ORDER, WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS). THUS, THE GROUND OF APPEAL RAISED BY THE REVENUE ON THIS ISSUE IS REJECTED. NOTHING IS BROUGHT BEFORE US BY THE REVENUE TO ESTABLISH THAT THE FACTS IN THE RELEVANT ASSESSMENT YEARS ARE NOT IDENTICAL TO THE FACTS OF THE CASE DECIDED BY THE TRIBUNAL ON THE EARLIER OCCASIONS IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2009-10 & 2010-11 CITED SUPRA. IT IS ALSO APPARENT THAT THE LD.AO IN ORDER TO KEEP THE 8 ITA NOS.1754, 1755/CHNY /2017 & 3425/CHNY/2016 & CO NOS.144, 135 & 31/CHNY/2017 ISSUE ALIVE HAD CONTINUED TO MAKE THE ADDITION ON THE VERY SAME ISSUE FOR ALL THE RELEVANT ASSESSMENT YEARS BECAUSE THE REVENUE HAD FILED AN APPEAL BEFORE THE HONBLE MADRAS HIGH AGAINST THE EARLIER ORDERS OF THE TRIBUNAL. CONSIDERING THESE FACTS AND CIRCUMSTANCES OF THE ISSUE INVOLVED IN ALL THESE APPEALS WITH RESPECT TO THE ADDITION MADE TOWARDS ADVANCE RECEIVED FROM THE CLIENTS OF THE ASSESSEE FOR SERVICES TO BE RENDERED IN FUTURE, SINCE THIS BENCH OF THE TRIBUNAL HAD CONSISTENTLY HELD THE MATTER IN FAVOUR OF THE ASSESSEE WHICH HAS BEEN FOLLOWED BY THE LD.CIT(A), WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDERS OF THE LD.CIT(A) FOR THE RELEVANT ASSESSMENT YEARS. 5. GROUND NO.2(II) : ADDITION DUE TO NON-DEDUCTION OF TAX AT SOURCE TOWARDS PAYMENT MADE TO FOREIGN ENTITIES FOR SERVICES RENDERED ABROAD FOR THE ASSESSMENT YEARS 2011-12, 2013-14 & 2014-15:- IT WAS OBSERVED BY THE LD.AO THAT DURING THE RELEVANT ASSESSMENT YEARS, THE ASSESSEE HAD INCURRED EXPENDITURE IN FOREIGN CURRENCY BEING THE PAYMENT MADE TO FOREIGN ENTITIES TOWARDS CARRIER CHARGES AMOUNTING TO RS.1,21,04,400/-, RS.2,20,38,870/-, & RS.73,34,640/- FOR THE ASSESSMENT YEARS 2011-12, 2013-14, & 2014-15 RESPECTIVELY. IT WAS FURTHER OBSERVED BY THE LD.AO THAT THE AMOUNT WAS PAID TO FOREIGN TELEPHONE 9 ITA NOS.1754, 1755/CHNY /2017 & 3425/CHNY/2016 & CO NOS.144, 135 & 31/CHNY/2017 OPERATORS FOR TRANSMISSION OF DATA. THE ASSESSEE HAD EXPLAINED BEFORE THE LD.AO THAT SINCE THE SERVICES WERE RENDERED BY THE FOREIGN ENTITIES ABROAD, THE INCOME ARISING OUT OF THE PAYMENT MADE TO THE FOREIGN ENTITIES BY THE ASSESSEE DOES NOT ARISE OR ACCRUE IN INDIA BECAUSE SUCH PAYMENTS ARE NOT IN THE NATURE OF FEES FOR TECHNICAL SERVICES AS ENSHRINED IN THE DTA AGREEMENT. HOWEVER THE LD.AO WAS OF THE VIEW THAT AS PER EXPLANATION 6 TO SECTION 9(1)(VI) OF THE ACT, THE SERVICES RENDERED BY THE ASSESSEE CAN BE TREATED AS PROCESS AND THEREFORE THE ASSESSEE IS LIABLE TO DEDUCT TAX AT SOURCE U/S.195 OF THE ACT. SINCE THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE TOWARDS THE PAYMENT MADE TO THE FOREIGN OPERATORS FOR ALL THE RELEVANT ASSESSMENT YEARS, THE LD.AO INVOKED THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT FOR NON- COMPLIANCE OF SECTION 195 OF THE ACT AND DISALLOWED THE EXPENDITURE OF RS.1,21,04,400/-, RS.2,20,38,870/-, & RS.73,34,640/- FOR THE ASSESSMENT YEARS 2011-12, 2013-14, & 2014-15 RESPECTIVELY. ON APPEAL THE LD.CIT(A) FOLLOWING THE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE ON THE IDENTICAL ISSUE IN ITA NO.1030/MDS/2013 AND CO NO.146/MDS/2013 VIDE ORDER DATED 27.02.2014 FOR THE ASSESSMENT YEAR 2009-10 AND IN ITA NO.1651/MDS/2015 AND CO NO.111/MDS/2015 VIDE ORDER DATED 10 ITA NOS.1754, 1755/CHNY /2017 & 3425/CHNY/2016 & CO NOS.144, 135 & 31/CHNY/2017 06.01.2016 FOR THE ASSESSMENT YEAR 2010-11 DECIDED THE MATTER IN FAVOUR OF THE ASSESSEE. THE RELEVANT PORTION OF THE ORDER OF THE TRIBUNAL DATED 27.02.2014 IN ITA NO.1030/MDS/2013 & CO NO.146/MDS/2013 IS REPRODUCED HEREIN BELOW FOR REFERENCE: 7. