M/s. Kamla Construction Co., Bhopal V. Pr. CIT-2, Bhopal

ITA 16/Ind/2020

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 5352 (ITAT-INDORE)
• Duration Of Justice: 2 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-07-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Assessment Year: 2015-2016
• Appeal Filed On: 12-01-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Set aside
• Section: 263; 43B; 40A(3); 143(3); 142(1); 139(1)

Judgement Text

आयकर अपील य अ धकरण, इंदौर यायपीठ, इंदौर IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE MS. MADHUMITA ROY, JUDICIAL MEMBER AND SHRI B.M. BIYANI, ACCOUNTANT MEMBER (Conducted through Virtual Court) ITA No. 16/Ind/2020 Assessment Year: 2015-16 M/s. Kamla Construction Company, KCC Main Road, Obedullaganj, District-Raisen, Bhopal बनाम /Vs. Pr. CIT-2 Bhopal (Appellant / Assessee) (Respondent/ Revenue) PAN: AKTPP8040L Assessee by Shri Anil Khabya, AR Revenue by None Date of Hearing 07.07.2022 Date of Pronouncement 20.07.2022 आदेश / O R D E R Per B.M. Biyani, A.M.: 1. This appeal filed by the assessee is directed against the revision-order dated 25.11.2019 passed by learned Pr. Commissioner of Income-Tax-2, Bhopal [“Ld. PCIT)”] u/s 263 of the Income-tax Act, 1961 [“the Act”] by which the order of assessment dated 15.12.2017 passed by learned DCIT-5(1), Bhopal [“the Ld. AO”] u/s 143(3) for Assessment-Year 2015-16 was set aside on the ground of being erroneous as well as prejudicial to the interest of revenue and the Ld. AO was directed to make a fresh assessment. 2. The assessee has raised following grounds: Kamla construction ITA No.16/Ind/2020 Assessment year 2015-16 Page 2 of 8 “1. That the Ld. Pr. CIT(A) erred in invoking provisions of section 263 and setting aside order of assessment dated.15.12.2017 for framing fresh assessment. 2. That the ld. Pr. CIT(A) erred in holding that the order of assessment passed by the AO was erroneous and prejudicial to interest of revenue as claim of payment of interest of partners was accepted by AO in assessment proceeding after verification of partnership deed.” 3. The assessee is a partnership-firm who has submitted return of income on 24.09.2015 declaring a total income of Rs. 1,97,02,030/-. The case was selected for scrutiny and statutory notices were issued u/s 143(3) & 142(1) of the Act which were duly complied with by the assessee. Finally the ld. AO completed assessment vide order dated 15.12.2017 after making an addition of Rs. 6,00,000/- on account of lump-sum disallowance out of certain expenses. 4. Thereafter the records of assessment were examined by Ld. PCIT, who was of the view that there were following errors in the aforesaid order of assessment passed by Ld. AO: “2. Perusal of the order u/s 143(3), reveals that the assessee had been deposited EPF of Rs. 29,158/- after due date, the same is not permissible within the meaning of section 36(1)(va) read with section 2(24)(x) of the I.T. Act, 1961. The expense was liable to be disallowed but the disallowance has not been made in the assessment order. The assesse has made cash payment of Rs. 50,000/- on 25.03.2015 in clear violation of provisions of section 40A(3) of the Act as per PWD works expenses vide voucher no. 7746. The same was liable to be disallowed as expense and added back to the income of the assessee but the same was not found done in the assessment order. Further, the assessee had not claimed interest expenses to the partners in accordance to para 5 of the partnership deed dated 01.10.2004. The assessee had given interest to all partners whereas it had to be given to only 3 partners out of 5 as per partnership deed. Further, it is also been noticed that the effective interest given to the partners is more than 12% if cut off method or entry to entry calculating each debit & credit is considered.” Kamla construction ITA No.16/Ind/2020 Assessment year 2015-16 Page 3 of 8 5. Accordingly, Ld. PCIT initiated revision-proceeding by issuing a show- cause notice dated 19.09.2019 to the assessee. In reply the assessee made submissions but the Ld. PCIT was not satisfied with the submission of assessee. Therefore, the Ld. PCIT held that order passed by Ld. AO was erroneous in so far as it is prejudicial to the interest of assessee. With this conclusion, the Ld. PCIT set aside the order passed by Ld. AO with a direction to make assessment afresh. Aggrieved by this order of Ld. PCIT, the assessee has filed the present appeal and now before us. 6. Ld. AR appearing on behalf of the assessee submitted that the Ld. PCIT has conducted revision-proceeding on the premise of three issues, viz. (i) Ld. AO has not disallowed employees’ contribution to Provident Fund amounting to Rs. 29,158/- paid after due date under the PF laws in terms of section 36(1)(va) read with section 2(24)(x); (ii) Ld. AO has not disallowed a sum of Rs. 50,000/- paid in cash on 25.03.2015 in violation of section 40A(3); and (iii) The assessee has paid interest to all 5 partners though as per partnership- deed, the interest was to be paid only to 3 persons, hence the ld. AO has allowed the deduction of interest paid to partners which was not in accordance with the partnership-deed. Ld. AR submitted that all of the three issues raised by Ld. PCIT are either incorrect or not in accordance with the law. Ld. AR made a detailed submission on all three issues one by one as under: (i) Regarding delayed payment of Employees’ Contribution to PF amounting to Rs. 29,158/-, Ld. AR submitted that it is a well-settled law by numerous decisions of this Bench of ITAT itself to the effect that the Employees’ Contribution to PF paid after due date under the PF law but upto due date specified in section 43B i.e. the due date for filing of return of income u/s 139(1), is allowable as deduction and no disallowance is required u/s 36(1)(va) of the Act. According to ld. AR, since the employees’ contribution is allowable as per binding decisions of this Bench of ITAT, there is no error in the deduction allowed by ld. AO. Kamla construction ITA No.16/Ind/2020 Assessment year 2015-16 Page 4 of 8 (ii) Regarding disallowance of cash payment of Rs. 50,000/- made on 25.03.2015 u/s 40A(3), the Ld. AO carried our attention to Para No. 5 of the assessment order which reads as under: “5. I have carefully test checked the Profit and Loss account as per shown by the assessee in audited report also test checked the books of account, bills and vouchers. It is also seen that a sum of Rs. 39,28,060/- is debited under the head of Tender Exp. Rs. 4,23,073/-, General Exp. Rs. 14,23,728/-, Mess Expenses Rs. 10,17,362/-, Conveyance Exp. Rs. 156,129/-, Staff Welfare Exp. Rs. 1,22,155/-, Printing & Stationary Exp. Rs.1,44,306/-, Telephone Exp. Rs. 2,58,618/- and Travelling Exp. Rs. 3,82,689/-. The assessee was asked to produce all bills and vouchers of the above mentioned expenditure. The assessee failed to produce most of the bills & Vouchers of the above mentioned expenditure. Some expenses were found personal in nature and were not incurred wholly and solely for the purpose of its business and are also not verifiable fully in the absence of complete vouchers and supports. Hence, lump-sum amount of Rs. 6,00,000/- is disallowed and added to the total income to the assessee.” Referring to this para, the Ld. AR submitted that the Ld. AO has already made a lump-sum disallowance of Rs. 6,00,000/- out of various expenses which is sufficient enough to cover the disallowance of the alleged cash-payment of Rs. 50,000/- as well and therefore, no separate disallowance was required to be made. Hence there is no error in the order of Ld. AO. (iii) Regarding interest payment to partners, the ld. AR submitted that the assessee-firm was originally regulated by a partnership-deed dated 01.06.2009 but the said deed was revised w.e.f. 01.10.2014. Ld. AR submitted that the revised-deed dated 01.10.2014, a copy of which is placed at Page No. 4 to 8 of the Paper-Book, was relevant for the assessment-year 2015-16 under consideration. According to Ld. AR, Para No. 4 of the revised-deed clearly provides that interest @ 9% would be payable on fixed capital of all partners. Ld. AR submitted that the assessee has paid interest to partners in terms of this revised-deed and the same was rightly allowed by Ld. AO. Hence, there is no error in the order of Ld. AO. Kamla construction ITA No.16/Ind/2020 Assessment year 2015-16 Page 5 of 8 With aforesaid submissions, Ld. AR argued that all of the three issues relied upon by the Ld. PCIT as basis for carrying out revision u/s 263 have been adequately and lawfully dealt with by Ld. AO and hence there is no error whatsoever in the order of assessment passed by ld. AO. Therefore, according to Ld. AR, the revision-order passed by Ld. PCIT u/s 263 does not have legs to stand. Ld. AR prayed to quash the revision-order passed by Ld. PCIT which is not in accordance with the provision of section 263. 7. Per contra, the Ld. DR strongly relied upon the revision-order passed by Ld. PCIT. Ld. DR contended that no enquiry was made by Ld. AO on the issues mentioned by Ld. PCIT and hence the assessment-order passed by Ld. AO was erroneous in so far as it is prejudicial to the interest of revenue. Ld. DR submitted that the Ld. PCIT was, therefore, fully justified in making revision u/s 263. 8. We have considered rival submissions of both sides and perused the relevant material available on record and based thereon, our analysis is as under: (i) Regarding issue No. 1 i.e. the issue of deduction of employees’ contribution to Provident-Fund paid after due date under the relevant law but upto due date for filing of return u/s 139(1), we agree with the submission of Ld. AR that this issue is well-settled in favour of assessee by numerous judgements of this Bench of ITAT. This Bench has consistently held that the employees’ contribution to provident-fund paid after due date under the relevant law but upto the due date specified in section 43B i.e. the due date for filing of return u/s 139(1) is allowable as deduction and no disallowance is called for. Hence there is no error in the action of Ld. AO in granting the deduction. (ii) Regarding issue No. 2 i.e. the disallowance of cash-payment of Rs. 50,000/- u/s 40A(3), we have carefully read the Para No. 5 of the assessment-order referred to by Ld. AR reproduced above and observed that the Ld. AO has made disallowance of Rs. 6,00,000/- out of Tender Kamla construction ITA No.16/Ind/2020 Assessment year 2015-16 Page 6 of 8 Exp. Rs. 4,23,073/-, General Exp. Rs. 14,23,728/-, Mess Expenses Rs. 10,17,362/-, Conveyance Exp. Rs. 156,129/-, Staff Welfare Exp. Rs. 1,22,155/-, Printing & Stationary Exp. Rs.1,44,306/-, Telephone Exp. Rs. 2,58,618/- and Travelling Exp. Rs. 3,82,689/-. Therefore, we raised a specific query to Ld. AR to tell us as to which of these expenses is involved in the impugned cash-payment of Rs. 50,000/- covered u/s 40A(3). In reply, the Ld. AR instantly informed that the impugned cash- payment is not out of any of these expenses mentioned by Ld. AO. Considering the reply of Ld. AR, we find that the cash-payment of Rs. 50,000/- was of an altogether different expenditure and it does not form part of the expenses for which the lump-sum disallowance of Rs. 6,00,000/- was made by Ld. AO. Therefore we observe that the Ld. AO has not examined the cash-payment of Rs. 50,000/- disallowable u/s 40A(3) and thus committed an error prejudicial to the interest of revenue. (iii) Regarding issue No. 3 i.e. the interest on capital paid to partners, we observe that the assessee has revised its partnership-deed w.e.f. 01.10.2014. We further observe that the present-appeal before us relates to assessment-year 2015-16 for which the relevant financial year was 2014-15 covering the period from 01.04.2014 to 31.03.2015. Thus, we observe that there were two operative partnership-deeds in this period, viz. original-deed was operative for 01.04.2014 to 30.09.2014 and the revised-deed was operative for the period 01.10.2014 to 31.03.2015. It is further observed that the assessee has paid interest for the whole period 01.04.2014 to 31.03.2015 according to the revised- deed, although interest for the period 01.04.2014 to 30.09.2014 was to be paid and allowed as per original-deed. Thus, the Ld. AO has committed an error by allowing deduction for the whole period 01.04.2014 to 31.03.2015 in accordance with the revised-deed. Therefore, as far as this issue is concerned, we observe that the Ld. PCIT is justified in concluding that the Ld. AO has not examined the Kamla construction ITA No.16/Ind/2020 Assessment year 2015-16 Page 7 of 8 interest-payment to partners and therefore committed an error prejudicial to the interest of revenue. 9. In view of foregoing discussions, we observe that out of three issue, issue No. 1 is not fit for making revision u/s 263 but the issue No. 2 and 3 were certainly fit for the exercise of revision-power by Ld. PCIT u/s 263 of the act. Hence the order of revision passed by Ld. PCIT u/s 263 is not valid qua issue No. 1, but still valid qua Issue No. 2 and 3. Therefore, we cancel the order of Ld. PCIT for issue No. 1 i.e. the deduction of employee’s contribution to PF, but uphold the same for Issue No. 2 and 3 i.e. the disallowance of cash- payment of Rs. 50,000/- and interest-payment to partners. 10. In the result, the appeal of assessee is partly allowed. Order pronounced as per Rule 34 of I.T.A.T. Rules 1963 on 20.07. 2022. Sd/- Sd/- (MADHUMITA ROY) (B.M. BIYANI) JUDICIAL MEMBER ACCOUNTANT MEMBER Indore दनांक /Dated : 20.07.2022 Patel/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Sr. Private Secretary Income Tax Appellate Tribunal Indore Benches, Indore Kamla construction ITA No.16/Ind/2020 Assessment year 2015-16 Page 8 of 8 1. Date of taking dictation 2. Date of typing & draft order placed before the Dictating Member 3. Date on which the approved draft comes to the Sr. P.S./P.S. 4. Date on which the fair order is placed before the Dictating Member for pronouncement 5. Date on which the file goes to the Bench Clerk 6. Date on which the file goes to the Head Clerk 7. Date on which the file goes to the Assistant Registrar for signature on the order 8. Date of dispatch of the Order