The Kosamba Mercantile Co.Operative Bank Ltd., Surat V. The Income Tax Officer, Ward-1, Surat

ITA 2437/AHD/2015

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 2314 (ITAT-SURAT)
• Duration Of Justice: 2 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-05-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 14-08-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D D YADAV
• Keywords: Business expenditure; Deemed to accrue or arise in india
• Section: 37; 28; 43B; 37(1)

Judgement Text

KOSAMBA MERCANTILE CO-OPERATIVE BANK V. ITO WD-1 BARDOLI /I.T.A. NO. 2437/AHD/2015/A.Y.:12-13 PAGE 1 OF 10 , , IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT . . , . . , BEFORE SHRI C.M.GARG, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER . . ./ I.T.A NO.2437/AHD/2015 / A.Y.:2012-13 KOSAMBA MERCANTILE CO - OPERATIVE BANK LTD. SHRINIDHI ZHANDA CHOWK, TARSADI, KOSAMBA TAL- MANGROL SURAT PAN: AABAT 3742 N V S . INCOME TAX OFFICER, WARD- 1 BARDOLI APPELLANT /RESPONDENT /ASSESSEE BY SHRI DHARIYA VORA, CA FROM SHRI SAPNESH SHETH, CA /REVENUE BY SHRI D. D. YADAV, SR. D.R. / DATE OF HEARING: 22.05.2018 /PRONOUNCEMENT ON 23.05.2018 /O R D E R PER O. P. MEENA, ACCOUTANT MEMBER: 1. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-1, SURAT (IN SHORT THE CIT (A)) DATED 19.06.2015 PERTAINING TO ASSESSMENT YEAR 2012-13, WHICH IN TURN HAS ARISEN FROM THE ORDER PASSED BY THE INCOME TAX OFFICER, WARD- 1, BARDOLI (IN SHORT THE AO) DATED KOSAMBA MERCANTILE CO-OPERATIVE BANK V. ITO WD-1 BARDOLI /I.T.A. NO. 2437/AHD/2015/A.Y.:12-13 PAGE 2 OF 10 16.01.2015 UNDER SECTION 143 (3) OF INCOME TAX ACT,1961 (IN SHORT THE ACT). 2. GROUND NO. 1 TO 3 RELATES TO CONFIRMING THE ACTION OF THE AO IN DISALLOWING THE EMPLOYERS CONTRIBUTION OF RS. 4,38,604 TO PROVIDENT FUND CLAIMED AS DEDUCTION UNDER SECTION 37(1) AND DISALLOWING EMPLOYEES CONTRIBUTION OF RS. 4,38,604 TO PROVIDENT FUND INVESTED IN FIXED DEPOSITS WITH THE SURAT DISTRICT CO-OPERATIVE BANK LTD. SURAT. 3. SUCCINCT FACTS ARE THAT THE ASSESSEE IS CO-OPERATIVE BANK ENGAGED IN BANKING ACTIVITY. THE ASSESSEE HAS DEBITED AN AMOUNT OF RS. 4,38,604 IN ITS PROFIT & LOSS ACCOUNT TOWARDS PROVIDENT FUND BEING EMPLOYERS CONTRIBUTION TO PROVIDENT FUND IN THE FORM FIXED DEPOSITS. IT WAS CONTENDED THAT THE CONTRIBUTION IS MADE AS PER SALARY AGREEMENT WITH THE UNION OF EMPLOYEES IN ACCORDANCE WITH ONE OF THE TERMS OF EMPLOYMENT. THESE PAYMENTS WERE REQUIRED TO BE MADE AS BUSINESS EXPENSES, THEREFORE, SAME IS ALLOWABLE AS DEDUCTION UNDER SECTION 37(1) OF THE ACT. SIMILARLY, THE ASSESSEE HAS ALSO COLLECTED A SUM EQUAL TO EMPLOYER`S CONTRIBUTION OF RS. KOSAMBA MERCANTILE CO-OPERATIVE BANK V. ITO WD-1 BARDOLI /I.T.A. NO. 2437/AHD/2015/A.Y.:12-13 PAGE 3 OF 10 4,38,604 FROM ITS EMPLOYEES AS CONTRIBUTION TO PROVIDENT FUND. THE ABOVE BOTH SUMS WERE DEPOSITED WITH ANOTHER CO-OPERATIVE BANK IN FIXED DEPOSITS. THE AO TREATED THIS AMOUNT AS INCOME