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHORITIES AND THE DECISIONS RELIED ON. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ELABORATELY CONSIDERED THE FACTS, SUBMISSIONS OF THE ASSESSEE AND THE CONTENTIONS OF THE ASSESSING OFFICER AS TO WHETHER FEE PAID BY THE ASSESSEE TO CLICKATEL, SOUTH AFRICA IS FOR TECHNICAL SERVICES OR NOT AND WHETHER ANY TDS IS REQUIRED TO BE MADE ON SUCH PAYMENT OBSERVING AS UNDER:- 6.2 I HAVE PERUSED THE OBSERVATIONS OF THE AO. AND THE WRITTEN SUBMISSIONS OF THE AR OF THE APPELLANT IN THIS REGARD. IT IS SEEN FROM THE FACTS OF THE CASE THAT THE NATURE OF SERVICES RENDERED BY THE NON-RESIDENT I.E. M/S. CLICKATEL, AS A CARRIER, IS ONLY TO TRANSMIT THE BULK SMS. THE NATURE OF SERVICE REQUIRE NO TECHNICAL KNOWLEDGE AND WHAT IS RENDERED IS JUST TRANSMISSION OF DATA, WHICH REQUIRES NO TECHNICAL SKILL. THE CARRIER IS JUST A MEDIUM FOR SENDING THE BULK SMS AND AS SUCH CANNOT BE CONSIDERED TO BE RENDERING ANY TECHNICAL SERVICE. HOWEVER, THE AO HAS CONSIDERED THE PAYMENT MADE TO M/S. CLICKATEL, RESIDING IN SOUTH AFRICA, AS TECHNICAL SERVICE AND DISALLOWED A SUM OF RS.51,97,532/- U/S 40(A)(I) FOR NON-DEDUCTION OF TDS. WHEREAS THE APPELLANT CONTENDED THAT THE SERVICE RENDERED BY THE CARRIER IS NOT A TECHNICAL SERVICE AND HENCE NO DISALLOWANCE IS REQUIRED TO BE MADE. 6.3 IN ORDER TO DETERMINE WHETHER THE SERVICES RENDERED BY THE NON- RESIDENT CARRIER COMES UNDER TECHNICAL SERVICES, THE PROVISIONS OF DOUBLE TAXATION AVOIDANCE 'AGREEMENT ( DTAA) NEED TO BE LOOKED INTO. WHEN THE APPELLANT ENTERS INTO A TRANSACTION WITH A NON-RESIDENT, THE PROVISIONS OF THE INCOME TAX ACT OR THE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) WHICHEVER IS FAVOURABLE SHALL APPLY. AS PER DTAA BETWEEN INDIA AND SOUTH AFRICA, THE FEE FOR TECHNICAL SERVICE HAS BEEN DEFINED AS, 'PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR SERVICES OF A MANAGERIAL, TECHNICAL OR CONSULTANCY NATURE, INCLUDING THE PROVISION OF SERVICES BY TECHNICAL OR OTHER PERSONNEL, BUT DOES NOT INCLUDE PAYMENTS FOR SERVICES MENTIONED IN ARTICLE 15.' IT IS SEEN FROM THE FACTS OF THE' CASE THAT THE NATURE OF SERVICES RENDERED BY THE NON- 11 ITA NOS.1754, 1755/CHNY /2017 & 3425/CHNY/2016 & CO NOS.144, 135 & 31/CHNY/2017 RESIDENT CARRIER WOULD NOT BE COVERED BY THE ABOVE DEFINITION. THE DECISION RENDERED BY THE HON'BLE SUPREME COURT IN THE CASE OF BHARTI CELLULAR LTD, PROVIDES .THAT FOR A SERVICE TO BE LABELLED AS TECHNICAL IN NATURE 'HUMAN INTERVENTION IS NECESSARY. IN A SIMILAR CASE, 319 ITR 139, THE HON'BLE DELHI HIGH COURT HAS HELD THAT AS THESE SERVICES DO NOT INVOLVE HUMAN INTERVENTION, THESE CANNOT BE REGARDED AS FEE FOR TECHNICAL SERVICE AS CONTEMPLATED UNDER THE INCOME TAX LAWS. 6.4 FURTHER, IT IS ALSO NOTICED THAT, FEE FOR TECHNICAL SERVICE APART FROM OTHER CONDITIONS, SHALL FULFILL THE REQUIREMENT OF 'MAKE AVAILABLE'. THE SERVICES ARE CONSIDERED TO BE 'MAKE AVAILABLE' WHERE THE RECIPIENT OF SUCH SERVICE IS AT THE LIBERTY TO USE THE TECHNICAL KNOWLEDGE, SKILLS AND PROCESS IN HIS OWN RIGHT. THIS VIEW HAS BEEN UPHELD IN THE CASE OF NQA QUALITY SYSTEMS REGISTRAR LTD. VS. DCIT (2004) 92 TTJ 946. IN THE VIEW OF THE DECISIONS MENTIONED SUPRA, I AM OF THE CONSIDERED OPINION THAT THE SERVICES RENDERED BY THE NON- RESIDENT CARRIER DO NOT FALL, UNDER THE CLAUSE 'FEE FOR TECHNICAL SERVICE'; 6.5 FURTHER, AFTER HAVING GONE THROUGH THE FACTS OF THE CASE, I AM OF THE CONSIDERED OPINION THAT AO WAS' NOT JUSTIFIED IN INVOKING THE PROVISIONS U/S 40(A)(I), ON THE