Appeal details
Counselvise Citation
[2011] 140 COUNSELVISE.COM (IT) 48102 (ITAT-KOLKATA)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 2 month(s) 11 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
05-05-2011
Appeal Filed By
Department
Bench Allotted
C
Assessment Year
2005-2006
Appeal Filed On
23-02-2009
Judgement Text
, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOL KATA () , , , !' ) [BEFORE HONBLE SRI MAHAVIR SINGH, JM & HONBLE SHR I AKBER BASHA, AM] # # # # / I.T.A NO. 249/KOL/2009 $% &' $% &' $% &' $% &'/ // / ASSESSMENT YEAR : 2005-06 ASSISTANT COMMISSIONER OF INCOME-TAX, VS. SUBHASH PROJECTS & MARKETING LTD. CENTRAL CIRCLE-XXVIII, KOLKATA. (PAN-AADCS 2469 K) ()* /APPELLANT ) (+,)*/ RESPONDENT ) & # # # # / I.T.A NO. 116/KOL/2009 $% &' $% &' $% &' $% &'/ // / ASSESSMENT YEAR : 2005-06 SUBHASH PROJECTS & MARKETING LTD. VS. ASSISTANT CO MMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-XXVIII, KOLKATA. ()* /APPELLANT ) (+,)*/ RESPONDENT ) FOR THE DEPARTMENT: SHRI P. KOLHE FOR THE ASSESSEE: SHRI S. K. TULSIYAN ! / ORDER PER MAHAVIR SINGH, JM ( , , , , ) THESE CROSS-APPEALS, BY REVENUE AND ASSESSEE, ARE A RISING OUT OF THE ORDER OF CIT(A), CENTRAL-I, KOLKATA IN APPEAL NO.304/CC-XXVIII/CIT(A )C-I/06-07 VIDE DATED 05.11.2008. ASSESSMENT WAS FRAMED BY ACIT, CC-XXVIII, KOLKATA U /S. 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HI S ORDER DATED 29.12.2006. FIRST WE TAKE UP ITA NO.249/KOL/2009 (REVENUES APPEAL). 2. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) DELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF SUNDRY BALANCES/BAD DEBTS WRITTEN OFF. FOR THIS, THE REVENUE HAS RAISED THE FOLLOWING GROU ND NO.1: 1. WHETHER ON THE FACTS AND THE CIRCUMSTANCES OF T HE CASE THE LD. CIT(A) HAS ERRED IN DIRECTING TO DELETE THE ADDITION MADE ON ACCOUNT OF SUNDRY BALANCES/BAD DEBTS WRITTEN OFF IN SPITE OF FAILURE ON PART OF THE ASSESSEE TO ESTA BLISH THE SAME. 3. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT AO DURING ASSESSMENT PROCEEDINGS NOTED THAT ASSESSEE IS ABLE TO PROVE BAD DEBT IN RESPECT OF AMOUNT RECEIVABLE FROM L&T LTD. AMOUNTIN G TO RS.1,37,805/- BUT FOR THE REMAINING AMOUNT OF RS.6,93,880/-, IT HAS FAILED TO FURNISH T HE DETAILS AS TO HOW THE AMOUNT IS TREATED AS 2 ITA 249&116/K/2009 SUBHASH PROJECTS & MARKETING LTD. A.Y.05-06 BAD DEBT. ASSESSING OFFICER DISALLOWED THE DEDUCTI ON OF BAD DEBTS TO THE EXTENT OF RS.6,93,880/-. AGGRIEVED, ASSESSEE PREFERRED APPEA L BEFORE CIT(A) AND HE AFTER CONSIDERING THE CLAIM OF THE