M/s. Ratilal Bhagwandas Construction Co. Pvt. Ltd., Pune V. Income-tax Officer (OSD).,

ITA 1698/PUN/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9368 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 07-02-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 09-09-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHIVANAND KALAKERI
• Keywords: Business income; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 143(3); 37(1); 37

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , ! , # $ BEFORE MS.SUSHMA CHOWLA, JM & SHRI ANIL CHATURVEDI, AM . / ITA NO.1698/PUN/2014 & & / ASSESSMENT YEAR : 2009-10 M/S.RATIL AL BHAGWANDAS CONSTRUCTION CO. PVT. LTD., BOMBAY PUNE ROAD, NEAR PHUGEWADI, PUNE 411 012. PAN : AAACR8231R . / APPELLANT V/S THE INCOME TAX OFFICER (OSD), JUDICIAL, O/O. CIT-V, PUNE. . / RESPONDENT / APPELLANT BY : SHRI NIKHIL PATHAK / RESPONDENT BY : SHRI SHIVANAND KALAKERI ' / ORDER PER ANIL CHATURVEDI, AM : THE APPEAL OF THE ASSESSEE IS EMANATING OUT OF THE ORDER CIT (A)-V, PUNE DATED 24/07/2014 FOR THE AY 2009-10. 2. THE FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDE R: / DATE OF HEARING : 18.05.2017 / DATE OF PRONOUNCEMENT: 31.05.2017 2 ITA NO.1698/PUN/2014 AY.NO.2009-10 2.1. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE BUSINESS OF INDUSTRIAL CONSTRUCTION. ASSESSEE FILED ITS RETURN OF INCOME FOR AY 2009- 10 ON 2.10.2009 DECLARING TOTAL INCOME OF RS 4,82,49,120/- T HE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER ASSESSMENT WAS FRAMED U/S 143(3) ON 26.12.2011 AND THE TOTAL INCOME WAS DETERMINED A T RS.4,92,12,630. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARR IED THE MATTER BEFORE LD CIT(A), WHO VIDE ORDER DTD 24.7.2014 (IN AP PEAL NOS PN/CIT(A)-V/ITO(OSD) UD/677/11-12) GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS: 1] THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLO WANCE OF RS.9,73,953/- ON ACCOUNT OF PAYMENT MADE BY THE ASSESSE E COMPANY O ACCOUNT OF CONTRIBUTION TO PROVIDENT FUND ON BEHALF OF THE EMPLOYEES OF THE SUB CONTRACTORS OF THE ASS ESSEE COMPANY ON THE GROUND THAT THE EXPENDITURE WAS NOT I NCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE COMPANY. 2] THE LEARNED CIT(A) ERRED I MAKING AN ENHANCEMENT O F RS.11,04,624/- BY DISALLOWING THE PAYMENT MADE BY THE ASSESSEE COMPANY TOWARDS CONTRIBUTION TO PROVIDENT FUND ON BEHALF OF THE SUB CONTRACTORS EMPLOYED BY THE ASSE SSEE COMPANY ON THE GROUND THAT THE EXPENDITURE WAS NOT I NCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE COMPANY. 