Mylan Laboratories Limited, Telangana V. DCIT, Bangalore

ITA 214/BANG/2015

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1489 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 21-09-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 26-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHANDANA RAMACHANDRAN CITIIIDR
• Keywords: Transfer pricing; International transaction
• Section: 43B; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER IT(TP)A NO.214/BANG/2015 ASSESSMENT YEAR : 2010-11 M/S. AGILA SPECIALTIES PVT. LTD. NOW MERGED WITH MYLAN LABORATORIES LTD., OPP. TO IIMB, BILEKAHALLI, BANNERGHATTA ROAD, BANGALORE 560 076. PAN: AADCM 3491M VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(1)(1), BANGALORE. APPELLANT RESPONDENT IT(TP)A NO.179/BANG/2015 ASSESSMENT YEAR : 2010-11 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(1)(1), BANGALORE. VS. M/S. AGILA SPECIALTIES PVT. LTD. (FORMERLY STRIDES SPECIALTIES PVT LTD.) 154, STRIDES HOUSE, BANNERGHATTA ROAD, BILEKAHALLI, BANGALORE 560 076. PAN : AAACQ 1091Q APPELLANT RESPONDENT REVENUE BY : SMT. CHANDANA RAMACHANDRAN, CIT-III(DR) ASSESSEE BY : SHRI AJIT KUMAR JAIN, CA DATE OF HEARING : 21.09.2015 DATE OF PRONOUNCEMENT : 09.10.2015 IT(TP)A NO.179 & 214/BANG/2015 PAGE 2 OF 14 O R D E R PER ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER THESE ARE CROSS APPEALS BY THE DEPARTMENT AND THE ASSESSEE FOR THE ASSESSMENT YEAR 2010-11. IT(TP)A 214/B/2015 (ASSESSEES APPEAL) 2. THE ASSESSEE, AGILA SPECIALTIES PRIVATE LIMITED, WAS INCORPORATED ON MARCH 3, 2004 AND IS A SUBSIDIARY OF STRIDES ARC OLAB LIMITED (SAL). THE COMPANY WAS FORMERLY KNOWN AS STRIDES SPECIALTI ES PRIVATE LIMITED AND CHANGED ITS NAME TO AGILA SPECIALTIES PRIVATE L IMITED WITH EFFECT FROM JULY 2, 2010. THE ASSESSEE COMPANY IS ENGAGED IN T HE BUSINESS OF MANUFACTURE AND MARKETING OF PHARMACEUTICAL PRODUCT S, BESIDES PRODUCT DEVELOPMENT AND HAS A WELL-DIVERSIFIED PORTFOLIO OF PRODUCTS ACROSS PRODUCT GROUP. THIS, INTER-ALIA, INCLUDES PENICILLINS, HIGH POTENCY DRUGS AND GENERAL INJECTABLES. THE STERILE INJECTABLES / PARENTAL PRO DUCTS ARE TYPICALLY ADMINISTERED THROUGH INTRAVENOUS AND INTRAMUSCULAR ROUTES. 3. DURING THE FINANCIAL YEAR 2009-10, THE MANUFACTU RING ACTIVITY WAS CARRIED OUT THROUGH THE FOUR FACILITIES WHICH ARE C EPHALOSPORINS DIVISION, STERILE PRODUCTS DIVISION I, BETA LACTUM DIVISION A ND STERILE PRODUCT DIVISION II (I.E., SPECIALTY FORMULATION FACILITY). THE ASSESSEE EARNED REVENUE FROM THE 3 SEGMENTS AS FOLLOWS:- IT(TP)A NO.179 & 214/BANG/2015 PAGE 3 OF 14 PARTICULARS AMOUNT (RS.) MANUFACTURE & SALE OF