ASSESSEE ALLOWED THE SAME BY GIVIN G FOLLOWING FINDING VIDE PARA 4.3 OF HIS APPELLATE ORDER: 4.3 THE SUBMISSIONS ARE CAREFULLY CONSIDERED. IN M Y OPINION IF THE APPELLANT CLAIMED THESE AMOUNTS AS BAD DEBT WRITTEN OFF IN ITS BOOKS OF ACCOUNT, THE ACTION OF THE ASSESSING OFFICER IS JUSTIFIED. HE HAS CORRECTLY AP PLIED THE PRINCIPLE THAT BAD DEBT CAN BE ALLOWED IN THE CASE OF THOSE AMOUNTS WHICH WERE INCLUDED IN THE INCOME OF THE APPELLANT FOR THE PURPOSE OF TAX IN ANY EARLIER PER IOD. HE HAS ALSO ALLOWED THE AMOUNT OF BAD DEBT WHICH WAS TAXED EARLIER. HE WANTED SIMI LAR VERIFICATION FOR THE REMAINING AMOUNT, WHICH COULD NOT BE DONE IN THE ABSENCE OF D ETAILS FROM THE APPELLANT. IN MY OPINION WHILE THE REMAINING AMOUNT CANNOT BE TREATE D AS BAD DEBT WRITTEN OFT IT CAN BE TREATED AS BUSINESS LOSS ALLOWABLE U/S 37 OF THE AC T. THE APPELLANT IS A COMPANY THE ACCOUNTS OF WHICH ARE SUBJECT TO STATUTORY AUDIT UN DER INCOME TAX ACT AS WELL AS THE COMPANIES ACT. THEREFORE, THERE IS NO REASON TO DOU BT THAT THE APPELLANT HAD SUNDRY BALANCES RECOVERABLE FROM VARIOUS PARTIES. THE APPE LLANT AS A PRUDENT BUSINESS CAN TAKE A DECISION THAT FOR THE PURPOSE OF FAIR ACCOUN TING THESE AMOUNTS MUST BE WRITTEN OFF AS IRRECOVERABLE. THE AMOUNTS ARE NOT DEBTS BUT ADVANCES. DEBTS COULD BE TREATED AS ACCRUED INCOME AT AN EARLIER POINT OF TIME SO TH AT THE PROVISIONS OF ALLOWANCE OF BAD DEBT CAN BE PROPERLY APPLIED TO BAD DEBT. ADVANCE I S PAID BY AN ASSESSEE CANNOT BE TREATED AS INCOME UNDER ANY SYSTEM OF ACCOUNTING. T HEREFORE, THEY CANNOT BE TREATED UNRECOVERED DEBT. HOWEVER, IF THE ADVANCES ARE NOT RECOVERED, THERE IS A LOSS WHICH IS INCURRED IN THE COURSE OF CARRYING ON BUSINESS. THI S IS OBVIOUSLY ALLOWABLE U/S 37 OF THE ACT. RESPECTFULLY FOLLOWING THE AUTHORITIES CITED B EFORE ME THE CLAIM OF THE APPELLANT FOR ALLOWANCE OF SUNDRY BALANCES WRITTEN OFF IS ALLOWED . SUCH WRITE OFF DOES NOT CANCEL THE RIGHT OF THE APPELLANT FOR RECOVERY OF THESE AMOUNT S. THERE ARE ADEQUATE PROVISIONS UNDER THE LAW FOR SUBJECTING SUCH LATE RECOVERIES T O TAX. ACCORDINGLY SECOND GROUND OF APPEAL IS ALLOWED. 4. WE FIND FROM THE ARGUMENTS OF THE LD. SR. DR THA T CIT(A) HAS OPINED THAT THE AMOUNT OF RS.6,93,880/- CANNOT BE TREATED AS BAD DEBT AS T HE SAME WAS NOT INCLUDED IN THE INCOME OF THE ASSESSEE FOR THE PURPOSE OF TAXATION IN ANY OF THE EARLIER YEARS. BUT, ACCORDING TO LD. SR. DR, CIT(A) HAS TREATED THIS BAD DEBT AS BUSINESS LO SS ALLOWABLE U/S. 37 OF THE ACT BUT FOR THAT HE HAS NOT ALLOWED ANY OPPORTUNITY TO THE