UNDER SECTION 2(24)(X) OF THE ACT AND HELD THAT NO DEDUCTION WAS ALLOWABLE BECAUSE THE AMOUNT WAS NOT DEPOSITED IN RECOGNIZED PROVIDENT FUND BEFORE DUE DATE AS PROVIDED UNDER SECTION 36(1)(VA) OF THE ACT. THE AO WAS OF THE VIEW THAT THE ASSESSEE HAS NEVER DEPOSITED THESE AMOUNTS TO PF DEPARTMENT. IT WAS EXPLAINED THAT THE ASSESSEE HAS ONLY 12 EMPLOYEES, WHICH ARE LESS THAN 20 EMPLOYEE, HENCE, PROVISIONS OF PROVIDENT FUND ACT,1952 ARE NOT APPLY. THE ASSESSEE HAS CONTRIBUTED TOWARDS RETIREMENT BENEFIT OF ITS EMPLOYEES AS PER THE RATE PRESCRIBED UNDER THE PROVIDENT FUND ACT,1952, AND SAME IS DEPOSITED IN THE FIXED DEPOSITS ACCOUNT WITH THE SURAT DISTRICT CO-OPERATIVE BANK LTD. THEREFORE, SUCH PAYMENT MADE TO UNRECOGNIZED PROVIDENT FUND IS NOT COVERED BY SECTION 30 TO 36 AND THEREFORE, ALLOWABLE AS DEDUCTION UNDER SECTION 37(1) OF THE ACT. THE AO OBSERVED THAT ALLOWABILITY OF KOSAMBA MERCANTILE CO-OPERATIVE BANK V. ITO WD-1 BARDOLI /I.T.A. NO. 2437/AHD/2015/A.Y.:12-13 PAGE 4 OF 10 EXPENSES UNDER SECTION 37(1) CANNOT BE CONSIDERED AS IT HAS NO DIRECT NEXUS WITH SAID SECTION, WHEREAS RELEVANT SECTION IS 43B OF THE ACT TO DECIDE THE ISSUE. SINCE THE ASSESSEE HAS NOT DEPOSITED THE SUM IN RECOGNIZED PROVIDENT FUND HENCE, DEDUCTION IS NOT ALLOWABLE UNDER SECTION 43B OF THE ACT. THOUGH, THE PROVISIONS OF PROVIDENT FUND ARE NOT APPLICABLE TO THE ASSESSEE BEING LESS THAN 20 EMPLOYEES BUT IT WAS NEVER RESTRICTED OR PROHIBITED BY ANY AUTHORITY OR LAW TO GET ACCOUNT WITH PF DEPARTMENT. HENCE, EMPLOYEES CONTRIBUTION TO UNRECOGNIZED PROVIDENT FUND IS NOT ALLOWABLE AS DEDUCTION UNDER SECTION 43B OF THE ACT. SIMILARLY, THE AMOUNT COLLECTED FROM EMPLOYEES IS NOT DEPOSITED IN PROVIDENT FUND HENCE, THE AO HELD THAT IT IS INCOME OF THE ASSESSEE AS PER PROVISIONS OF SECTION 2 (24) (X) OF THE ACT. 4. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT (A). THE CIT (A) REFERRED THE PROVISIONS OF SECTION 36(1)(IV) AND OBSERVED THAT ANY SUM PAID BY THE ASSESSEE AS AN EMPLOYER WOULD BE ALLOWABLE IF THE CONTRIBUTION IS MADE TO RECOGNIZED PROVIDENT KOSAMBA MERCANTILE CO-OPERATIVE BANK V. ITO WD-1 BARDOLI /I.T.A. NO. 2437/AHD/2015/A.Y.:12-13 PAGE 5 OF 10 FUND. THIS VIEW WAS SUPPORTED BY PLACING RELIANCE IN THE CASE OF CIT V. KATTABOMMAN TRANSPORT CORPORATION LTD. [2004] 268 ITR 507 WHEREIN IT WAS HELD THAT THE AMOUNT PAID AS CONTRIBUTION TO PROVIDENT FUND MAINTAINED BY THE ASSESSEE [ SIMILAR TO THAT OF THE ASSESSEE ] WHICH ADMITTEDLY HAD NOT BEEN RECOGNIZED BY THE COMMISSIONER AS RECOGNIZED FUND EITHER UNDER THE ACT OR UNDER EMPLOYER`S PROVIDENT FUND ACT (EPF ACT ) CANNOT BE ALLOWED AS DEDUCTION ON THE GROUND THAT THE ASSESSEE HAS SOUGHT EXEMPTION FROM THE PROVISIONS OF EPF ACT. THE CIT (A) FURTHER OBSERVED THAT CONJOINT READING OF SECTION 36(1)(IV) WITH SECTION 40A(9) MAKES IT CLEAR THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF ANY SUM PAID BY AN ASSESSEE AS AN EMPLOYER FOR