FORMULATIONS 654,449,709 R & D 30,761,952 TRADING 720,946 TOTAL 685,932,607 4. FOR THE AY 2010-11 THE ASSESSEE FILED ITS RETURN OF INCOME ON 14.10.2010 DECLARING A LOSS OF RS. 376,181,078, CLA IMING A REFUND OF RS 1,025,499. DURING THE COURSE OF ASSESSMENT PROCEED INGS, THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WERE REFE RRED BY THE ASSESSING OFFICER TO THE TRANSFER PRICING OFFICER [TPO] FOR D ETERMINATION OF ARMS LENGTH PRICE [ALP] UNDER SECTION 92CA OF THE INCOME -TAX ACT, 1961 [THE ACT]. SIMULTANEOUSLY, THE ASSESSMENT PROCEEDINGS W ERE INITIATED UNDER SECTION 143(2) OF THE ACT. THE AO ISSUED A DRAFT ASSESSMENT ORDER DATED 28.02.2014 U/S. 143(3) R.W.S. 144C(1) OF THE ACT, W HEREIN THE TOTAL INCOME OF THE ASSESSEE WAS PROPOSED TO BE COMPUTED AT A LO SS OF RS 256,046,157 UNDER NORMAL PROVISIONS OF THE ACT, AFTER MAKING FO LLOWING ADDITIONS /DISALLOWANCES TO THE RETURNED INCOME: IT(TP)A NO.179 & 214/BANG/2015 PAGE 4 OF 14 5. AGGRIEVED THE ASSESSEE PREFERRED APPEAL BEFORE T HE DRP. THE DRP PARTIALLY UPHELD THE ASSESSMENT OF RS.66,771,307 MA DE BY THE AO TO THE INCOME OF THE ASSESSEE. THE DRP UPHELD THE TPOS A CTION OF REJECTING SEGMENTAL DATA/ALLOCATION KEYS PERTAINING TO TRANSA CTIONS RELATED TO AE/ NON-AE TREATING IT AS UNRELIABLE, THEREBY REJECTING THE INTERNAL TNMM APPLIED BY THE ASSESSEE. IN APPEAL BEFORE US, IT WAS SUBMITTED THAT THE DRP DID NOT NOTICE THAT THE REJECTION OF THE INTERN AL TNMM WAS DONE BY THE TPO MERELY ON THE GROUND THAT THERE WAS A HUGE VARI ATION IN THE OPERATING MARGIN FOR AE AND NON-AE SEGMENT, WITHOUT PROVIDING OPPORTUNITY TO THE ASSESSEE TO SUBMIT ITS CASE. 6. THE LD. COUNSEL FOR THE ASSESSEE TOOK US THROUGH THE TP REPORT FOR THE FY 2010-11 AND AT PAGE 37 OF THE PAPERBOOK POIN TED OUT TO US THAT THE SALE OF FORMULATIONS BEING ONE OF THE SEGMENTS, THE ASSESSEE HAS ADOPTED INTERNAL TNMM AND THE ARMS LENGTH ANALYSIS IS AT 8 .80% IN THE CASE OF AE AND 8.51% IN THE CASE OF NON-AE. IT WAS SUBMITTED THAT ASSESSEE IS ENGAGED IN THE MANUFACTURING AND SUPPLY OF GENERIC PRODUCTS IN THE NATURE OF STERILE INJECTABLE FOR AES AS WELL AS NON-AES. T HE PRIMARY PHARMACEUTICAL SEGMENT OF THE ASSESSEE IS THE MANUF ACTURING SEGMENT WHEREIN THE FUNCTIONS INVOLVED IN THE MANUFACTURING FOR BOTH AES AS WELL AS FOR NON-AES ARE THE SAME. THE TOTAL INCOME EARNED B Y THE ASSESSEE FROM THE SALE OF FORMULATIONS TO THE AES AND NON-AES IS RS 654,419,099. THE BREAK-UP OF NET REVENUE FROM AE AND NON-AE IS AS FO LLOWS:- IT(TP)A NO.179 & 214/BANG/2015 PAGE 5 OF 14 PARTICULARS AES NON-AES TOTAL VALUE OF TRANSACTION 341,551,315 312,867,784* 654,419,099 RATIO (IN PERCENT) 52.91 47.81 100 OPERATING MARGIN PERCENTAGE 5.40 4.86 * NET OF EXPORT COMMISSION OF RS.30,610. 7. THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE T HIRD MEMBER DECISION IN THE CASE OF M/S. TECHNIMONT ICB PVT. LTD. V. ADDL. CIT IN ITA NO.4608/MUM/2010 . 8. THE LD. COUNSEL FOR THE ASSESSEE ALSO BROUGHT TO OUR NOTICE THAT IN THE SUBSEQUENT YEAR I.E., AY 2011-12 THE TPO HAS AC CEPTED INTERNAL COMPARABILITY. 9. WE HAVE HEARD BOTH THE PARTIES. GROUND NO.3 OF THE CONCISE GROUNDS OF APPEAL READS AS FOLLOWS. THE OTHER GROU NDS ARE NOT BEING CONSIDERED BY US AS THE SAME WERE NOT PRESSED. 3. THE HONORABLE DRP HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE TPOS/AOS ACT OF REJECTING THE SEGMENTAL DATA/ALLOCATION KEYS PERTAINING TO THE TRANSACTIONS RELATED TO AE AND NON-AE TREATING IT AS UNRELIABLE, THEREBY REJEC TING INTERNAL TNMM APPLIED BY APPELLANT. THIS WAS DONE BY THE TP O MERELY ON THE GROUND THAT THERE WAS A HUGE VARIATION IN TH E OPERATING MARGIN FOR AE AND NON-AE SEGMENT WITHOUT PROVIDING OPPORTUNITY TO THE APPELLANT OF BEING HEARD TO SUBM IT ITS CASE. 10. THE TPO HAD APPLIED EXTERNAL TNMM ON ENTITY LEV EL AND ON THIS ISSUE, THE THIRD MEMBER DECISION OF THE MUMBAI BENC H OF THE TRIBUNAL IN THE CASE OF M/S. TECHNIMONT ICB PVT. LTD. V. ADDL. CIT IN ITA IT(TP)A NO.179 & 214/BANG/2015 PAGE 6 OF 14 NO.4608/MUM/2010 FOR AY 2005-06, ORDER DATED 17.7.2 012 IS RELEVANT . IN PARA 10 OF THE SAID ORDER, THE TRIBUNAL HELD AS UND ER:- 10. CLAUSE (I) OF RULE 1OB(E) STIPULATES THAT NE T PROFIT MARGIN FROM AN INTERNATIONAL TRANSACTION WITH AN AE IS COM PUTED IN RELATION TO COST INCURRED OR SALES EFFECTED OR ASSE TS EMPLOYED ETC. CLAUSE (II) IS MATERIAL FOR THE PRESENT PURPOSE. IT PROVIDES THAT THE NET PROFIT MARGIN REALIZED BY THE ENTERPRISE OR BY AN UNRELATED ENTERPRISE FROM A COMPARABLE UNCONTROLLED TRANSACTI ON OR A NUMBER OF SUCH TRANSACTIONS IS COMPUTED HAVING REGA RD TO THE SAME BASE. THE BASE OF THIS PROVISION TAKES ONE B ACK TO CLAUSE (I) WHICH REFERS TO COST INCURRED OR SALES EFFECTED OR ASSETS EMPLOYED OR TO BE EMPLOYED. ON SPLITTING CLAUSE ( II) INTO TWO PARTS, IT DIVULGES THAT THE REFERENCE IS MADE TO IN TERNAL AND EXTERNAL COMPARABLES. ONE PART OF CLAUSE (II) REFE RS TO THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE FR OM A COMPARABLE UNCONTROLLED TRANSACTION AND THE OTHER PART TALKS OF THE NET PROFIT MARGIN REALISED BY AN UNCON TROLLED ENTERPRISE FROM A COMPARABLE UNCONTROLLED TRANSACTI ON. IT TRANSPIRES THAT WHEREAS THE FIRST PART REFERS TO TH E PROFIT MARGIN FROM INTERNAL COMPARABLE UNCONTROLLED TRANSACTIONS, THE SECOND PART