ASSESSING OFFICER AND THERE WAS NO OCCASION FOR THE ASSESSING OFFICER TO CONSIDER THE CLAIM OF BUSINESS LOSS AS THIS ISSUE WAS NEVER RAISED BEFORE HIM BY ASSESSEE. WE FIND FROM THE FACTS THAT ASSE SSEE HAS SUNDRY BALANCES RECOVERABLE FROM VARIOUS PARTIES, AS THE ASSESSEE IS IN THE BUSINESS OF EXECUTION OF INFRASTRUCTURE PROJECT ON TURNKEY BASIS AND EXECUTE WORK OF GOVT. DEPARTMENTS AND AGENCIES, THE ASSESSEE HAS TO MAKE PAYMENT TO SUB-CONTRACTORS AND SUPPLIERS AS CLAIMED BEFORE THE ASSESSING OFFICER AS WELL AS CIT(A). THE DETAILS FILED BEFORE CIT(A) CLEARLY REV EALED THAT THE ASSESSEE HAS PAID ADVANCES OF RS.2,82,760/- TO J. K. UDYOG LTD. FOR CARRYING OUT WORK OF PROVIDING WATER SUPPLY PIPE LINE FOR U. P. JAL NIGAM, GAZIABAD. SIMILARLY, FOR EXECUTIO N OF CONTRACT OF ROAD AT NOIDA, DELHI FROM IRCON LTD., A SUM OF RS.2,26,874/- COULD NOT BE REC OVERED. SIMILARLY, ASSESSEE ALSO GAVE A SUM OF RS.1,38,624/- TO DIFFERENT PARTIES BUT THE S AME COULD NOT BE RECOVERED TILL DATE. THIS IS A FACT THAT THE ASSESSEE HAS WRITTEN OFF THESE AMOUNT S IN ITS BOOKS OF ACCOUNT AND ON QUERY FROM 3 ITA 249&116/K/2009 SUBHASH PROJECTS & MARKETING LTD. A.Y.05-06 THE BENCH, LD. COUNSEL FOR THE ASSESSEE FAIRLY STA TED THAT THIS HAS NOT BEEN RECOVERED TILL DATE I.E. AT THE TIME OF HEARING OF THIS APPEAL. AS FAR AS THE ARGUMENT OF LD. SR. DR THAT THE ASSESSING OFFICER HAS NO OCCASION TO CONSIDER THE B USINESS LOSS AS ALLOWED BY CIT(A), WE ARE OF THE VIEW THAT THIS MAY BE CONSIDERED AS BUSINESS LOSS OR BAD DEBT, IT MAKES NO DIFFERENCE, ONCE THE AMOUNTS ADVANCED OUT OF CAPITAL ARE SUBJEC T MATTER OF TAXATION AT ANY POINT OF TIME IN EARLIER YEAR AND MOREOVER IT IS NOT THE CASE OF REV ENUE THAT THESE AMOUNTS ADVANCED IN RELEVANT ASSESSMENT YEARS ARE UNACCOUNTED. THE AMOUNTS ARE A DVANCES, WHICH ACCRUED AS AN INCOME AT AN EARLIER POINT OF TIME SO THAT THE PROVISIONS OF ALLOWANCE OF BAD DEBT CAN BE APPLIED TO BAD DEBT. ADVANCE PAID BY AN ASSESSEE CANNOT NECESSARIL Y BE TREATED AS INCOME IN THE YEAR UNDER CONSIDERATION. WE, IN VIEW OF THESE FACTS, ARE OF THE VIEW THAT THESE ARE BAD DEBTS, THE SAME ARE ALLOWABLE AS ASSESSEE HAS WRITTEN OFF IN ITS BOOKS OF ACCOUNT. THE FACTS OF THE CASE IS FULLY COVERED BY THE DECISION OF HONBLE APEX COURT IN TH E CASE OF TRF LTD. VS. CIT (2010) 323 ITR 397 (SC), WHEREIN IT IS HELD THAT THE DISALLOWA NCE OF BAD DEBTS ON THE GROUND THAT THE ASSESSEE HAS NOT PRODUCED SUFFICIENT EVIDENCE TO SH OW THAT REASONABLE STEPS WERE TAKEN TO RECOVER THE DEBT. HOWEVER, THERE IS NO DISPUTE THA