3] THE LEARNED CIT(A) ERRED IN HOLDING THAT A. THE ASSESSEE HAD NO CONTRACTUAL OBLIGATION TO PAY TH E PROVIDENT FUND CONTRIBUTION ON ACCOUNT OF THE SUBCONTRACTORS AND THEIR EMPLOYEES AND HENCE, THE SAM E COULD NOT BE ALLOWED AS A DEDUCTION WHILE COMPUTING THE BUSINESS INCOME OF THE ASSESSEE. B. THE ASSESSEE HAD FAILED TO PROVE THAT THE ABOVE PAYM ENTS TOWARDS PROVIDENT FUND WERE MADE OUT OF COMMERCIAL EXPEDIENCY AND HENCE, THE SAID PAYMENTS WERE NOT ALLOWABLE AS A BUSINESS DEDUCTION. 4] THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE AB OVE EXPENDITURE TOTALING TO RS.20,78,557/- WAS INCURRED BY THE ASSESSEE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF TH E BUSINESS OF THE ASSESSEE COMPANY AND THEREFORE, THE SAME 3 ITA NO.1698/PUN/2014 AY.NO.2009-10 SHOULD HAVE BEEN ALLOWED AS A BUSINESS DEDUCTION IN TH IS YEAR. 5] THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT THE SAID PAYMENT WAS MADE FOR THE PURPOSE OF THE ASSESSEES BUSINESS AND HENCE, EVEN ASSUMING WITHOUT ADMITTING TH AT THERE WAS NO CONTRACTUAL LIABILITY, THE SAID PAYMENT SH OULD HAVE BEEN ALLOWED AS A DEDUCTION WHILE COMPUTING THE BUSINESS INCOME OF THE ASSESSEE. 6] THE LEARNED CIT (A) ERRED IN CONFIRMING THE DISALLOW ANCE TO THE EXTENT OF RS.1,13,281/- OUT OF THE TOTAL DISALLOWANCE OF RS.2,26,562/- MADE BY THE LEARNED A.O. ON AN ADHOC BASIS I N RESPECT OF THE FOLLOWING EXPENSES ON THAT THE GROUND T HAT THE SAID EXPENSES WERE NOT PROPERLY SUPPORTED BY VOUCHERS/BILLS A. WORKER WELFARE EXPENSES RS. 69,779/- B. LABOUR CONVEYANCE AND TRANSPORT RS. 25,600/- C. WEIGHMENT CHARGES RS. 15,230/- D. LOCAL CONVEYANCE RS.10,79,139/- E. OFFICE EXPENSES RS. 6,50,437/- --------------------- RS.22,65,621/- --------------------- 6.1] THE LEARNED CIT (A) FAILED TO APPRECIATE THAT ALL THE EXPENSES WERE INCURRED BY THE ASSESSEE FOR THE BUSINESS PURP OSE AND WERE DULY SUPPORTED BY PROPER BILLS / VOUCHERS AND HE NCE, THE ADHOC DISALLOWANCE MADE IN RESPECT OF THE SAID EX PENSES WAS NOT JUSTIFIED ON FACTS OF THE CASE. 7] THE APPELLANT CRAVES LEAVE TO ADD, ALTER AMEND OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. 3. BEFORE US AT THE OUTSET, THE LD AR SUBMITTED THAT GR OUND NO 7 IS GENERAL AND REQUIRES NO ADJUDICATION AND HE DID NOT WISH TO PRESS GROUND NO 6. HE FURTHER SUBMITTED THAT AS FAR AS OTHE R GROUNDS ARE CONCERNED, THOUGH THE ASSESSEE HAS RAISED VARIOUS GRO UNDS BUT ALL THE GROUNDS ARE INTERCONNECTED AND THE SOLE CONTROVERSY W HICH REQUIRES ADJUDICATION IS WITH RESPECT TO DISALLOWANCE OF PROVIDENT CO NTRIBUTION. IN VIEW OF THE AFORESAID SUBMISSION OF LD AR GROUND NO.7 RE QUIRES NO ADJUDICATION AND GROUND NO.6 IS DISMISSED AS NOT PRESSED. 