PAYMENT MADE TO M/S. CLICKATEL A .NON- RESIDENT CARRIER, FOR THE FOLLOWING REASONS: A) THE NON-RESIDENT CARRIER WOULD GET PAYMENT FOR TRANSMITTING THE BULK 'SMS DATA. AS THE SERVICES ARE RENDERED OUTSIDE. INDIA THE PROVISIONS OF SECTION 5 CANNOT BE APPLIED TO THE PAYMENT MADE TO THE NON-RESIDENT CARRIER SO AS TO MAKE IT TAXABLE IN INDIA. IT IS ALSO SEEN THAT THE NON- RESIDENT CARRIER DOES NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA. FURTHER, IN ORDER TO ATTRACT SECTION 195, THE SERVICES BY THE NON-RESIDENT CARRIER SHOULD HAVE BEEN RENDERED IN INDIA AND ALSO SHOULD HAVE BEEN USED IN INDIA.' IT IS TO BE NOTED THAT SECTION 195 OF THE ACT HAS TO BE READ ALONG WITH THE CHARGING SECTIONS 4, 5 AND 9 OF THE ACT AND THE PROVISIONS OF THE TAX TREATIES AND THE COMBINED READING OF THE AFORESAID SECTIONS CLEARLY INDICATE THAT UNLESS THE INCOME IS CHARGEABLE TO TAX IN INDIA, THERE IS NO OBLIGATION TO WITHHOLD THE TAX. B) THE AO HAS VIEWED THAT BOARD'S CIRCULAR,786 DATED 7.2.2000 HAS BEEN WITHDRAWN AND THEREFORE IT CANNOT BE RELIED UPON FURTHER. SINCE THE LAW RELATED TO WITHHOLDING OF TAX U/S 195 OF THE ACT HAS NOT BEEN CHANGED EVEN AFTER WITHDRAWAL OF THE ABOVE CIRCULAR ISSUED BY THE. CBDT THE AO'S VIEW IS NOT ACCEPTABLE. 12 ITA NOS.1754, 1755/CHNY /2017 & 3425/CHNY/2016 & CO NOS.144, 135 & 31/CHNY/2017 6.6 IN VIEW OF THE' DISCUSSION MADE IN THE ABOVE PARAS, THE AO IS NOT JUSTIFIED IN MAKING THE DISALLOWANCE U/S 40(A)(I) AS THE PAYMENT MADE TO M/S. CLICKATEL, NON-RESIDENT CARRIER IS NOT CHARGEABLE TO TAX IN INDIA. THEREFORE THE AO IS DIRECTED TO DELETE THE ABOVE DISALLOWANCE OF RS.51,97,532./- U/S 40(A)(I) OF THE ACT. THIS GROUND OF APPEAL IS ALLOWED. 8. ON GOING THROUGH THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), WE FIND THAT THE NATURE OF SERVICES RENDERED BY NON-RESIDENT I.E. M/S. CLICKATEL IS ONLY TO TRANSMIT BULK SMS. THE NATURE OF SERVICE PROVIDED BY CLICKATEL REQUIRES NO TECHNICAL KNOWLEDGE AND WHAT WAS RENDERED WAS JUST TRANSMISSION OF DATA WHICH REQUIRES NO TECHNICAL SKILL. THE FINDING OF THE COMMISSIONER OF INCOME TAX (APPEALS) THAT CARRIER WHICH IS A MEDIUM FOR SENDING BULK SMS AND AS SUCH CANNOT BE CONSIDERED TO BE RENDERING ANY TECHNICAL SERVICES. THE COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT CLICKATEL WHICH IS A NON-RESIDENT CARRIER RENDERED SERVICES OUTSIDE INDIA AND NO PART OF THE PAYMENT MADE TO CLICKATEL IS CHARGEABLE TO TAX IN INDIA. THE COMMISSIONER OF ITA NO.1030/MDS/2013 & C.O.NO.146/MDS/2013 8 INCOME TAX (APPEALS) ALSO FOLLOWED THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS.BHARTI CELLULAR LTD. (330 ITR 239 ) ON THE ISSUE. THE HONBLE DELHI HIGH COURT THE CASE OF CIT VS. BHARTI CELLULAR LTD. (319 ITR 139) HELD THAT THESE SERVICES DO NOT INVOLVE HUMAN INTERVENTION AND THESE SERVICES CANNOT BE REGARDED AS FEE FOR TECHNICAL SERVICES. THE HONBLE MADRAS HIGH COURT IN THE CASE OF VERIZON COMMUNICATIONS LTD. VS. ITO IN T.C.(APPEAL) NOS. 147 TO 149 OF 2011 AND 230 OF 2012 DATED 7.11.2013 HELD THAT COLLECTION OF FEES FOR USAGE OF STANDARD FACILITY WOULD NOT AMOUNT TO PAYMENT MADE FOR PROVIDING TECHNICAL SERVICES. IN THE CIRCUMSTANCES, WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE DECISION OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN HOLDING THAT PAYMENT MADE BY THE ASSESSEE TO CLICKATEL IS NOT FEES FOR TECHNICAL SERVICES AND NO TDS IS REQUIRED TO BE MADE. 5.1 SINCE THE IDENTICAL ISSUE HAS BEEN DECIDED BY THE LD.CIT(A) AND BY THE TRIBUNAL ON THE EARLIER OCCASION WHICH HAS BEEN FOLLOWED BY THE LD.CIT(A) IN THE RELEVANT APPEALS BEFORE US, WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE ORDERS OF THE LD.CIT(A). 