KHEMKA KLOTHINGS P.LTD, MUMBAI V. ITO WD 6(2)(4), MUMBAI

ITA 1313/MUM/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9005 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 07-05-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 15-02-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Keywords: Tax effect
• Section: 43B; 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 1313/MUM/2013 ASSESSMENT YEAR: 2009-10 M/S. KHEMKA KLOTHINGS PVT. LTD. VS. ITO WD 6(2)(4) 4/415 BUSSA UDYOG BHAVAN, AAYAKAR BHAVAN, M.K. R OAD, TOKERSHI JIVRAJ RD, SEWRI (W), CHURCHGATE, MUMBAI 400015 MUMBAI -400020 PAN NO. AACCK6237A (APPELLANT) (RESPONDENT) ITA NO. 1103/MUM/2013 ASSESSMENT YEAR: 2009-10 ITO 6(2)(4) VS. M/S. KHEMKA KLOTHINGS PVT. LTD. R. NO. 513, 5 TH FLOOR, 4/415 BUSSA UDYOG BHAVAN AAYAKAR BHAVAN, M.K. ROAD, TOKERSHI JIVRAJ RD, SE WRI (W), MUMBAI 400020 MUMBAI - 400015 (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE REVENUE BY: SHRI B.S. BIST, DR DATE OF HEARING : 10/0 1/2017 DATE OF PRONOUNCEMENT: 10/01/2017 ORDER PER N.K. PRADHAN, AM THE CAPTIONED CROSS APPEALS I.E. ONE BY THE ASSES SEE AND THE OTHER BY THE REVENUE ARE FILED AGAINST THE ORDER OF THE LEARNED COMMISSIONER (APPEALS) 12, MUMBAI AND ARISE OUT O F ORDER U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT). WE SHALL TAKE UP FIRST THE APPEAL FILED BY THE ASSESSEE. ITA NO. 1313 & 1103/MUM/2013 2 ITA NO. 1313/MUM/2013 ASSESSMENT YEAR: 2009-10 2. THE GROUNDS OF APPEAL FILED BY THE ASSESSEE READ AS UNDER: DISALLOWANCE OF PF/ESIC I. THE LEARNED HONBLE CIT(A) ERRED IN CONFIRMING DISALLO WANCE OF RS. 2,44,084/- RELATING TO EMPLOYEES CONTRIBUTION TO PF AND RS. 15,62,812/- RELATING TO EMPLOYEES CONTRIBUTION TO ESIC FOR THE ASSESSMENT YEARS 2007- 2008 AND 2008-2009 PAID DURING THE CURRENT YEAR DISREGA RDING THE PROVISIONS OF SECTION 43B OF THE ACT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW. DEDUCTIBILITY OF DAMAGES FOR LATE PAYMENT OF PF/ESIC II. THE LEARNED HONBLE CIT(A) ERRED IN CONFIRMING DIS ALLOWANCE OF RS. 5,97,941/- PAID TOWARDS DAMAGES FOR LATE PAYMENT OF P F/ESIC CONTRIBUTION, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW . 3. BRIEFLY STATED, THE FACTS ARE THAT THE ASSESSING OFFICER (AO) OBSERVED THAT THE ASSESSEE-COMPANY HAD PAID RS. 18, 06,896/- OF THE EMPLOYEES CONTRIBUTION BEYOND THE DUE DATE I.E. PF RELATING TO F.Y. 2006-07 AND 2007-08 HAD BEEN PAID IN THE F.Y. 2008- 09. IN RESPONSE TO A QUERY RAISED BY THE AO, THE ASSESSEE FILED A R EPLY DATED 15.12.2011 STATING THAT SECTION 43B (B) PROVIDES TH AT THE CONTRIBUTION TOWARDS PF AND ESIC SHALL BE ALLOWED IRRESPECTIVE O F THE YEAR IN WHICH THE LIABILITY IS PAID BY THE ASSESSEE. THE AO WAS NOT CONVINCED WITH THE ABOVE EXPLANATION OF THE ASSESSEE COMPAN Y AS SECTION 43B(B) STATES THAT THE EMPLOYERS CONTRIBUTION IS T O BE ALLOWED AS AND WHEN THE SAME IS PAID. THE AO NOTED THAT AS PER SEC TION 36(1)(VA), A DEDUCTION IS ALLOWED ON ANY SUM RECEIVED BY THE ASS ESSEE 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 TO THE EMPLOYEES ACCOUNT IN THE RELEVANT FUND OR FUNDS ON OR BEFORE THE DUE DATE. AS PER EXPLANATION TO SUB-CLAUSE OF THIS