SETTING UP AS CONTRIBUTION TO FUND AS PER PROVISION OF SECTION 36(1)(IV) OR SECTION 36(1)(VA) OF THE ACT. THE CIT (A) OBSERVED THAT SECTION 40A(9) HAS OVERRIDING EFFECT OF ANY PROVISIONS OF THE ACT HENCE, EMPLOYER`S CONTRIBUTION WHICH IS NOT APPROVED OR RECOGNIZED AS REQUIRED BY LAW, THE ASSESSEE WOULD NOT BE ELIGIBLE FOR DEDUCTION OF SUCH CONTRIBUTION. KOSAMBA MERCANTILE CO-OPERATIVE BANK V. ITO WD-1 BARDOLI /I.T.A. NO. 2437/AHD/2015/A.Y.:12-13 PAGE 6 OF 10 IT WAS THEREFORE, HELD THAT WHERE EMPLOYER`S CONTRIBUTION IS SPECIFICALLY COVERED BY THE PROVISION OF SECTION 36(1)(VA), THEN THE ASSESSEE CANNOT TAKE SHELTER OF GENERAL PROVISIONS OF SECTION 37 (1) OF THE ACT. 5. WITH REGARD TO DEDUCTION IN RESPECT OF EMPLOYEES CONTRIBUTION TO PROVIDENT FUND, IT WAS CONTENDED THAT THE CONTRIBUTION WAS RECEIVED BY THE ASSESSEE AS PER AGREEMENT AND DEPOSITED IN FIXED DEPOSITS WITH SURAT DISTRICT CO-OPERATIVE BANK LTD. AND PROVISIONS OF EMPLOYEES STATE INSURANCE ACT, 1948 ARE NOT APPLICABLE TO THE ASSESSEE HENCE, ADDITION UNDER SECTION 2(24)(X) CANNOT BE MADE. HOWEVER, THE CIT (A) WAS OF THE VIEW THAT CONTRIBUTION RECEIVED FROM EMPLOYEES TOWARDS PROVIDENT FUND AND SAME STANDS PAID WITHIN DUE DATE PRESCRIBED UNDER THE STATUTE THEN ONLY DEDUCTION CAN BE ALLOWED. THEREFORE, THE SUM RECEIVED FROM EMPLOYEES CONTRIBUTION WOULD BE TAXABLE AS DEEMED IN CM UNDER SECTION 2(24)(X) OF THE ACT. KOSAMBA MERCANTILE CO-OPERATIVE BANK V. ITO WD-1 BARDOLI /I.T.A. NO. 2437/AHD/2015/A.Y.:12-13 PAGE 7 OF 10 6. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BEFORE THE TRIBUNAL. THE LEARNED COUNSEL REITERATED THE SAME SUBMISSIONS AS MADE BEFORE THE LOWER AUTHORITIES. AU CONTRAIRE , THE LD. SR. DR SUPPORTED THE ORDER OF THE LOWER AUTHORITIES. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS UNDISPUTED FACTS THAT THE ASSESSEE HAS MADE CONTRIBUTION AS EMPLOYERS CONTRIBUTION OF RS.4,38,604 & SIMILAR CONTRIBUTION OF RS. 4,38,604 WAS RECEIVED FROM EMPLOYEES WAS DEPOSITED WITH THE SURAT DISTRICT CO- OPERATIVE BANK LTD.IN THE FORM OF FIXED DEPOSITS. SINCE THE CONTRIBUTION FOR EMPLOYEES AND EMPLOYER`S HAVE NOT BEEN DEPOSITED WITH RECOGNIZED PROVIDENT FUND ESTABLISHED UNDER THE RESPECTIVE ACT , IT IS NOT ALLOWABLE AS DEDUCTION IN VIEW OF THE SPECIFIC PROVISIONS OF SECTION 36(1)(VA) OF THE ACT WHICH READS AS UNDER: 36. (1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CLAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THEREIN, IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 KOSAMBA MERCANTILE CO-OPERATIVE BANK V. ITO WD-1 BARDOLI /I.T.A. NO. 2437/AHD/2015/A.Y.:12-13 PAGE 8 OF 10 - ------- ( IV ) 35 ANY SUM PAID 36 BY THE ASSESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTION TOWARDS A RECOGNISED PROVIDENT FUND OR AN APPROVED SUPERANNUATION FUND, SUBJECT TO SUCH LIMITS AS MAY BE PRESCRIBED FOR THE PURPOSE OF RECOGNISING THE PROVIDENT FUND OR APPROVING THE SUPER-ANNUATION FU ND, AS