REFERS TO PROFIT MARGIN FROM AN EXTERNAL COMPA RABLE UNCONTROLLED TRANSACTION. THUS IT IS DISCERNIBLE TH AT WHAT IS TO BE COMPARED UNDER THIS METHOD IS PROFIT FROM A COMPARA BLE UNCONTROLLED TRANSACTION. THE WORD COMPARABLE MAY ENCOMPASS INTERNAL COMPARABLE OR EXTERNAL COMPARABLE. THERE I S CUE IN THE RULE ITSELF AS TO PREFERENCE TO BE GIVEN TO INTERNA L COMPARABLE UNCONTROLLED TRANSACTIONS VIS--VIS EXTERNALLY COMP ARABLE UNCONTROLLED TRANSACTIONS. IT IS BECAUSE THE DELEGA TED LEGISLATURE HAS FIRSTLY REFERRED TO THE NET PROFIT MARGIN REALI ZED BY THE ENTERPRISE (INTERNAL) FROM A COMPARABLE UNCONTROLLE D TRANSACTION AND, THEREAFTER, IT POINTS TOWARDS NET PROFIT MARGI N REALIZED BY AN UNRELATED ENTERPRISE (EXTERNAL) FROM A COMPARABLE U NCONTROLLED TRANSACTION. THUS WHERE POTENTIAL COMPARABLE IS AVA ILABLE IN THE SHAPE OF AN UNCONTROLLED TRANSACTION OF THE SAME AS SESSEE, IT IS LIKELY TO HAVE HIGHER DEGREE OF COMPARABILITY VIS- -VIS COMPARABLES IDENTIFIED AMONGST THE UNCONTROLLED TRA NSACTIONS OF THIRD PARTIES. THE UNDERLYING OBJECT BEHIND COMPUTI NG ALP OF AN INTERNATIONAL TRANSACTION IS TO FIND OUT THE PROFIT S WHICH SUCH ENTERPRISE WOULD HAVE EARNED IF THE TRANSACTION HAD BEEN WITH SOME THIRD PARTY INSTEAD OF RELATED PARTY. WHEN THE DATA IS IT(TP)A NO.179 & 214/BANG/2015 PAGE 7 OF 14 AVAILABLE SHOWING PROFIT MARGIN OF THAT ENTERPRISE ITSELF FROM A THIRD PARTY, IT IS ALWAYS SAFE AND ADVISABLE TO HAV E RECOURSE TO SUCH INTERNAL COMPARABLE CASE. THE REASON IS PATENT THAT THE VARIOUS FACTORS HAVING BEARING ON THE QUALITY OF OU TPUT. ASSETS EMPLOYED, INPUT COST ETC. CONTINUE TO REMAIN BY AND LARGE SAME IN CASE OF AN INTERNAL COMPARABLE. THE EFFECT OF DIFFE RENCE DUE TO SUCH INHERENT FACTORS ON COMPARISON MADE WITH THE T HIRD PARTIES, GETS NEUTRALIZED WHEN COMPARISON IS MADE WITH INTER NAL COMPARABLE. EX CONSEQUENTI, IT FOLLOWS THAT AN INTERNAL COMPARABLE UNCONTROLLED TRANSACTION IS MORE NOTEWOR THY VIS--VIS ITS COUNTERPART I.E. EXTERNAL COMPARABLE. 11. IT HAS ALSO BEEN BROUGHT TO OUR NOTICE THAT IN THE SUBSEQUENT YEAR I.E. AY 2011-12, THE TPO HAS ACCEPTED THE INTERNAL COMPARABILITY. 12. THE LD. DR RELIED ON THE ORDER OF DRP. 13. WE ARE IN CONFORMITY AND ARE INCLINED TO FOLLO W THE DECISION OF THE THIRD MEMBER, ITAT MUMBAI BENCH IN THE CASE OF M/S. TECNIMONT ICB PRIVATE LTD. (SUPRA) WHEREIN IT IS HELD THAT .. THE UNDERLYING OBJECT BEHIND COMPUTING ALP OF AN INTERNATIONAL TRANSACTIO N IS TO FIND OUT THE PROFITS WHICH SUCH ENTERPRISE WOULD HAVE EARNED IF THE TRANSACTION HAD BEEN WITH SOME THIRD PARTY INSTEAD OF RELATED P ARTY. WHEN THE DATA IS AVAILABLE SHOWING PROFIT MARGIN OF THAT ENT ERPRISE ITSELF FROM A THIRD PARTY, IT IS ALWAYS SAFE AND ADVISABLE TO HAV E RECOURSE TO SUCH INTERNAL COMPARABLE CASE. . 