13 ITA NOS.1754, 1755/CHNY /2017 & 3425/CHNY/2016 & CO NOS.144, 135 & 31/CHNY/2017 6. GROUND NO.2(III) : ADDITION DUE TO DISALLOWANCE OF EXPENDITURE INCURRED TOWARDS PROFESSIONAL / RETAINER FEE FOR THE ASSESSMENT YEAR 2011-12:- DURING THE COURSE OF SCRUTINY ASSESSMENT IT WAS OBSERVED BY THE LD.AO THAT THE ASSESSEE COMPANY WAS PAYING RETAINER FEES EVERY MONTH TO M/S. RUTBERG & COMPANY, LLC, A COMPANY IN CALIFORNIA. ON QUERY THE ASSESSEE PRODUCED INVOICE RAISED BY M/S. RUTBERG & COMPANY WHICH STATED THAT THE RETAINER FEE PERTAINS TO CONSULTATION RENDERED FOR BUSINESS EXPANSION THROUGH MERGERS AND ACQUISITION AND OTHER INITIATIVES. IT WAS FURTHER CLARIFIED BY THE ASSESSEE THAT NO AGREEMENT WAS EXECUTED BETWEEN THE ASSESSEE COMPANY AND M/S. RUTBERG & COMPANY. THE ASSESSEE HAD FURTHER EXPLAINED THAT THE PROFESSIONAL CHARGES WAS TOWARDS CONDUCTING FEASIBILITY STUDY FOR EXPANDING CLIENT BASE OF M/S. VELTI PLC THROUGH ACQUISITION OF SHARES OF M/S. AIR2WEB INC., (HOLDING COMPANY OF VELTI INDIA PVT. LTD.,) BY M/S. VELTI PLC. HOWEVER THE LD.AO WAS OF THE VIEW THAT THE ASSESSEE COMPANY IS NO WAY CONNECTED WITH THE EXPENDITURE BECAUSE THE EXPENDITURE IS NOT RELATED TO IT. THE LD.AO FURTHER OPINED THAT EVEN IF IT WAS ASSUMED BY REMOTE CHANCE THE EXPENDITURE HAS BEARING ON THE ASSESSEE COMPANY, IT IS IN THE NATURE OF CAPITAL EXPENSES HAVING AN ENDURING BENEFIT AS IT PERTAINS TO ACQUISITION OF SHARES. FOR THE AFORESAID REASONS, THE LD.AO 14 ITA NOS.1754, 1755/CHNY /2017 & 3425/CHNY/2016 & CO NOS.144, 135 & 31/CHNY/2017 DISALLOWED RS.35,47,737/- BEING THE RETAINER FEE PAID BY THE ASSESSEE TO M/S.RUTBERG COMPANY AS ALLOWABLE DEDUCTION. 6.1 BEFORE THE LD.CIT(A) THE ASSESSEE HAD ADDITIONALY MADE THE FOLLOWING SUBMISSIONS:- (I) THE EXPENSE WAS INCURRED BY THE ASSESSEE COMPANY FOR THE PURPOSE OF CONDUCTING FEASIBILITY STUDY AND FOR THE PURPOSE OF EXPANSION OF THE EXISTING BUSINESS OF THE ASSESSEE COMPANY BY ARRANGING ACQUISITION OF SHARES OF THE ASSESSEES HOLDING COMPANY TO M/S. VELTI PLC. (II) THE FEASIBILITY STUDY WAS TOWARDS ANALYZING THE VIABLE CONDITIONS FOR THE FUNCTIONING OF THE BUSINESS AFTER EXPANSION. (III) THE FEASIBILITY STUDY WAS ALSO AIMED AT TO IMPROVE THE QUALITY AND PROFITABILITY OF THE OPERATIONS OF THE EXISTING BUSINESS OF THE ASSESSEE. (IV) THE FEASIBILITY STUDY WAS ALSO CONDUCTED FOR EXAMINING THE VIABILITY OF THE PROPOSALS FOR TECHNOLOGY ADVANCEMENT OF THE EXISTING BUSINESS. (V) THE FEASIBILITY STUDY WAS NOT FOR THE PURPOSE CREATING A NEW ASSET. 15 ITA NOS.1754, 1755/CHNY /2017 & 3425/CHNY/2016 & CO NOS.144, 135 & 31/CHNY/2017 (VI) THE EXPENSE WAS NOT RELATED FOR CHANGING THE CAPITAL STRUCTURE OF THE ASSESSEE COMPANY. AFTER EXAMINING THE ISSUE THE LD.CIT(A) HELD THE MATTER IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER:- 21. I HAVE CAREFULLY CONSIDERED THE FACTS, ORDER OF THE AO, SUBMISSIONS MADE BY THE APPELLANT AND MATERIAL ON RECORD. IT IS TRITE LAW THAT WHETHER A PARTICULAR EXPENDITURE IS CAPITAL OR REVENUE IN NATURE WOULD DEPEND ON WHETHER THE EXPENDITURE IN QUESTION WAS INCURRED TO CREATE A NEW ASSET OR WAS INCURRED FOR MAINTAINING THE BUSINESS OF THE COMPANY. IF IT IS FOR THE FORMER, IT IS CAPITAL EXPENDITURE AS HAS BEEN HELD BY THE HONBLE SUPREME COURT IN THE CASE OF DALMIA JAIN & CO. LTD V. CIT, 81 ITR 754. 