THE CASE MAY BE; AND SUBJECT TO SUCH 37 CONDITIONS AS THE BOARD MAY THINK FIT TO SPECIFY IN CASES WHERE THE CONTRIBUTIONS ARE NOT IN THE NATURE OF ANNUAL CONTRIBUTIONS OF FIXED AMOUNTS OR ANNUAL CONTRIBUTIONS FIXED ON SOME DEFINITE BASIS BY REFERENCE TO THE INCOME CHARGEABLE UNDER THE HEAD 'SALARIES' OR TO THE CONTRIBUTIONS OR TO THE NUMBER OF MEMBERS OF THE FUND; 8. THE PLAIN READING OF ABOVE PROVISIONS WOULD MAKE IT CLEAR THAT ANY CONTRIBUTION BY AN EMPLOYER IS ONLY ALLOWABLE AS DEDUCTION IF SUCH CONTRIBUTION IS MADE TO A RECOGNIZED PROVIDENT FUND WHICH IS IN THE NATURE OF SALARY. SINCE THE ASSESSEE HAS NOT DEPOSITED THE CONTRIBUTION TO RECOGNIZED PROVIDENT FUND, THEREFORE, THE SUM OF RS. 4,38,604 HAS BEEN RIGHTLY DISALLOWED BY THE AO AND CONFIRMED BY THE CIT (A). THIS VIEW, IS FURTHER SUPPORTED, BY DECISION IN THE CASE OF CIT V. KATTABOMMAN TRANSPORT CORPORATION LTD. [2004] 268 ITR 507 WHEREIN IT WAS HELD THAT THE AMOUNT PAID AS CONTRIBUTION TO PROVIDENT FUND MAINTAINED KOSAMBA MERCANTILE CO-OPERATIVE BANK V. ITO WD-1 BARDOLI /I.T.A. NO. 2437/AHD/2015/A.Y.:12-13 PAGE 9 OF 10 BY THE ASSESSEE [ SIMILAR TO THAT OF THE ASSESSEE ] WHICH ADMITTEDLY HAD NOT BEEN RECOGNIZED BY THE COMMISSIONER AS RECOGNIZED FUND EITHER UNDER THE ACT OR UNDER EMPLOYER`S PROVIDENT FUND ACT (EPF ACT) CANNOT BE ALLOWED AS DEDUCTION ON THE GROUND THAT THE ASSESSEE HAS SOUGHT EXEMPTION FROM THE PROVISIONS OF EPF ACT. 9. WITH REGARD TO EMPLOYEES CONTRIBUTION OF RS. 4,38,604 , IT IS SEEN THAT SAME IS NOT DEPOSITED IN RECOGNIZED PROVIDENT FUND WITHIN THE PERIOD PRESCRIBED UNDER THE PROVIDENT FUND ACT,1952 AS THE SAME IS DEPOSITED AS FIXED DEPOSITS WITH ANOTHER CO- OPERATIVE BANK. SUCH CONTRIBUTION BY THE EMPLOYEES IS THEREFORE, IS DEEMED INCOME WITHIN THE MEANING OF SECTION 2 (24) (X) OF THE ACT. THE PROVISION OF SECTION 36(1)(VA) ARE VERY CLEAR WHICH PROVIDES THAT DEDUCTION AGAINST DEEMED INCOME BROUGHT TO TAX UNDER SECTION 2(24)(X) OF THE ACT IS ONLY ALLOWABLE WHEN SUCH SUM IS CREDITED IN THE ACCOUNT OF RESPECTIVE EMPLOYEES BEFORE DUE DATE AS SPECIFIED IN RESPECTIVE ACTS IS NOT APPLICABLE RECOGNIZED PROVIDENT FUND. IN THE LIGHT OF ABOVE FACTS AND CIRCUMSTANCES, WE KOSAMBA MERCANTILE CO-OPERATIVE BANK V. ITO WD-1 BARDOLI /I.T.A. NO. 2437/AHD/2015/A.Y.:12-13 PAGE 10 OF 10 ARE OF THE CONSIDERED OPINION THAT LOWER AUTHORITIES ARE JUSTIFIED IN MAKING DISALLOWANCE / ADDITION OF ACCOUNT OF CONTRIBUTION RECEIVED FROM EMPLOYEES AND CONTRIBUTION MADE BY THE EMPLOYER TO THE ASSESSEE. ACCORDINGLY BOTH THE GROUNDS OF APPEAL ARE THEREFORE, DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED. 11. THE ORDER PRONOUNCED IN THE OPEN COURT ON 23.05.2018 SD/- SD/- ( . . ) /(C.M. GARG) ( . . ) /(O.P.MEENA) /JUDICIAL MEMBER / ACCOUNTANT MEMBER / SURAT: / DATED : 23 MAY, 2018/OPM COPY SENT TO- ASSESSEE/AO/PR. CIT/ CIT (A)/ ITAT (DR)/GUARD FILE OF ITAT. BY ORDER / / TRUE COPY / / ASSISTANT REGISTRAR, SURAT