PROVISION, DUE DA TE IS THE DATE BY WHICH THE ASSESSEE IS REQUIRED TO CREDIT THE EMPLOY EES ACCOUNT IN THE RELEVANT FUND. AS PER THE PF ACT, THE DUE DATE IS 1 5 TH DAY OF THE FOLLOWING MONTH AND IN THE CASE OF ESIC, IT IS 21 ST DAY OF THE FOLLOWING MONTH. AS PER THE DETAILS FILED BY THE ASSESSEE, TH E AO FOUND THAT THE ASSESSEE HAD PAID EMPLOYEES CONTRIBUTION OF PF AND ESIC AFTER THE SPECIFIED DUE DATE. IN VIEW OF THE ABOVE, THE AO MA DE A DISALLOWANCE OF RS. 18,06,896/- U/S 36(1)(VA) OF THE ACT. ITA NO. 1313 & 1103/MUM/2013 3 3.1 THE AO ALSO NOTED THAT DURING THE IMPUGNED ASSE SSMENT YEAR THE ASSESSEE HAS PAID THE FOLLOWING AMOUNT AS PENAL TY A. DAMAGE & INTEREST FOR THE PERIOD JUNE, 07 TO JANUARY, 08 RS. 5,88,838/- B. INTEREST & DAMAGES FOR NOVEMBER, 06 TO JANUARY, 08 RS. 2,03,107/- C. INTEREST & PENALTY PAID AS PER NOTICE 21.10.2008 RS. 29,085/- TOTAL RS. 8,21,030/- AS THE ABOVE AMOUNT OF RS. 8,21,030/- CLAIMED TOWA RDS PF & ESIC IS PENAL IN NATURE, THE AO ASKED THE ASSESSEE TO EXPLAIN WHY THE SAME SHOULD NOT BE DISALLOWED AND ADDED BACK TO THE TOTAL INCOME. IN RESPONSE TO IT, THE ASSESSEE FILED A REPLY STATING THAT OUT OF RS. 5,88,838/- AN AMOUNT OF RS. 4,37,505/- HAD BEEN PAI D TOWARDS DAMAGES AND RS. 1,51,333/- FOR THE INTEREST. THE AO REFERRED TO CLAUSE 17(E) OF THE AUDIT REPORT DATED 29.09.2009 WHICH ST ATES THE FOLLOWING FACTS: KIND ATTENTION IS DRAWN TO ANNEXURE D AND E WHICH GIVES PARTICULAR OF INTEREST AND DAMAGES LEVIED BY PROVIDENT FUND AND EMPLOYE ES STATE INSURANCE SCHEME AUTHORITIES WHICH ARE ACCOUNT FOR IN THE BOOKS OF ACCOUNTS. WE HAVE BEEN INFORMED THAT APART FROM ABOVE NO OTHER PENALTIES OF FINES HAVE BEEN PAID BY THE COMPANY. THUS THE AO DISALLOWED RS. 8,21,030/- PAID TOWARDS DAMAGES AND INTEREST FOR PF AND ESIC AND ADDED BACK THE SAM E TO THE TOTAL INCOME AS PER SECTION 37(1) OF THE ACT. 4. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LEAR NED CIT(A). IT IS FOUND THAT THE LEARNED CIT(A) AGREED WITH THE RE ASONS GIVEN BY THE AO AND CONFIRMED THE DISALLOWANCES OF RS. 18,06,896 /- AND RS. 8,21,030/- MENTIONED AT PARA 3 AND 3.1 HERE-IN-ABOV E. 5. NONE APPEARED ON BEHALF OF THE ASSESSEE. THE LEA RNED DR SUPPORTED THE ORDER PASSED BY THE LEARNED CIT(A) CO NFIRMING THE ABOVE DISALLOWANCES MADE BY THE AO. 6. WE HAVE PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE DISPUTE RELATES TO PAYMENT OF EMPLOYEES CONTRI BUTION TOWARDS PF AND ESIC. THE ASSESSEE RELIES ON SECTION 43B(B) OF THE ACT WHEREAS THE AO AND THE LEARNED CIT(A) REFER TO SECTION 36(1 )(VA). IT IS THE SETTLED POSITION OF LAW THAT SECTION 43B IS NOT APP LICABLE IN THE CASE OF ITA NO. 1313 & 1103/MUM/2013 4 EMPLOYEES CONTRIBUTION TOWARDS STAFF WELFARE SCHEM ES. SUCH CONTRIBUTION IS GOVERNED BY SECTION 36(1)(VA). IN O THER WORDS, IF EMPLOYEES CONTRIBUTION TOWARDS PROVIDENT FUND OR A NY OTHER STAFF WELFARE SCHEME IS CREDITED BY THE EMPLOYER AFTER TH E DUE DATE AND GRACE PERIOD (UNDER PROVIDENT FUND REGULATIONS), IT IS NOT DEDUCTABLE U/S 36(1)(VA), EVEN IF IT IS CREDITED / PAID ON OR BEFORE DUE DATE OF SUBMISSION OF RETURN OF INCOME U/S 139(1) OF THE AC T. IT HAS BEEN HELD SO IN CIT VS. SOUTH INDIA