22. THE PROVISIONS OF S. 37(1) PROVIDE FOR ALLOWANCE OF ALL EXPENDITURE NOT SPECIFIED IN S.30 TO 36, NOT BEING A CAPITAL EXPENDITURE OR A PERSONAL EXPENDITURE WHICH HAS BEEN LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. THE EXPENSES WHICH ARE NOT ALLOWED FOR THOSE WHICH ARE EXPENDED FOR AN OFFENCE OR PROHIBITED BY LAW AS PROVIDED FOR IN THE EXPLANATION. SUCH HAS BEEN HELD IN CIT V. INDIAN MOLASSES COMPANY P LTD 78 ITR 474 (SC) AND J.K. COTTON MANUFACTURERS LTD 101 ITR 221(SC). IN THE CASE OF THE APPELLANT THERE IS NO EXPENDITURE WHICH HAS BEEN HELD TO BE INCURRED WHICH ATTRACTS THE EXPLANATION TO S.37(1). OF APPELLANTS OWN ADMISSION RUTBERG & CO WAS ENGAGED TO CONDUCT FEASIBILITY STUDY FOR EXPANDING THE EXISTING BUSINESS OF THE APPELLANT AND HELP IT UNDERSTANDING THE SCOPE OF EXPANDING THE SAME AS A CONSULTANT. THE IMPUGNED EXPENDITURE DOES NOT GIVE ANY ADVANTAGE TO THE APPELLANT EXCEPT FOR MAINTAINING THE BUSINESS OF THE COMPANY AND CONDUCTING THE SAME. ACCORDINGLY, I AM OF THE CONSIDERED VIEW THAT THE DISALLOWANCE MADE BY THE AO CANNOT BE UPHELD. THIS GROUND OF APPEAL IS ALLOWED. 6.2 BEFORE US THE LD.AR RELIED ON THE ORDER OF THE LD.CIT(A) WHILE AS THE LD.DR ARGUED IN SUPPORT OF THE ORDER OF THE LD.AO. 16 ITA NOS.1754, 1755/CHNY /2017 & 3425/CHNY/2016 & CO NOS.144, 135 & 31/CHNY/2017 6.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE MATERIALS ON RECORD. FROM THE FACTS OF THE CASE, IT IS APPARENT THAT THE ASSESSEE HAD INCURRED THE RETAINER FEE IN ORDER TO EXPAND ITS TURNOVER. BY INCURRING SUCH EXPENDITURE ASSESSEE HAS NOT CREATED A NEW TANGIBLE ASSET OR INTANGIBLE ASSET OF ENDURING BENEFIT. THE EXPENDITURE WAS AIMED AT PROMOTING THE BUSINESS OF THE ASSESSEE. WHEN THE EXPENDITURE IS INCURRED FOR INCREASING THE TURNOVER OF THE ASSESSEE, IT DOES NOT FALL IN THE CAPITAL FIELD AND THEREFORE THE EXPENDITURE HAS TO BE TREATED AS REVENUE IN NATURE. HENCE WE ARE OF THE CONSIDERED VIEW THAT THE LD.CIT(A) HAS ARRIVED AT THE APPROPRIATE CONCLUSION PLACING RELIANCE IN THE DECISION OF HIGHER JUDICIARIES CITED IN HIS ORDER. THEREFORE WE DO NOT FIND IT NECESSARY TO INTERFERE IN HIS ORDER ON THIS ISSUE. 7. GROUND NO.2(IV): ADDITION DUE TO NON-DEDUCTION OF TAX WITH RESPECT TO PAYMENT MADE FOR OBTAINING BANK GUARANTEE FOR THE ASSESSMENT YEAR 2013-14:- IT WAS NOTICED FROM THE P&L ACCOUNT OF THE ASSESSEE COMPANY THAT THE ASSESSEE HAS DISCLOSED RS.20,75,000/- AS PREMIUM CONTENT CLASSIFIED UNDER THE HEAD OTHER EXPENSES. ON QUERY IT WAS EXPLAINED THAT THE PAYMENT WAS IN THE FORM OF BANK GUARANTEE PROVIDED BY THE ASSESSEE COMPANY TO BSNL AS A 17 ITA NOS.1754, 1755/CHNY /2017 & 3425/CHNY/2016 & CO NOS.144, 135 & 31/CHNY/2017 BACKUP TO COMMITTED TOP LINE REVENUE FOR THE YEAR. THE ASSESSEE FURTHER POINTED OUT THAT THE LD.CIT(A) FOR THE ASSESSMENT YEAR 2012-13, VIDE ITS ORDER DATED 06.11.2015 HAS HELD THAT THE PREMIUM CONTENT IS BANK GUARANTEE AND NOT FEES FOR TECHNICAL SERVICES WHEREIN PROVISIONS U/S.144J WOULD BE ATTRACTED. HOWEVER THE LD.AO WAS OF THE VIEW THAT THE AMOUNT PAID BY THE ASSESSEE IS TOWARDS FEES FOR TECHNICAL SERVICES AND THEREFORE PROVISIONS OF SECTION 194J WOULD BE ATTRACTED AND SINCE THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE DISALLOWED THE EXPENDITURE OF RS.20,75,000/-. ON APPEAL THE LD.CIT(A) FOLLOWING THE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2012-13 IN ITA NO.332/MDS/2016 & CO NO.49/MDS/2016 VIDE ORDER DATED 09.09.2016 HELD THE ISSUE IN FAVOUR OF THE ASSESSEE. THE RELEVANT PORTION OF THE ORDER OF THE TRIBUNAL IS REPRODUCED HEREIN BELOW FOR REFERENCE:- WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT ON ACCOUNT OF THE ASSESSEES FAILURE TO MEET THE COMMITMENT OF GENERATING TOP LINE REVENUE, THE BANK GUARANTEE GIVEN BY THE ASSESSEE WAS INVOKED BY BSNL. THEREFORE, IT CANNOT BE TREATED AS FEE FOR TECHNICAL SERVICES PROVIDED TO THE ASSESSEE FOR WHICH NO TDS DEDUCTION COULD BE MADE AS THERE WAS NO SERVICE INVOLVED IN IT. AS SUCH, IN OUR OPINION, THE ASSESSEE IS NOT LIABLE FOR DEDUCTION OF TDS. FURTHER, THE BOMBAY HIGH COURT IN CIT VS. REGASLIA APPARELS P. LTD, 352 ITR 71, HAS HELD THAT FORFEITURE OF BANK GUARANTEE WAS COMPENSATORY IN NATURE UNDER SEC. 37(1) OF THE ACT AND NO TDS TO BE MADE ON THIS PAYMENT. WE, THEREFORE, FIND NO REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) ON THIS ISSUE. 18 ITA NOS.1754, 1755/CHNY /2017 & 3425/CHNY/2016 & CO NOS.144, 135 & 31/CHNY/2017 7.1 FROM THE ABOVE IT IS APPARENT THAT THE LD.CIT(A) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE DECISION OF THE CHENNAI BENCHES OF THE TRIBUNAL CITED SUPRA. IN THIS SITUATION WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE ORDER OF THE LD.CIT(A) ON THIS GROUND. 8. GROUND NO.2(V): ADDITION DUE TO BELATED PAYMENT MADE TOWARDS EMPLOYEES CONTRIBUTION TO PROVIDENT FUND U/S.36(I)(VA) R.W.S. 2(24)(X) OF THE ACT:- IT WAS OBSERVED BY THE LD.AO FROM PERUSAL OF FORM 3CD COLUMN NO.16 (B), THAT CERTAIN EMPLOYEES CONTRIBUTION WERE NOT PAID BY THE ASSESSEE BEFORE THE DUE DATE OF PF & ESI ACT. THEREFORE THE LD.AO DISALLOWED THE AMOUNT OF RS.12,83,368/-. ON APPEAL, THE LD.CIT(A) FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE CIT VS. INDUSTRIAL SECURITY & INTELLIGENCE INDIA PVT. LTD., IN TCA NO.585 & 586 OF 2016 ORDER DATED 27.04.2016 DELETED THE ADDITION MADE BY THE LD.AO BY OBSERVING AS UNDER:- 4.4. GROUND NO.6 IS WITH REGARD TO DISALLOWANCE OF RS.12,44,323/- BEING EMPLOYEES CONTRIBUTION TO PF PAID AFTER THE DUE DATE. THE APPELLANT CONTENDS THAT EMPLOYEES CONTRIBUTION TO PF WAS PAID TO THE GOVERNMENT ACCOUNT WITHIN THE DUE DATE FOR FILING OF THE RETURN U/S.139. THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. INDUSTRIAL SECURITY & INTELLIGENCE INDIA PVT. LTD., IN TCA NO.585 & 586 OF 2015 DATED 24.07.2015 19 ITA NOS.1754, 1755/CHNY /2017 & 3425/CHNY/2016 & CO NOS.144, 135 & 31/CHNY/2017 WHILE CONSIDERING THE ISSUE OF THE DEPOSITING OF EMPLOYEES CONTRIBUTION TOWARDS PROVIDENT FUND AND ESI OBSERVED AS UNDER: 5. WE FIND THAT THE TRIBUNAL HAS RIGHTLY RELIED ON THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT V. ATOM EXTRUSIONS LTD., REPORTED IN 319 ITR 306, WHEREBY, THE SUPREME COURT HELD THAT OMISSION OF SECOND PROVISO TO SECTION 43B AND AMENDMENT TO FIRST PROVISO BY FINANCE ACT, 2003 ARE CURATIVE IN NATURE AND ARE EFFECTIVE RETROSPECTIVELY, I.E., WITH EFFECT FROM 1.04.1998 I.E., THE DATE OF INSERTION TO FIRST PROVISO. THE DELHI HIGH COURT IN THE CASE OF CIT V. AMIL LTD., REPORTED IN SINCE COMMON ISSUE ARISES FOR CONSIDERATION IN BOTH THE APPEALS, WE HEARD THE SAME TOGETHER AND DISPOSING OFF THE SAME BY THIS COMMON ORDER. ITR 508 HELD THAT IF THE ASSESSEE HAD DEPOSITED EMPLOYEES CONTRIBUTION TOWARDS PROVIDENT FUND AND ESI AFTER DUE DATE AS PRESCRIBED UNDER THE RELEVANT ACT, BUT BEFORE THE DUE DATE OF FILING OF RETURN UNDER THE INCOME TAX ACT, NO DISALLOWANCE COULD BE MADE IN VIEW OF THE PROVISIONS OF SECTION 43B AS AMENDED BY FINANCE ACT, 2003. 6. IN THE PRESENT CASE, THE ASSESSEE HAD REMITTED THE EMPLOYEE CONTRIBUTION BEYOND THE DUE DATE FOR PAYMENT, BUT WITHIN THE DUE DATE FOR FILING THE RETURN OF INCOME. HENCE, FOLLOWING THE ABOVE SAID DECISIONS, WE FIND NO REASON TO DIFFER WITH THE FINDINGS OF THE TRIBUNAL. ACCORDINGLY WE FIND NO QUESTION OF LAW MUCH LESS ANY SUBSTANTIAL QUESTION OF LAW ARISES FOR CONSIDERATION IN THESE APPEALS. RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. INDUSTRIAL SECURITY & INTELLIGENCE INDIA PVT. LTD., (SUPRA) THE DISALLOWANCE OF RS.12,87,368/- U/S. 36(I)(VA) R.W.S. 2(24)(X) OF THE INCOME TAX ACT 1961 IS DELETED. THE APPELLANT SUCCEEDS ON THIS GROUND. 8.1 AT THE OUTSET WE ARE REMINDED OF THE DECISION OF THE TRIBUNAL IN ITA NO.2045/CHNY/2017 VIDE ORDER DATED 15.05.2018 IN THE CASE M/S. AMPO VALVES INDIA PVT. LTD., WHEREIN THE IDENTICAL ISSUE WAS DECIDED AGAINST THE ASSESSEE BY FOLLOWING THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE CIT VS. MERCHEM LTD., REPORTED IN 61 TAXMANN.COM, PAGE 119 AND THE DECISION OF THE 20 ITA NOS.1754, 1755/CHNY /2017 & 3425/CHNY/2016 & CO NOS.144, 135 & 31/CHNY/2017 HONBLE GUJARAT HIGH COURT IN THE CASE CIT VS. GUJARAT STATE ROAD TRANSPORT CORPORATION REPORTED IN 41 TAXMANN.COM PAGE 100 (366 ITR 170). THE RELEVANT PORTION OF THE ORDER IS REPRODUCED HEREIN BELOW FOR REFERENCE:- 5. GROUND NO. 2(II) : DISALLOWANCE OF RS.1,20,654/- FOR BELATED PAYMENT OF ESI & PF:- DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE LD.AO THAT THE ASSESSEE HAD NOT REMITTED THE EMPLOYEES CONTRIBUTION TO PROVIDENT & ESI FUND AMOUNTING TO RS.1,20,654/- WITHIN THE DUE DATE OF THE RELEVANT ACT. THEREFORE INVOKING SECTION 2(24)(X) R.W.S. 36(1)(VA) OF THE ACT, THE LD.AO DISALLOWED THE SAME AS DEDUCTION AND ADDED TO THE INCOME OF THE ASSESSEE. WHILE DOING SO, THE LD.AO RELIED IN THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE CIT VS. MERCHEM LTD., REPORTED IN 61 TAXMANN.COM PAGE 119 AND THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE CIT VS. GUJARAT STATE ROAD TRANSPORT CORPORATION REPORTED IN 41 TAXMANN.COM PAGE 100 (366 ITR 170). ON APPEAL, THE LD.CIT(A) CONFIRMED THE ORDER OF THE LD.AO. 5.1 AT THE OUTSET WE DO NOT FIND ANY INFIRMITY IN THE ORDERS OF THE LD.REVENUE AUTHORITIES ON THIS ISSUE. ON THE IDENTICAL ISSUE, THE CHENNAI BENCH OF THE TRIBUNAL HAS ALSO HELD THE ISSUE IN FAVOUR OF THE REVENUE IN ITA NO.2105/MDS/2015 VIDE ORDER DATED 21.06.2017. THE GIST OF THE ORDER IS REPRODUCED HEREIN BELOW FOR REFERENCE:- 5.2 I HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE MATERIALS AVAILABLE ON RECORD. WE DO NOT FIND ANY MERIT IN THE SUBMISSION OF THE ASSESSEE ON THIS ISSUE. SECTION 36(1)(VA) OF THE ACT SPECIFICALLY PROVIDES THAT IF THE ASSESSEE REMITS THE EMPLOYEES CONTRIBUTION TO PROVIDENT FUND WITHIN THE DUE DATE MENTIONED IN THE RELEVANT ACT P.F ACT , THEN THE DEDUCTION WILL BE ALLOWABLE. THE RELEVANT PORTIONS OF SECTION 36(1)(VA) IS REPRODUCED HEREIN BELOW FOR REFERENCE:- 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 EMPLOYEES ACCOUNT IN THE RELEVANT FUND OR FUNDS ON OR BEFORE THE DUE DATE. 21 ITA NOS.1754, 1755/CHNY /2017 & 3425/CHNY/2016 & CO NOS.144, 135 & 31/CHNY/2017 EXPLANATION:- FOR THE PURPOSES OF THIS CLAUSE, DUE DATE MEANS THE DATE BY WHICH THE ASSESSEE IS REQUIRED AS AN EMPLOYER TO CREDIT AN EMPLOYEES CONTRIBUTION TO THE EMPLOYEES ACCOUNT IN THE RELEVANT FUND UNDER ANY ACT, RULE, ORDER OR NOTIFICATION ISSUED THERE-UNDER OR UNDER ANY STANDING ORDER, AWARD, CONTRACT OF SERVICE OR OTHERWISE; FURTHER SECTION 43B OF THE ACT, ONLY PROVIDES THAT DEDUCTION WILL BE ALLOWED WITH RESPECT TO EMPLOYERS CONTRIBUTION TO PROVIDENT FUND IF THE SAME IS REMITTED WITHIN THE DUE DATE OF FILING THE RETURN OF INCOME. THE RELEVANT PORTION OF SECTION 43B IS EXTRACTED HEREIN BELOW FOR REFERENCE:- [CERTAIN DEDUCTION TOBE ONLY ON ACTUAL PAYMENT.] 