14. HENCE WE ARE OF THE OPINION THAT THE TPO HAD ER RED IN CHOOSING AN EXTERNAL COMPARABLE, WHEN THERE WAS AN INTERNAL COM PARABLE UNCONTROLLED IT(TP)A NO.179 & 214/BANG/2015 PAGE 8 OF 14 TRANSACTION WHICH THE ASSESSEE HAD TAKEN IN ITS TP STUDY. THE ASSESSEES APPEAL IS ALLOWED. 15. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED . IT(TP)A NO.179/BANG/2015 (REVENUES APPEAL) 16. THE DEPARTMENT HAS RAISED THE FOLLOWING GROUND S:- 1. THE ORDER OF THE DISPUTE RESOLUTION PANEL IS OP POSED TO LAW AND THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE DRP ERRED IN DIRECTING THE AO TO COMPUTE MEA N OF WORKING CAPITAL ADJUSTMENT IN RESPECT OF COMPARABLE S RETAINED AS PER THE ACTUAL FIGURES WORKED OUT BY THE ASSESSEE W ITHOUT PUTTING ANY RESTRICTIONS WITHOUT APPRECIATING THE FACT THAT THE TPO HAD PUT A CAP ON THE BASIS OF THE AVERAGE COST OF WORKI NG CAPITAL OF THE COMPARABLES SELECTED BY THE TPO AND THAT THE AC CURATE DETAILS OF DEBTORS AND CREDITORS OF THE ASSESSEE AND THE CO MPARABLES WERE NOT AVAILABLE. 3. THE DRP ERRED IN DELETING THE DISALLOWANCE OF RS . 1,50,64,297/- U/S 40(A)(I) RELATING TO THE PAYMENTS OF BIO STUDY EXPENSES FOLLOWING THE DECISION OF THE JURISDICTIO NAL HIGH COURT IN THE CASE OF DE BEER INDIA MINERALS PVT LTD (2012 ) 346 ITR 467 AND THE DECISION OF THE AAR IN THE CASE OF M/S. ANA PHARMA WITHOUT APPRECIATING THE FACT THAT THE PAYMENT MADE FOR THESE SERVICES ARE OF THE NATURE OF FEE FOR TECHNICAL SE RVICES AS ENVISAGED IN SEC 9(1)(VII) OF THE ACT AND THE AAR R ULING RELIED UPON BY THE DRP IS BINDING ONLY IN THAT CASE AND NO T ON OTHERS. 4. THE DRP ERRED IN NOT APPRECIATING THE FACT THAT THE JURISDICTIONAL HIGH COURTS DECISION IN THE CASE OF DE BEER INDIA MINERALS PVT LTD (2012) 346 ITR 467 HAS NOT BEEN AC CEPTED BY THE DEPARTMENT AND AN APPEAL HAS BEEN FILED BEFORE THE HONBLE SUPREME COURT. 5. THE DRP ERRED IN ALLOWING THE CLAIM OF THE ASSES SEE U/S 36(1)(VA) AMOUNTING TO RS.7621/- WITHOUT APPRECIATI NG THE FACT THAT THE ASSESSEE HAS NOT REMITTED THE EMPLOYEES CO NTRIBUTION IT(TP)A NO.179 & 214/BANG/2015 PAGE 9 OF 14 TOWARDS THE PROVIDENT FUND & ESI WITHIN THE DUE DAT E AND AS SUCH THESE SUMS ARE AN INCOME IN THE HANDS OF THE ASSESS EE IN TERMS OF SECTION 2(24)(X) R.W.S. 36(1)(VA). 6. THE DRP FAILED TO APPRECIATE THE FACT THAT THE E MPLOYEES CONTRIBUTION TO PF/ESI IS TO BE ALLOWED U/S 36(1)(V A), IF SUCH CONTRIBUTIONS ARE REMITTED WITHIN THE DUE DATES PRE SCRIBED UNDER THE RELEVANT ACTS AND THE DUE DATE REFERRED IN SECT ION 43B(B) ARE NOT APPLICABLE TO THE EMPLOYEES CONTRIBUTION. 7. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URG ED AT THE TIME OF HEARING, IT IS HUMBLY PRAYED THAT THE ORDER OF THE DRP BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RESTO RED. 8. THE APPELLATE CRAVES LEAVE TO ADD, TO ALTER, TO AMEND OR DELETE ANY OF THE GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL. 17. GROUND NOS. 1, 7 & 8 ARE GENERAL IN NATURE. 18. THE SECOND GROUND BECOMES INFRUCTUOUS, AS WE HA VE ALREADY DECIDED THE SAME ISSUE IN GROUND NO.3 OF THE ASSESS EES APPEAL IN IT(TP)A NO.214/BANG/2015. 19. GROUND NOS. 3 & 4 MERELY STATE THAT THE DRP ERR ED IN DELETING THE DISALLOWANCE OF RS.1,50,64,297 U/S. 40(A)(I) RELATI NG TO THE PAYMENTS OF BIO-STUDY EXPENSES FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF DE BEER INDIA MINERALS PVT. LTD. (2012) 346 ITR 467 , WHICH DECISION HAS NOT BEEN ACCEPTED BY THE DEPAR TMENT AND AN APPEAL HAS BEEN FILED BEFORE THE HONBLE SUPREME CO URT. WE ARE BOUND TO FOLLOW THE DECISION OF THE HONBLE JURISDICTIONAL H IGH COURT WHICH IS OPERATIVE AS OF NOW AND THEREFORE RESPECTFULLY FOLL OWING THE AFORESAID IT(TP)A NO.179 & 214/BANG/2015 PAGE 10 OF 14 DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT, WE DISMISS THE GROUNDS NO.3 & 4 RAISED BY THE DEPARTMENT. 20. WITH RESPECT TO GROUND NOS.5 & 6 REGARDING THE EMPLOYEES CONTRIBUTION TO PF/ESI U/S. 36(1)(VA), THE ASSESSEE SUBMITTED BEFORE DRP AS UNDER:- 3.2 IT IS SUBMITTED THAT FOR THE FY 2009-10, THERE WERE CERTAIN INSTANCES OF DELAY IN REMITTING THE EMPLOYEES CONTR IBUTION TO ESI ACCOUNT AMOUNTING TO RS 7,621 WITHIN THE DUE DATE P RESCRIBED UNDER THE RELEVANT ACT BUT DEPOSITED THE SAME WITHI N THE DUE DATE OF FILING OF RETURN OF INCOME UNDER SECTION 139(1) OF THE ACT (I.E. WITHIN SEPTEMBER 30, 2010). THE DETAILS OF DELAY AN D DATE OF REMITTANCE OF ESI PAYMENT IS AS UNDER: MONTH AMOUNT DUE DATE OF REMITTANCE ACTUAL DATE OF REMITTANCE APRIL 2009 1,290 MAY 21, 2009 MAY 23, 2009 MAY 2009 1,285 JUNE 21, 2009 DECEMBER 23, 2009 JULY 2009 1,468 AUGUST 21, 2009 AUGUST 22, 2009 AUGUST 2009 1,717 SEPTEMBER 21, 2009 SEPTEMBER 24, 2009 SEPTEMBER 2009 1,861 OCTOBER 21, 2009 OCTOBER 22, 2009 ACCORDINGLY, THE AO DISALLOWED THE SAID AMOUNT OF R S 7,621 UNDER SECTION 36(1)(VA) OF THE ACT READ WITH SECTIO N 2(24)(X) OF THE ACT. IT IS SUBMITTED THAT ON PLAIN READING OF THE SECTIO N 36(1)(VA) OF THE ACT, ONE MAY CONCLUDE THAT ANY SUM RECEIVED BY THE ASSESSEE FROM HIS EMPLOYEES SHALL BE DEDUCTIBLE IN THE HANDS OF THE ASSESSEE ONLY WHEN SUCH SUM IS CREDITED BY THE ASSE SSEE TO THE