CORPORATION LTD . [2005] 216 TAXMAN 241 (KER), CIT VS. MERCHEM LTD. [2015] 61 TAXMANN.COM 119 (KER). IN THE INSTANT CASE, AS PER THE GROUNDS OF APPEAL, RS. 2,4 4,084/- RELATING TO EMPLOYEES CONTRIBUTION TO PF AND RS. 15,62,812/- R ELATING TO EMPLOYEES CONTRIBUTION TOWARDS ESIC FOR ASSESSMENT YEARS 2007-08 AND 2008-09 WERE PAID DURING THE A.Y. 2009-10 (EMPHASIS UNDERLINED). THE AO HAS RIGHTLY REFERRED TO SECTION 36(1)(VA) AND DISALLOWED RS. 18,06,896/- PAID TOWARDS EMPLOYEES CONTRIBUTION TO PF AND ESIC. THE ORDER OF THE LEARNED CIT(A) CONFIR MING THE DISALLOWANCE OF THE ABOVE AMOUNT IS THUS UPHELD. 6.1 THE 2 ND GROUND RELATES TO DISALLOWANCE OF RS. 5,97,941/- P AID TOWARDS DAMAGES FOR LATE PAYMENT OF PF / ESIC. WE F IND THAT CLAUSE 17(E) OF THE AUDIT REPORT DATED 29.09.2009 CLEARLY STATES THAT THE SAID AMOUNT RELATES TO INTEREST AND DAMAGES LEVIED BY PR OVIDENT FUND AND EMPLOYEES STATE INSURANCE SCHEME AUTHORITIES. AS T HE ABOVE AMOUNT IS PENAL IN NATURE, WE UPHOLD THE ORDER OF THE LEAR NED CIT(A). 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ITA NO. 1103/MUM/2013 ASSESSMENT YEAR: 2009-10 8. NOW WE TURN TO THE APPEAL FILED BY THE REVENUE. THE GROUNDS OF APPEAL READ AS UNDER: I. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW , THE LD. CIT(A) ERRED IN ALLOWING THE SET OFF OF CARRIED FORWARD BUSINESS LOSS OF RS. 25,25,373/- AGAINST THE SHORT TERM CAPITAL GAINS ARISING ON SAL E OF FACTORY BUILDING USED FOR THE BUSINESS PURPOSE. II. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW , THE LD. CIT(A) ERRED IN ALLOWING THE ASSESSEE CLAIM THAT GAINS FROM THE BUS INESS ASSETS WERE ELIGIBLE FOR SET OFF AGAINST THE BROUGHT FORWARD LOSSES U/S 7 2 OF THE IT ACT WITHOUT APPRECIATING THAT SECTION 72 ALLOWS BROUGHT FORWARD LOSSES TO BE SET-OFF AGAINST THE PROFIT & GAINS OF ANY BUSINESS OR PRO FESSION I.E. INCOME EARNED ITA NO. 1313 & 1103/MUM/2013 5 OUT OF BUSINESS CARRIED ON BY THE ASSESSEE AND NOT JU ST INCOME CONNECTED IN SOME WAY TO THE BUSINESS OR PROFESSION CARRIED ON BY THE ASSESSEE. 9. THE TAX EFFECT IN RESPECT OF THE ABOVE GROUNDS O F APPEAL IS LESS THAN THE MONETARY LIMIT OF RS. 10,00,000/- FIXED BY CBDT VIDE CIRCULAR NO. 21 OF 2015 DATED 10.12.2015 IN RE LATION TO APPEAL BEFORE THE ITAT. THIS IS ALSO FAIRLY STATED BY THE LEARNED DR. WE HAVE SEEN THAT THE MONETARY LIMITS HAVE BEEN MADE APPLIC ABLE RETROSPECTIVELY BY THE CBDT IN THE SAID CIRCULA R AS WOULD BE EVIDENT FROM THE FOLLOWING EXTRACT:- 10. THIS INSTRUCTION WILL APPLY RETROSPECTIVELY T O PENDING APPEALS AND APPEALS TO BE FILED HENCEFORTH IN HIGH COURTS / TRIB UNALS. PENDING APPEALS BELOW THE SPECIFIED TAX LIMITS IN PARA 3 ABOVE MAY BE WITH DRAWN/ NOT PRESSED. APPEALS BEFORE THE SUPREME COURT WILL BE GOVERNED BY THE INSTRUCTIONS ON THIS SUBJECT, OPERATIVE AT THE TIME WHEN SUCH APPEAL WAS FILED. 10. IN VIEW OF THE ABOVE, WE DISMISS THE APPEAL OF THE REVENUE AS NOT MAINTAINABLE. 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10/01/2017 SD/- SD/- (MAHAVIR SINGH) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBE R MUMBAI; DATED: 10/01/2017 BISWAJIT, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI