M/s. India Gelatine & Chemicals Ltd., Ahmedabad V. The ACIT Circle-2(1)(1), Ahmedabad

ITA 1663/AHD/2019

AI Insights

India Gelatine & Chemicals Ltd. appealed against the order of the CIT(A)-2, Ahmedabad, which confirmed the disallowances made by the Assessing Officer for the assessment year 2016-17. The first disallowance was related to Rs. 17,481 for delayed payment of employee's contribution to ESIC, which the Tribunal dismissed based on Supreme Court precedents. The second disallowance involved Rs. 13,94,885 on travel expenses deemed to have a personal element, which the Tribunal reduced to Rs. 5,00,000 based on a previous ITAT ruling to settle ongoing disputes.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 131457 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: D
• Next Hearing Date: 03-05-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 06-11-2019
• Other Referred Cases: CIT Vs. Alom Extrusion Ltd. (319 ITR 306), Checkmate Services (P.) Ltd. [2022] 143 taxmann.com 178 (SC), Harrisons Malayalam Ltd. [2022] 145 taxmann.com 608 (SC)
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Deemed to accrue or arise in india
• Section: 37; 43B; 37(1); 250

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “D” BENCH Before: Ms. Annapurna Gupta, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member In dia Gelatine & Ch emical s Ltd. 7 t h Floor, 703/704, Shilp Building, Nr. Municipal Market, C. G. Road, Ahmedabad PAN: AAACI3676F (Appellant) Vs Dy . CIT, Circle-2(1)(1 ), Aayak ar Bhavan, Vejalpur, Ah med abad (Resp ondent) Asses see b y : Shri Man ish J. Sha h, A. R. & Shri Rushi n Pa tel, A. R. Revenue by : Shri Rohit Aa suda ni, Sr. D. R. Date of hearing : 04-05 -2 023 Date of pronouncement : 12-05 -2 023 आदेश /ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:- This is an appeal filed by the assessee against the order of the ld. CIT(A)-2, Ahmedabad, in proceeding u/s. 250 vide order dated 30/08/2019 passed for the assessment year 2016-17. ITA No. 1663/Ahd/2019 Assessment Year 2016-17 I.T.A No. 1663/Ahd/2019 A.Y. 2016-17 Page No. M/s. India Gelatine & Chemicals Ltd. vs. ACIT 2 2. The assessee has taken the following grounds of appeal:- “On the facts and circumstances of the case, the Hon’ble Members may kindly be pleased to hold that the additions made by the Learned Assessing Officer and confirmed by the Ld. CIT (Appeals) is bad in law and on facts, on due appreciation of any one or more of the following contentions: 1. To delete disallowance u/s. 36(1)(va) r.w.s.2(24)(x) of Rs.17,481 in respect of delayed payment of Employees' contribution to ESIC. (i) That the Appellant Company has made the payment of employees' contribution of ESIC of Rs.17,481. The said payment was deposited within grace period with respective department. (ii) That in view of recent judgement of Hon’ble Supreme Court in the case of CIT Vs. Alom Extrusion Ltd. (319 ITR 306 ) even Deposit of Employee's contribution towards ESI & PF before due date of filing of Income Tax Return is allowable expenses and cannot be treated as income of the Assessee U/s.36(l)(va) r.w.s. 2(24)(x). (iii) That disallowance made by the A.O. for delay in depositing of employees' contribution should be allowed in full. V 2. To delete addition made on account of disallowance of Travelling Expenses by the Directors u/s. 37(1) of Rs.13,94,885. (i) That the Appellant company is aggrieved by the disallowance of Traveling Expenditure retained by Hon’ble Commissioner of Income Tax-Appeals on adhoc basis in contradiction to his own findings. (ii) That the disallowance made by Ld. Assessing Officer in respect of traveling expenditure of Rs. 13,94,885 and retained by Hon’ble Commissioner of Income Tax (Appeals) is arbitrary, adhoc and against the facts of the Company and required to be deleted in full. I.T.A No. 1663/Ahd/2019 A.Y. 2016-17 Page No. M/s. India Gelatine & Chemicals Ltd. vs. ACIT 3 (iii) That the arbitrary disallowance of travelling expenditure without identifying any expenditure of personal or non-business nature, the disallowance made by Ld. A.O. and retained by Hon’ble Commissioner of Income Tax-Appeals required to be deleted in full. That your Honour may kindly be pleased to grant such further or alternative reliefs as are just and equitable on due appreciation of facts submitted & filed before your Honour and further it craves your Honour's leave to add or amend any of the grounds of appeal either before or in the course of hearing.” Ground 1: disallowance of 17,481/-u/s 36(1)(va) of the Act for late deposit of ESIC 3. The assessee is in appeal before us against disallowance of 17,481/- in respect of delayed payment of employee’s contribution to ESIC. 4. We observe that this issue has now been unambiguously clarified by the Hon'ble Supreme Court with respect to all assessment years prior to AY 2021-22in the case of Checkmate Services (P.) Ltd. [2022] 143 taxmann.com 178 (SC) wherein the Supreme Court held that for assessment years prior to AY 2021-22, non obstante clause under section 43B could not apply in case of amounts which were held in trust as was case of employee's contribution which were deducted from their income and was held in trust by assessee-employer as per section 2(24)(x), thus, said clause would not absolve assessee-employer from its liability to deposit employee's contribution on or before due date as a condition for deduction. The Supreme Court observed that there is a marked difference between nature and character of