T THE ABOVE AMOUNT WAS DULY WRITTEN OFF IN ASSESSEES BOOKS OF ACCOUNT. ON THE ABOVE FACTS, T HE DECISION OF HONBLE APEX COURT IN THE CASE OF T.R.F. LIMITED (SUPRA), WOULD BE SQUARELY APPLICABLE WHEREIN, THE IR LORDSHIPS HELD AS UNDER: AFTER THE AMENDMENT OF SECTION 36(1)(VII) OF THE IN COME-TAX ACT, 1961, WITH EFFECT FROM APRIL 1, 1989, IN ORDER TO OBTAIN A DEDUCTION IN RELATION TO BAD DEBTS, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRR ECOVERABLE : IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. WE FIND THAT ASSESSEE HAS ACTUALLY WRITTEN OFF IN I TS BOOKS OF ACCOUNT AND THIS FACT HAS ALSO BEEN ADMITTED BY ASSESSING OFFICER. EVEN IT IS A FACT TH AT THE AMOUNTS WRITTEN OFF AS BAD DEBTS ARE ADVANCES GIVEN IN EARLIER YEARS BY ASSESSEE TO THE ABOVE NOTED PARTIES AND THESE ARE GIVEN OUT OF THE CAPITAL OF THE ASSESSEE, WHICH WAS SUBJECT MATT ER OF INCOME AT ONE POINT OF TIME. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE HO NBLE APEX COURT, WE CONFIRM THE ORDER OF THE COMMISSIONER OF INCOME TAX (A) ON THIS POINT, B UT ON DIFFERENT REASONING AND DISMISS THIS GROUND OF THE REVENUES APPEAL. 5. THE NEXT ISSUE IN THIS APPEAL OF THE REVENUE IS AGAINST THE ORDER OF CIT(A) DELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF CLUB ENTRANCE FEE HELD AS CAPITAL EXPENDITURE. FOR THIS, THE REVENUE HAS RAISED THE F OLLOWING GROUND NO.2. 2. WHETHER ON THE FACTS AND THE CIRCUMSTANCES OF T HE CASE THE LD. CIT(A) HAS ERRED IN DELETING THE CLUB ENTRANCE FEE WHICH WAS HELD AS CA PITAL EXPENDITURE. 4 ITA 249&116/K/2009 SUBHASH PROJECTS & MARKETING LTD. A.Y.05-06 6. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND FROM THE ORDERS OF THE LOWER AUTHORITIES TH AT THE ASSESSING OFFICER DISALLOWED EXPENDITURE TOWARDS ENTRANCE FEE PAID TO CLUB AT RS .37,095/-. BEFORE ASSESSING OFFICER AS WELL AS CIT(A) ASSESSEE CLAIMED THAT THESE EXPENSES AS F OR BUSINESS NEEDS BUT THE ASSESSING OFFICER DISALLOWED ON THE REASONING THAT THE EXPENDITURE IN CURRED ON CLUB ENTRANCE FEE WAS CAPITAL IN NATURE. THE ASSESSEE BEFORE US ALSO CLAIMED THAT B Y OBTAINING MEMBERSHIP NO ASSET OF ENDURING NATURE HAS BEEN OBTAINED AND MOREOVER WHEN THE EXPE NDITURE WAS ATTRIBUTABLE TO BUSINESS NEEDS THE SAME WAS REVENUE IN NATURE. WE FIND THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF HONBLE DELH I HIGH COURT IN THE CASE OF CIT VS. NESTLE INDIA LTD. (2008) 296 ITR 0682 (DEL.), WHEREIN THE HONBLE COURT HAS HELD AS UNDER: IT IS TRUE THAT IN SO FAR AS THE PRESENT CASE IS CO NCERNED, THERE IS NO