4 ITA NO.1698/PUN/2014 AY.NO.2009-10 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ON PERUSING THE OFFICE AND ADMINISTRATION EXPENSES ACCOUNT, ASSESSING OFFICE R NOTICED THAT ASSESSEE HAD DEBITED RS.20,78,557/- ON ACCOUNT OF PROVIDENT FUND CONTRACTORS. ASSESSING OFFICER ON FURTHER VERIFICATION NOTIC ED THAT THE AFORESAID AMOUNT COMPRISED OF RS.9,73,953/- BEING EMPLOYEES CONTRIBUTION TO PROVIDENT FUND AND RS.11,04,624/- BEING THE EMPLOYERS CONTRIBUTION IN RESPECT OF LABOURERS EMPLOYED THROUGH SUB CONTRACTORS. ASSESSEE WAS ASKED TO JUSTIFY IT CLAIM TO WHICH ASSESSEE INTERALIA SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF INDUSTRIAL CONSTRUCTION AND THAT THE ASSESSEE GETS ITS JOB WORK DONE THROUGH VARIOUS SUBCONTRACTORS. AS PER THE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH ITS VARIOUS CLIENTS, THE ASSESSEE IS LIABLE FOR PROVIDENT FUND EXPENDITURE. IT WAS FURTHER SUBMITTED THAT MANY OF THE SUB CONTRACTORS DO NOT HAVE PROVIDENT FUND REGISTRATION AN D HENCE THE ASSESSEE HAS PAID THEIR PROVIDENT FUND CONTRIBUTION AND T HEREFORE THE SAME IS CLAIMED AS AN EXPENDITURE. THE SUBMISSIONS OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE ASSESSING OFFICER IN VIEW O F THE FACT THAT IN RESPECT OF ASSESSEES OWN EMPLOYEES, ASSESSEE HAD C ONTRIBUTED ONLY EMPLOYERS CONTRIBUTION AND HAD DEDUCTED THE PORTION OF EMPLOYEES CONTRIBUTION FROM THEIR WAGES/SALARIES BUT IN RESPECT OF EM PLOYEES OF THE SUB CONTRACTORS WHICH WERE ENGAGED BY THE ASSESSEE, NO SUCH DEDUCTION WAS MADE FROM THE WAGES/SALARIES OF THE CONCERNED EMPLOY EES. HE WAS THEREFORE OF THE VIEW THAT THE AMOUNT OF RS.9,73,953/- (BE ING THE EMPLOYEES CONTRIBUTION OF SUB CONTRACTORS) CANNOT BE CON SIDERED TO BE CONTRACTUAL OBLIGATION OF THE ASSESSEE AND THE SAME, ACCO RDING TO THE ASSESSING OFFICER, WAS THEREFORE NOT ALLOWABLE. HE, ACCORDINGL Y, DISALLOWED THE CLAIM OF EXPENDITURE OF RS.9,73,953/-. AGGRIEVED BY THE 5 ITA NO.1698/PUN/2014 AY.NO.2009-10 ORDER OF ASSESSING OFFICER, ASSESSEE CARRIED THE MATTER BE FORE LD CIT(A) WHO APART FROM UPHOLDING THE ORDER OF ASSESSING OFFICER ALSO ENHANCED THE DISALLOWANCE BY DIRECTING THE ASSESSING OFFICER TO DISALLOW THE EMPLOYERS CONTRIBUTION PERTAINING TO CONTRACTORS (RS.11,04 ,124/-). THE RELEVANT OBSERVATION TO LD. CIT (A) IS AS UNDER: 7. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE AS WELL AS OF THE APPELLANT. THE MAIN CONTENTION OF THE APPELLANT IS THAT AS PER TERMS OF AGREEMENT THE APPELLANT WAS RESPONSIBLE FOR PROVIDE NT FUND PAYMENTS IN RESPECT OF WORK DONE FOR THE RESPECTIVE COMPANIES A ND SINCE SUB CONTRACTORS WERE NOT HAVING PF REGISTRATION THE ONU S FELL UPON THE APPELLANT TO DISCHARGE THIS LIABILITY. THE ARGUMEN T OF THE APPELLANT IS DIFFICULT TO BE ACCEPTED AS NOTHING PREVENTED THE A PPELLANT TO DEBIT THE ACCOUNT OF SUB-CONTRACTORS ON ACCOUNT OF SUCH PAYME NTS IN CASE THESE SUB-CONTRACTORS WERE NOT HAVING PF REGISTRATION MEM BERS. I ALSO FIND THAT OBSERVATION OF THE ASSESSING OFFICER IS QUITE CORRE CT REGARDING NON CONTRACTUAL NATURE OF SUCH PAYMENT AS IT WAS BASICA LLY DUTY OF THE SUB- CONTRACTORS TO COLLECT THE SAME FROM RESPECTIVE EMP LOYEES AND MAKE THE PAYMENT EITHER DIRECTLY OR THROUGH THE APPELLANT BU T NEVER THE LESS THE SAME CANNOT BE CLAIMED EXPENDITURE OF THE APPELLANT COMPANY. 8. THE APPELLANTS RELIANCE ON THE DECISION OF HON' BLE BOMBAY HIGH COURTS ORDER IN THE CASE OF CIT VS. SALES MAGNESIT E PVT. LTD. 214 ITR 1, FOR ALLOWABILITY OF THE SAME ON THE GROUNDS OF COMM ERCIAL EXPEDIENCY IS ALSO MISPLACED AS THE APPELLANT HAS NOT BEEN ABLE T O PROVE THAT THE PAYMENT WAS MADE OUT OF COMMERCIAL EXPEDIENCY. THE REFORE, I DO NOT FIND ANY MERIT IN THE SUBMISSIONS OF THE APPELLANT AND D ISALLOWANCE OF ` 9,73,953/- BEING EMPLOYEES CONTRIBUTION OF CONTRACT ORS IS UPHELD. 9. DURING THE COURSE OF APPELLATE PROCEEDINGS, IT W AS NOTICED THAT WHILE THE ASSESSING OFFICER DISALLOWED EMPLOYEES CO NTRIBUTION PERTAINING TO SUB-CONTRACTORS AMOUNTING TO ` 9,73,953/-, NO SUCH DISALLOWANCE WAS MADE ON ACCOUNT OF EMPLOYEERS CONTRIBUTION PERTAINI NG TO CONTRACTORS AMOUNTING TO ` 11,04,624/- EVEN THOUGH BOTH THE AMOUNTS STOOD ON THE SAME FOOTING. ACCORDINGLY, DURING THE COURSE OF HE ARING ON 04.07.2014, SHRI NIKHIL PATHAK, ADVOCATE AND LEARNED COUNSEL OF THE APPELLANT WAS INFORMED THAT NOTICE U/S. 251(2) OF INCOME-TAX ACT IS REQUIRED TO BE ISSUED IN THIS CASE. THE CASE WAS ADJOURNED TO 22.07.2014 . SIMULTANEOUSLY, NOTICE U/S.251(2) OF INCOME-TAX ACT WAS ISSUED ON 0 4.07.2014 ITSELF WHICH READS AS UNDER: 11. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE AS WELL AS REPLY OF THE APPELLANT. IN THIS CASE, IT IS SEEN THAT THE R EPLY OF THE APPELLANT IS ON SIMILAR LINES AS IN THE CASE OF EMPLOYEES CONTRIBU TION. SINCE, BOTH THE AMOUNTS I.E. EMPLOYEES CONTRIBUTION AND EMPLOYERS CONTRIBUTION STAND ON THE SAME FOOTING, THE ASSESSING OFFICER IS DIRECTED TO FURTHER DISALLOW AMOUNT OF ` 11,04,624/- BEING EMPLOYERS CONTRIBUTION, WHICH IS NEITHER A CONTRACTUAL LIABILITY OF THE APPELLANT NOR COMMERCI AL EXPENDITURE OF THE APPELLANT AS HELD IN THE CASE OF EMPLOYEES CONTRIB UTION IN THE ABOVE PARAS. THUS, GROUND NO.2 ALONG WITH ITS SUB-GROUND S ARE DISMISSED SUBJECT TO ENHANCEMENT OF ` 11,04,124/- ON ACCOUNT OF EMPLOYERS CONTRIBUTION OF THE CONTRACTORS. 