EMPLOYEES ACCOUNT IN THE RELEVANT FUND OR FUNDS ON OR BEFORE THE DUE DATE. FOR THE SAID PURPOSE, THE DUE DATE MEANS A DATE BY WHICH THE ASSESSEE, AS AN EMPLOYER, IS REQUIRED TO, CREDIT AN EMPLOYEES CONTRIBUTION TO THE EMPLOYEES ACCOUNT I N THE RELEVANT FUND. THE PROVISIONS OF SECTION 43B OF THE ACT STIPULATE THAT CERTAIN EXPENSES ARE DEDUCTIBLE GIVEN ONLY ON ACTUAL PAYMEN T. CLAUSE (B) THEREOF TALKS ABOUT CONTRIBUTION BY THE ASSESSEE AS EMPLOYER TO IT(TP)A NO.179 & 214/BANG/2015 PAGE 11 OF 14 ANY PROVIDENT FUND OR SUPERANNUATION FUND OR GRATUI TY FUND OR ANY OTHER FUND FOR THE WELFARE OF THE EMPLOYEES. IT IS FURTHER STATED THAT ON COMBINED READING OF PROVISIONS OF SE CTION 36(1)(VA) OF THE ACT AND SECTION 43B OF THE ACT, IT CAN BE CONCLUDED THAT: - THERE SHOULD BE A CONTRIBUTION TO THE FUND; - THE CONTRIBUTION SHOULD BE IN THE CAPACITY OF THE EMPLOYER - AND SUCH CONTRIBUTION SHOULD BE ON OR BEFORE THE DUE DATE UNDER THE ACT IN THE INSTANT CASE, THE COMPANY, IN RESPECT OF EMP LOYEES CONTRIBUTION TO ESI, HAS PAID SUCH SUM AFTER THE DU E DATE PRESCRIBED UNDER THE ESI ACT HOWEVER, BEFORE THE DU E DATE FOR FILING OF THE RETURN OF INCOME AS PROVIDED UNDER SE CTION 139(1) OF THE ACT. EVEN IN CASES WHERE THE CONTRIBUTION HAS B EEN MADE AFTER THE DUE DATE PRESCRIBED UNDER SECTION 36(1)(VA) OF THE ACT, SUCH SUM IS STILL ENTITLED FOR DEDUCTION, IF THE SAME HA S BEEN CONTRIBUTED TO THE FUND ON OR BEFORE DUE DATE FOR F ILING OF THE RETURN OF INCOME AS PROVIDED UNDER SECTION 139(1) O F THE ACT. TO SUPPORT THE OBJECTION, THE ASSESSEE RELIED ON TH E FOLLOWING JUDICIAL PRONOUNCEMENTS THE SUPREME COURT IN THE CASE OF CIT VS ALOM EXT RUSIONS LTD (2010) (319 ITR 306) HAS HELD THAT PAYMENT OF E MPLOYEES CONTRIBUTION TO THE RESPECTIVE ACCOUNT BY THE EMPLO YER WOULD BE ALLOWED AS DEDUCTION ON ACTUAL PAYMENT. THE JURISDICTIONAL HIGH COURT OF KARNATAKA IN TH E CASE OF CIT AND ORS VS SABARI ENTERPRISES & ORS (298 ITR 141), WHEREIN THE ASSESSEE HAD MADE CONTRIBUTIONS TOWARD PF AND E SI AFTER THE CLOSE OF THE ACCOUNTING YEAR BUT BEFORE THE DUE DATE FOR FILLING OF THE RETURN UNDER S.139(1) OF THE INCOME- TAX ACT, 1961, HELD THAT THE PAYMENTS MADE COULD NOT BE DISA LLOWED EVEN IF MADE BEYOND THE PERIOD PRESCRIBED UNDER SEC TION 36(1)(VA) OF THE ACT. IN THE CASE OF STRIDES ARCOLAB LIMITED (2013) (I TA NO. 2111 OF 2012) (THE HOLDING COMPANY OF THE ASSESSEE) THE HONOURABLE MUMBAI HIGH COURT, RELYING ON THE DECISI ON OF IT(TP)A NO.179 & 214/BANG/2015 PAGE 12 OF 14 CIT VS. ALOM EXTRUSIONS LTD [20091 319 ITR 306 (SC) HAS RULED IN FAVOR OF THE ASSESSEE. FURTHER, IN THE FOLLOWING DECISION, THE COURTS