43B NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT, A DEDUCTION OTHERWISE ALLOWABLE UNDER THIS ACT IN RESPECT OF --- (A)------------------- (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 ------------------ ------------------ ------------------- PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SHALL 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. THUS SECTION 36(1)(VA) OF THE ACT REFERS TO EMPLOYEES CONTRIBUTION TO P.F WHILE AS SECTION 43B OF THE ACT REFERS TO EMPLOYERS CONTRIBUTION TO P.F, HENCE SECTION 43B OF THE ACT HAS NO APPLICATION WITH RESPECT TO EMPLOYEES CONTRIBUTION TO P.F. THEREFORE SECTION 43B OF THE ACT WILL NOT OVERRIDE THE PROVISIONS OF SECTION 36(1)(VA) OF THE ACT WITH RESPECT TO EMPLOYEES CONTRIBUTION TO PROVIDENT FUND. IT IS PERTINENT TO MENTION THAT THOUGH EMPLOYEES & EMPLOYERS CONTRIBUTION TO P.F ARE 22 ITA NOS.1754, 1755/CHNY /2017 & 3425/CHNY/2016 & CO NOS.144, 135 & 31/CHNY/2017 REMITTED BY THE EMPLOYER, THEY ARE SEPARATE AND DISTINCT FOR WHICH INDEPENDENT PROVISIONS HAVE BEEN CAST UNDER THE ACT. EMPLOYEES CONTRIBUTION TO P.F., IS NOTHING BUT APPROPRIATION OF A PORTION OF THE SALARY WHICH IS LEGITIMATELY DUE TO THE EMPLOYEE AND REMITTED BY THE EMPLOYER IN THE GOVERNMENT TREASURY ON BEHALF OF THE EMPLOYEE IN ACCORDANCE WITH THE PROVISIONS OF THE RELEVANT P.F., ACT. HENCE IT IS CRYSTAL CLEAR FROM SECTION 36(1)(VA) OF THE ACT THAT WITH RESPECT TO REMITTANCE OF EMPLOYEES CONTRIBUTION TO RECOGNIZED PROVIDENT FUND, DEDUCTION WILL BE ALLOWABLE TO THE ASSESSEE ONLY IF THE SAME IS REMITTED WITHIN THE DUE DATE MENTIONED IN THE RELEVANT P.F. ACT AND WITH RESPECT TO EMPLOYERS CONTRIBUTION TO RECOGNIZED PROVIDENT FUND , SECTION 43B OF THE ACT MAKES IT CLEAR THAT DEDUCTION WILL BE ALLOWABLE IF THE REMITTANCE IS MADE WITH IN THE DUE DATE OF FILING THE RETURN OF INCOME. FOR THE ABOVE STATED REASONS I DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. REVENUE AUTHORITIES. ACCORDINGLY, I CONFIRM THE ORDER OF THE REVENUE AUTHORITIES ON THIS ISSUE. 6. GROUND NO.II: BELATED REMITTANCE OF EMPLOYEES CONTRIBUTION TOWARDS ESI:- SINCE WITH RESPECT TO EMPLOYEES CONTRIBUTION TO ESI, PROVISIONS OF SECTION 36(1)(VA) OF THE ACT APPLY BY VIRTUE OF SECTION 2(24)(X) OF THE ACT, THE DECISION WITH RESPECT TO EMPLOYEES CONTRIBUTION TOWARDS PF SUPRA WILL HOLD GOOD. ACCORDINGLY, THIS ISSUE IS ALSO HELD AGAINST THE ASSESSEE. FOLLOWING THE RATIO SET BY THE HONBLE HIGHER JUDICIARY CITED BY THE LD.REVENUE AUTHORITIES AND THE ABOVE DECISION OF THE TRIBUNAL, WE HEREBY CONFIRM THE ORDERS OF THE LD.REVENUE AUTHORITIES ON THIS ISSUE. 8.2 HOWEVER SINCE THE HONBLE JURISDICTIONAL HIGH COURT HAS HELD THE ISSUE IN FAVOUR OF THE ASSESSEE AND THE LD.CIT(A) HAS GIVEN RELIEF TO THE ASSESSEE FOLLOWING THE SAME, WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE ORDER OF THE LD.CIT(A) ON THE ISSUE. 23 ITA NOS.1754, 1755/CHNY /2017 & 3425/CHNY/2016 & CO NOS.144, 135 & 31/CHNY/2017 9. SINCE WE HAVE UPHELD THE ORDERS OF THE LD.CIT(A) WHICH IS IN FAVOUR OF THE ASSESSEE FOR ALL THE RELEVANT ASSESSMENT YEARS, THE CROSS OBJECTIONS RAISED BY THE ASSESSEE IN ALL THE APPEALS ARE ALLOWED AS IT IS IN SUPPORT OF THE ORDERS OF THE LD.CIT(A). 10. IN THE RESULT ALL THE APPEALS FILED BY THE REVENUE ARE DISMISSED AND THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED ON 17 TH MAY, 2019 AT CHENNAI. SD/- SD/- ( . ) ( . ) ( DUVVURU RL REDDY ) ( A. MOHAN ALANKAMONY ) /JUDICIAL MEMBER / ACCOUNTANT MEMBER /CHENNAI, /DATED 17 TH MAY, 2019 RSR /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. ( )/CIT(A) 4. /CIT 5. /DR 6. /GF