6 ITA NO.1698/PUN/2014 AY.NO.2009-10 5. AGGRIEVED B THE ORDER OF LD CIT(A), ASSESSEE IS NOW BEFORE US. 6. BEFORE US, LD.AUTHORISED REPRESENTATIVE REITERATED THE SUBMISSIONS MADE BEFORE ASSESSING OFFICER AND CIT(A) AND FURT HER SUBMITTED THAT DURING THE YEAR ASSESSEE HAD CARRIED OU T CONSTRUCTION OF BUILDINGS ETC FOR VARIOUS COMPANIES BY ENGAGING LABOURERS O F SUBCONTRACTORS WHO ARE PETTY CONTRACTORS. AS PER THE CONTRACT ENTERED INTO BY THE ASSESSEE WITH THE CLIENT COMPANIES, THE ASSES SEE HAD UNDERTAKEN TO ENSURE THAT THE PROVISIONS OF LABOUR LAWS INCLUDING THE PROVIDENT FUND(PF) ACT WOULD BE COMPLIED WITH BY THE ASSE SSEE IN RESPECT OF THE LABOURS EMPLOYED BY THE ASSESSEE AND BY SUB CONTRACTORS. HE FURTHER SUBMITTED THAT MANY OF THE SUBCONTRACTORS WERE NOT REGISTERED UNDER THE PF ACT AND THAT IT WAS NOT POSSIB LE FOR THE ASSESSEE TO ENSURE THAT THE SUB CONTRACTORS WOULD DEPOSIT THE PF. HE THEREFORE SUBMITTED THAT TO FULFILL THE OBLIGATION CAST UPON IT, ASSESSE E HAD UNDERTAKEN THE OBLIGATION WHICH WAS AN EXTRA COST FOR CA RRYING ON ITS BUSINESS. HE POINTED TO THE SAMPLE AGREEMENT ENTERED INT O BY THE ASSESSEE WITH ONE OF THE CLIENTS (KANSAI NEROLAC PAINTS LTD ) WHICH IS PLACED AT PAGE 12-22 OF THE PAPER BOOK. IN SUPPORT O F HIS STAND THAT IT IS THE ASSESSEE AS THE PRINCIPAL EMPLOYER WHO IS LIABLE TO M AKE THE PAYMENT OF CONTRIBUTION OF PROVIDENT FUND, HE POINTED TO TH E SECTION 30 OF THE EMPLOYEES PROVIDENT FUNDS SCHEME, 1952 AND SECTIO N 8A OF THE EMPLOYERS PROVIDENT FUND (MISCELLANEOUS) PROVISION ACT, 1952 . HE FURTHER SUBMITTED THAT THE EXPENDITURE WAS INCURRED DUR ING THE COURSE OF BUSINESS OUT OF COMMERCIAL EXPEDIENCY AND THEREFORE EVE N ON THAT GROUND IT WAS ALLOWABLE. HE THEREFORE SUBMITTED THAT THE ENTIRE 7 ITA NO.1698/PUN/2014 AY.NO.2009-10 EXPENDITURE (INCLUDING THE ENHANCEMENT MADE BY LD.CIT(A) NE EDS TO BE SET ASIDE AND THE EXPENDITURE BE ALLOWED. THE LD DR ON T HE OTHER HAND VEHEMENTLY SUPPORTED THE ORDER OF AO AND CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE M ATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH REFERENCE TO DISALLOWAN CE OF PROVIDENT FUND CONTRIBUTION MADE ON BEHALF OF THE SUB CONT RACTORS AND THAT WHICH WAS CLAIMED AS EXPENDITURE. IT IS AN UNDISPUT ED FACT THAT ASSESSEE IS ENGAGED IN CONSTRUCTION BUSINESS AND THAT FO R COMPLETING THE WORK UNDERTAKEN BY IT, ASSESSEE EMPLOYS THE LABOURE RS SUPPLIED BY SUB CONTRACTORS. ASSESSEE HAS PLACED IN THE PAPER BOO K THE COPY OF THE CONDITIONS OF CONTRACT IT HAD ENTERED INTO WITH KANSAI NER OLAC PAINTS LTD FOR ITS PROPOSED PAINT MANUFACTURING FACILITY. AS PER THE CO NDITIONS OF CONTRACT, RESPONSIBILITY HAS BEEN CAST UPON THE CONTRACT OR (I.E. ASSESSEE) BY KANSAI NEROLAC PAINTS LTD TO COMPLY WITH THE REQUIREM ENTS OF EMPLOYEES PROVIDENT FUND ACT. THE RELEVANT CLAUSE OF THE AGREEMENT READS AS UNDER: 7.4 EMPLOYEES PROVIDENT FUND ACT, 1952 AND SCHEME: 7.4.1 CONTRACTOR AGREES TO COVER ALL THE EMPLOYEES ENGAG ED BY HIM OR THROUGH SUB CONTRACTORS UNDER THE EMPLOYEES PR OVIDENT FUND SCHEME AND SHALL SUBMIT NECESSARY RECORDS TO THE OWNER IN PROOF OF COMPLIANCE. 7.4.2 CONTRACTOR FURTHER AGREES TO DEFEND, INDEMNIFY AND HOLD THE OWNER HARMLESS FROM ANY LIABILITY OF PENALTY WHICH MAY BE IMPOSED BY THE CENTRAL, STATE OR LOCAL AUTHORITY BY REA SON OF ANY ASSERTED VIOLATION BY CONTRACTOR OR HIS SUBCONTRACT OR OF THE PROVISIONS OF THE EMPLOYEES PROVIDENT FUND ACT AND T HE SCHEME THEREUNDER. 8. THE PERUSAL OF THE AFORESAID CLAUSE SHOWS THAT IT WAS THE DUTY OF THE ASSESSEE TO COVER ALL THE EMPLOYEES (INCLUDING THAT OF SUB-CONTR ACTOR) 8 ITA NO.1698/PUN/2014 AY.NO.2009-10 UNDER THE PROVIDENT FUND ACT. WE FURTHER FIND THAT SECT ION 8A OF THE EMPLOYEES PROVIDENT FUND & MISCELLANEOUS PROVISIONS ACT 19 52, WHICH IS WITH REFERENCE TO RECOVERY OF MONEY BY EMPLOYERS AND CONTRACTORS READS AS UNDER: 8A. RECOVERY OF MONEYS BY EMPLOYERS AND CONTRACTORS. (1) THE AMOUNT OF CONTRIBUTION THAT IS TO SAY, THE EMP LOYERS CONTRIBUTION AS WELL AS THE EMPLOYEES CONTRIBUTION IN PURSUANCE OF ANY SCHEME AND THE EMPLOYERS CONTRIBUTION IN PURSUAN CE OF THE INSURANCE SCHEME AND ANY CHARGES FOR MEETING THE CO ST OF ADMINISTERING THE FUND PAID OR PAYABLE BY AN EMPLOYER IN RESPECT OF AN EMPLOYEE EMPLOYED BY OR THROUGH A CONTRACTOR MA Y BE RECOVERED BY SUCH EMPLOYER FROM THE CONTRACTOR, EITHER BY DEDUCTION FROM ANY AMOUNT PAYABLE TO THE CONTRACTOR UNDER ANY CONTRACT OR AS A DEBT PAYABLE BY THE CONTRACTOR. (2) A CONTRACTOR FROM WHOM THE AMOUNTS MENTIONED IN SUB-SECTION 1 MAY BE RECOVERED IN RESPECT OF ANY EMPLOYEE EMPLOYED BY OR THROUGH HIM, MAY RECOVER FROM SUCH EMPLOYEE THE EMPLO YEES CONTRIBUTION UNDER ANY SCHEME BY DEDUCTION FROM THE BASIC WAGES, DEARNESS ALLOWANCE AND RETAINING ALLOWANCE IF ANY PAYAB LE TO SUCH EMPLOYEE. (3) NOTWITHSTANDING ANY CONTRACT TO THE CONTRARY, NO C ONTRACTOR SHALL BE ENTITLED TO DEDUCT THE EMPLOYERS CONTRIBUTION OR TH E CHARGES REFERRED TO IN SUB-SECTION 1 FROM THE BASIC WAGES, D EARNESS ALLOWANCE, AND RETAINING ALLOWANCE IF ANY PAYABLE TO AN EM PLOYEE EMPLOYED BY OR THROUGH HIM OR OTHERWISE TO RECOVER SU CH CONTRIBUTION OR CHARGES FROM SUCH EMPLOYEE. EXPLANATION. IN THIS SECTION, THE EXPRESSIONS DEARNE SS ALLOWANCE AND RETAINING ALLOWANCE SHALL HAVE THE SAME MEANINGS AS IN SECTION 6. 