assessee-employer's contribution and amounts retained by I.T.A No. 1663/Ahd/2019 A.Y. 2016-17 Page No. M/s. India Gelatine & Chemicals Ltd. vs. ACIT 4 assessee from out of employee's income by way of deduction wherein one is liability to be paid by employer and second is deemed income as per section 2(24)(x) which is held in trust by assessee-employer, thus, said marked difference was to be borne while interpreting obligation of assessee- employer under section 43B of the Act. The Hon'ble Supreme held that the non obstante clause under section 43B could not apply in case of amounts which were held in trust as was case of employee's contribution which were deducted from their income and was not part of assessee-employer's income, thus, said clause would not absolve assessee-employer from its liability to deposit employee's contribution on or before due date as a condition for deduction. Again the Supreme Court in the case of Harrisons Malayalam Ltd. [2022] 145 taxmann.com 608 (SC), dismissed the SLP of the Department against order of High Court that where assessee-company failed to pay employees’ contribution towards EPF and ESI within due date prescribed in respective Acts, deduction under section 36(1)(va) was not allowable. 4.1 In view of the above observations, respectfully following the decision of the Honourable Supreme Court in the case of Checkmate Services Private Ltd supra and Harrisons Malayalam Ltd supra and in the light of our observations made above, this ground of appeal of the assessee is hereby dismissed 5. In the result Ground number 1 of the assessee’s appeal is dismissed. I.T.A No. 1663/Ahd/2019 A.Y. 2016-17 Page No. M/s. India Gelatine & Chemicals Ltd. vs. ACIT 5 Ground number 2: disallowance of travel expenses by Directors u/s 37 (1) of the Act of 13, 94, 885/ - 6. The brief facts in relation to this ground of appeal are that during the course of assessment, the AO made a disallowance of 13,94,885/- out of total foreign travelling expenses of 1,64,23,800/-as there was a clear element of travel expenses for personal purposes. The assessee filed appeal before Ld. CIT(Appeals), who dismissed the appeal of the assessee on the ground that identical issue has been decided against the assessee by this office in the immediately preceding year i.e. assessment year 2014-15 vide order dated 10-10-2017. Accordingly, Ld. CIT(Appeals) dismissed the appeal of the assessee with respect to this ground of appeal with the following observations: “5.5. In view of the preceding discussion and considering the above facts of the case that appellant has not been able to justify the entire foreign travel expenses was for business purpose. As the personal element cannot be ruled out, the disallowance made by the AO of Rs. 13,94,885/- is confirmed as per preceding year. The ground of appeal is accordingly dismissed. The ground of appeal is accordingly dismissed.” 7. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(Appeals) confirming the disallowance of 13,94,885/-. Before us, the counsel for the assessee submitted that similar disallowances on account of personal element involved in travelling expenses was made by the Department for assessment years 2010-11 to 2014-15. However, in order to put an end to litigation on this issue, the ITAT Ahmedabad in assessee’s I.T.A No. 1663/Ahd/2019 A.Y. 2016-17 Page No. M/s. India Gelatine & Chemicals Ltd. vs. ACIT 6 own case for all of the above assessment years vide order dated 27-08-2021 has restricted the disallowance to 5 lakhs for each of the assessment years. Accordingly, the learned counsel for the assessee submitted that in light of the above decision in assessee’s own case for aforesaid assessment years 2010-11 to 2014-15, the disallowance may be restricted to 5 lakhs for this assessment year as well. A copy of the order of ITAT has been placed on record before us, for our perusal. 7.1 Respectfully following the order of ITAT on identical issue with respect to disallowance of travelling expenses, wherein, the ITAT restricted to disallowance to 5 lakhs, we are hereby restricting the disallowance with respect to disallowance of travelling expenses to 5 lakhs. It would be useful to reproduce the relevant extracts of the ITAT ruling for ready reference: 1. Details of last three years travelling expenses, increase in turnover of the products of the company are mentioned below: Accounting Year Turnover Travelling Expenses 2006-07 61.09 1.08 2007-08 56.56 1.10 2008-09 78.26 1.25 2009-10 79.79 1.18 2010-11 85.43 1.01 2. Since the Hon’ble Karnataka High Court is in favour of the assessee. Thus, respectfully following the Karnataka High Court we, accept the plea of the assessee. In the meanwhile, Ld. A.R. made a request that in order to put an end to the litigation if Rs. 5,00,000/- are confirmed in all buyers that case assessee will not have any objection. Since assessee has voluntarily requested for disallowance of Rs. 5,00,000/- I.T.A No. 1663/Ahd/2019 A.Y. 2016-17 Page No. M/s. India Gelatine & Chemicals Ltd. vs. ACIT 7 and in the interest of justice and in order to put an end to litigation, we restrict disallowance of Rs. 5,00,000/- in all connected appeals. 8. In the result, ground number 2 of the assessee’s appeal is partly allowed. 9. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 12-05-2023 Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 12/05/2023 आदेश क त ल प अ े षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/ आदेश से, उप/सहायक पंजीकार आयकर अपील य अ धकरण, अहमदाबाद