H AVE HELD THAT IF THE EMPLOYEES CONTRIBUTION IS DEPOSITED BY THE EMP LOYER TO PFI ESI ACCOUNT WITHIN THE DUE DATE OF FILING RETUR N OF INCOME THEN DEDUCTION IS ALLOWABLE. - CIT VS. GUJARAT STATE ROAD TRANSPORT CORPORATION (2014) (366 ITR 170) (RAJA HC) - CIT .VS. STATE BANK OF BEAKER & JAPER (2014) (36 3 ITR 70) (RAJA HC) - CIT VS. JAPER IDIOT VETERAN ENIGMA LTD. (2014) ( 363 ITR 70) (RAJA HC) - CIT VS. RAJASTHAN RAJA IDIOT UTAHAN ENIGMA LTD. (2014) (363 ITR 307) - CIT VS. ANIMAL LTD. & ORS. (2010) 229 CTR 418 (D EL HC) - CIT VS. VINE CEMENT LTD. (2009) 313 ITR (ST) 1 - CIT VS. KASHA SUGAR CO. LTD (2013) (356 ITR 351) (UTTARAKHAND HC) - CIT VS SPECTRUM CONSULTANTS INDIA (P.) LTD VS CI T (2014) (266 CTR 241) (KAR HC) - CIT VS NIPSO POLYFABRIKS LTD (213 TAXMAN 376) (H IMACHAL PRADESH HC) - CIT VS ANZ INFORMATION TECHNOLOGY (P.) LTD (2010 ) (318 ITR 123) (KAR HC) - CIT VS. UDAIPUR DUGDH UTPADAK SAHAKARI SANGH LTD . (2013) 35 TAXMANN.COM 616 (RAJ.)(HC) - IMERYS CERAMICS (INDIA) (P.) LTD. V. ACIT (2012) (54 SOT 84) (HYD. TRIBUNAL) RELYING ON THE ABOVE DECISIONS, IT IS SUBMITTED THA T THE PROVISION OF SECTION 43B ENCOMPASSES IN ITS AMBIT, EMPLOYEES CONTRIBUTION TOO. THEREFORE, CONSIDERING THE VARIOUS JUDICIAL PR ECEDENTS AND IT(TP)A NO.179 & 214/BANG/2015 PAGE 13 OF 14 GOING BY THE INTENTION OF THE LEGISLATURE, WE RESPE CTFULLY SUBMIT THAT DELAYED PAYMENT OF EMPLOYEES CONTRIBUTION TO ESI FUND SHOULD BE ALLOWED AS DEDUCTION UNDER SECTION 36(1)( VA) OF THE ACT READ WITH SECTION 43B OF THE ACT IF THE SAID PA YMENTS ARE MADE ON OR BEFORE THE DUE DATE FOR FILING THE RETUR N OF INCOME. 21. THE DRP CONSIDERING THE JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE ASSESSEE DIRECTED THE AO TO DELETE THE ADDITION IN RESPECT OF THIS ISSUE. 22. WE ARE IN CONFORMITY WITH THE ORDER OF THE LD. CIT(APPEALS) AS THE ISSUE IS WELL SETTLED BY THE DECISION OF THE HONBL E JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. ANZ INFORMATION TECHNOLOGY PVT. LTD., 318 IT R 123 (KARN) . THEREFORE, THE RELEVANT GROUNDS OF APPEAL ARE A LLOWED. 23. GROUND NOS. 7 & 8 ARE GENERAL IN NATURE REQUIRI NG NO ADJUDICATION. 24. THUS, THE REVENUES APPEAL IS DISMISSED. 25. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS AL LOWED AND THE REVENUES APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 9 TH DAY OF OCTOBER, 2015. SD/- SD/- ( JASON P. BOAZ ) (ASHA VIJAYARAGHAVAN ) ACCOUNTANT MEMBER JUDICIAL M EMBER BANGALORE, DATED, THE 9 TH OCTOBER, 2015. /D S/ IT(TP)A NO.179 & 214/BANG/2015 PAGE 14 OF 14 COPY TO: 1. REVENUE 2. ASSESSEE 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.