9. SECTION 30 UNDER CHAPTER-V OF THE EMPLOYEES PROVIDENT FUNDS SCHEME 1952, READS UNDER: 30. PAYMENT OF CONTRIBUTIONS: (1) THE EMPLOYER SHALL, IN THE FIRST INSTANCE, PAY BOTH THE CONTRIBUTION PAYABLE BY HIMSELF (IN THIS SCHEME REFERR ED TO AS THE EMPLOYERS CONTRIBUTION) AND ALSO, ON BEHALF OF THE MEM BER EMPLOYED BY HIM DIRECTLY OR BY OR THROUGH A CONTRACTO R, THE CONTRIBUTION PAYABLE BY SUCH MEMBER (IN THIS SCHEME REFERRED TO AS THE MEMBERS CONTRIBUTION). 9 ITA NO.1698/PUN/2014 AY.NO.2009-10 (2) IN RESPECT OF EMPLOYEES EMPLOYED BY OR THROUGH A CONTRACTOR, THE CONTRACTOR SHALL RECOVER THE CONTRIBUTION PAYABLE BY SUCH EMPLOYEE (IN THIS SCHEME REFERRED TO AS THE MEMBERS CONTRIBU TION) AND SHALL PAY TO THE PRINCIPAL EMPLOYER THE AMOUNT OF MEMBERS C ONTRIBUTION SO DEDUCTED TOGETHER WITH AN EQUAL AMOUNT OF CONTRIBU TION (IN THIS SCHEME REFERRED TO AS THE EMPLOYERS CONTRIBUTION) A ND ALSO ADMINISTRATIVE CHARGES. (3) IT SHALL BE THE RESPONSIBILITY OF THE PRINCIPAL EMPLO YER TO PAY BOTH THE CONTRIBUTION PAYABLE BY HIMSELF IN RESPECT OF THE EMPLOYEES DIRECTLY EMPLOYED BY HIM AND ALSO IN RESPECT OF THE EM PLOYEES EMPLOYED BY OR THROUGH A CONTRACTOR AND ALSO ADMINIST RATIVE CHARGES. 10. THE PERUSAL OF THE AFORESAID SECTIONS OF THE EMPLOYEES PROVIDENT FUND & MISCELLANEOUS PROVISIONS ACT 1952 AND EMPLOYEES PR OVIDENT FUND SCHEME 1952 TOGETHER WITH THE CLAUSES OF THE AGRE EMENT THAT THE ASSESSEE HAD ENTERED INTO WITH HIS CLIENTS SHOWS THAT A SSESSEE IS RESPONSIBLE FOR THE DEDUCTION OF PROVIDENT FUND DUES OF THE EMPLOYEES INCLUDING THOSE EMPLOYED THROUGH SUBCONTRACTOR AND ITS D EPOSIT WITH THE APPROPRIATE AUTHORITIES. IN THE PRESENT CASE, THE R ENDERING OF SERVICES BY THE LABOURS OF SUB-CONTRACTORS FOR THE PURP OSE OF BUSINESS OF THE ASSESSEE HAS NOT BEEN DOUBTED BY REVENUE. FURTH ER, STATUTORILY THE ASSESSEE COULD HAVE RECOVERED THE PROVIDENT FUND DUES FROM THE SUB- CONTRACTORS BUT WHEN THE ASSESSEE IS NOT IN A POSITION TO RECOVER THE AMOUNTS PAID AS PROVIDENT FUND CONTRIBUTION FOR THE RESPE CTIVE CONTRACT LABOURERS, OR CONSIDERING THE BUSINESS EXIGENCIES WHEN TH E ASSESSEE BEARS THE EXPENSES ON ACCOUNT OF PROVIDENT FUND CONTR IBUTION, THEN WHETHER IN SUCH A SITUATION THE EXPENSES CAN BE DISALLOWE D? WE ARE OF THE VIEW THAT THE SAME CANNOT BE DISALLOWED AS AN EXPE NDITURE MORE SO WHEN THE RENDERING OF SERVICES BY THE SUBCONTRACTORS FO R THE BUSINESS OF THE ASSESSEE IS NOT IN DOUBT & IN SUCH A SITUATION THE E XPENDITURE CAN BE ALLOWED U/S 37(1) OF THE ACT. 10 ITA NO.1698/PUN/2014 AY.NO.2009-10 11. FOR AN AMOUNT TO BE TREATED AS AN ADMISSIBLE EXPEND ITURE UNDER SECTION 37(1) THE NECESSARY CONDITIONS THAT ARE REQUIRED TO BE SATISFIED ARE FIRST THE EXPENDITURE MUST BE REVENUE EXPENDITURE A ND NOT IN THE NATURE OF CAPITAL EXPENDITURE; SECOND, IT MUST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OR PROFESSION CARRIED ON BY THE ASSESSEE; THIRD, IT MUST NOT BE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36; FOURTH, EXPENDITURE SHOULD NOT BE P ERSONAL EXPENDITURE OF THE ASSESSEE; FIFTH, EXPENDITURE SHOULD HAVE BEEN INCURRED IN THE PREVIOUS YEAR; AND FINALLY, EXPENDITURE SHOU LD NOT HAVE BEEN INCURRED FOR THE PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW (EXPLANATION TO SECTION 37 (1 )). 12. SECTION 37(1) DOES NOT CURTAIL OR PREVENT AN ASSESSE E FROM INCURRING AN EXPENDITURE WHICH HE FEELS AND WANTS TO INCUR FOR THE PURPOSE OF BUSINESS. EXPENDITURE INCURRED MAY BE DIRECT OR MAY EVEN INDIRECTLY BENEFIT THE BUSINESS IN FORM OF INCREASED TURNOVE R, BETTER PROFIT, GROWTH ETC. VARIOUS COURTS HAVE HELD THAT WHEN AS LONG AS THE EXPENDITURE INCURRED IS 'WHOLLY AND EXCLUSIVELY' FOR THE P URPOSE OF BUSINESS, THE ASSESSING OFFICER CANNOT BY APPLYING OF HIS OW N MIND, DISALLOW WHOLE OR A PART OF THE EXPENDITURE. THE ASSESSING O FFICER CANNOT QUESTION THE REASONABLENESS BY PUTTING HIMSELF IN THE ARM- CHAIR OF THE BUSINESSMAN AND ASSUME STATUS OR CHARACTER OF THE ASS ESSEE AND THAT IT IS FOR THE ASSESSEE TO DECIDE WHETHER THE EXPENSES SHO ULD BE INCURRED IN THE COURSE OF HIS BUSINESS OR PROFESSION OR NOT. COURTS HAVE ALSO HELD THAT IF THE EXPENDITURE IS INCURRED FOR THE PURPOSES OF TH E BUSINESS, INCIDENTAL BENEFIT TO SOME OTHER PERSON WOULD NOT TAKE TH E EXPENDITURE 11 ITA NO.1698/PUN/2014 AY.NO.2009-10 OUTSIDE THE SCOPE OF SECTION 37(1) OF THE ACT. FURTHER, IT IS SETTLED LAW THAT THE COMMERCIAL EXPEDIENCY OF A BUSINESSMANS DECISION TO INCUR A PARTICULAR EXPENDITURE CANNOT BE TESTED ON THE TOUCHST ONE OF STRICT LEGAL LIABILITY TO INCUR SUCH EXPENDITURE. 13. CONSIDERING THE TOTALITY OF THE AFORESAID FACTS, WE ARE O F THE VIEW THAT IN THE PRESENT CASE, THE DISALLOWANCE OF EMPLOYEES CO NTRIBUTION OF PROVIDENT FUND (AS MADE BY AO) & THAT OF EMPLOYERS CONTR IBUTION OF PROVIDENT FUND (AS ENHANCED BY CIT (A)] WAS UNCALLED FOR A ND THEREFORE SET ASIDE. THUS THE GROUNDS OF ASSESSEE ARE ALLOWED. 14. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THE 31 ST DAY OF MAY, 2017. SD/- SD/- ( SUSHMA CHOWLA ) ( ANIL CHATURVEDI ) / JUDICIAL MEMBER # / ACCOUNTANT MEMBER PUNE; ! DATED : 31 ST DAY OF MAY, 2017. G G A A N N G G A A D D H H A A R R ' ( ) *+ ,+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3 . 4. 5 6. CIT(A)-5, PUNE CIT-5, PUNE. #$% &&'(, * '(, + / DR, ITAT, A PUNE; %,- . / GUARD FILE. ' / BY ORDER, // TRUE COPY //// TRUE COPY // // TRUE COPY // / 0123 / ASSISTANT REGISTRAR, * '( , / ITAT, PUNE.