SPECIFIC FINDING THAT THE PAYMENT WAS MADE BY THE ASSESSEE FOR IMPROVING ITS BUSINESS BUT SINCE THE ASSESSING OFFICER HAS ALLOWED A DEDUCTION OF 50 PER CENT. OF RS. 2 LAKHS (THAT IS RS. 1 LAKH) UNDER SECTION 37(2) OF THE ACT, 1961, WE ARE OF THE OPIN ION, HE DID SO ON THE BASIS THAT THE EXPENDITURE INCURRED WAS FOR BUSINESS PURPOSES, OT HERWISE THE ENTIRE AMOUNT WOULD HAVE BEEN DISALLOWED BY THE ASSESSING OFFICER. CONSEQUE NTLY, EVEN THOUGH THERE IS NO EXPLICIT FINDING TO THAT EFFECT, BUT THERE IS AN IMPLICIT AC KNOWLEDGMENT THAT THE EXPENSES INCURRED BY THE ASSESSEE WAS FOR THE BUSINESS PURPOSES. THEREFORE, WE ARE OF THE OPINION THAT THERE IS NO E RROR IN THE VIEW TAKEN BY THE TRIBUNAL IN CONCLUDING THAT THE EXPENSES INCURRED BY THE ASS ESSEE TOWARDS MEMBERSHIP FEE WAS FOR THE BUSINESS PURPOSES AND THAT THE ASSESSEE WAS ENTITLED TO A DEDUCTION AS CLAIMED. WE FIND THAT IN THE PRESENT CASE ALSO THE REVENUE C OULD NOT BRING ANYTHING ON RECORD THAT THESE ARE NOT BUSINESS EXPENSES AND THE AO HAS DISALLOWED THIS EXPENDITURE SUMMARILY WITHOUT ANY REASONS, WE RESPECTFULLY FOLLOWING THE ORDER OF HON BLE DELHI HIGH COURT IN THE CASE OF NESTLE INDIA LTD. (SUPRA) UPHOLD THE ORDER OF CIT(A) AND D ISMISS THIS GROUND OF APPEAL OF THE REVENUE. ITA NO.116/KOL/2009 (ASSESSEES APPEAL) 7. THE FIRST ISSUE IN THIS APPEAL OF THE ASSESSEE I S AGAINST THE ORDER OF CIT(A) IN DIRECTING THE ASSESSING OFFICER TO RE-CALCULATE THE DISALLOWA NCE U/S. 14A OF THE ACT, BY FOLLOWING RULE 8D OF THE I. T. RULES, 1962. FOR THIS, THE ASSESSE E HAS RAISED THE FOLLOWING GROUND NO.2(A) AND (2(B): 2(A). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN HOLDING THAT THE AMENDMENTS BROUGHT TO SECTION 14A OF THE I NCOME TAX ACT, 1961, BY THE FINANCE ACT, 2006 WITH EFFECT FROM 1.4.2007, ARE RETROSPECT IVE IN NATURE AND HENCE, WOULD APPLY TO THE PRESENT CASE ALTHOUGH THE SAME IS FOR ASSESS MENT YEAR 2005-06. 2(B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO RE-CALCULATE THE DISALLOWA NCE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961, BY FOLLOWING RULE 8D OF THE INCOME T AX RULES. 8. AFTER HEARING RIVAL CONTENTIONS AND GOING THROUG H FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE ASSESSING OFFICER MADE THE DISALLO WANCE OF RS.13,15,516/- ON THE GROUND THAT 5 ITA 249&116/K/2009 SUBHASH PROJECTS & MARKETING LTD. A.Y.05-06 SECTION 14A INTRODUCED WITH RETROSPECTIVE EFFECT IS ATTRACTED BY THE CLAIM OF INTEREST EXPENDITURE ON BORROWED FUND UTILISED FOR INVESTMENT IN SHARES. THE CIT(A) DIRECTED THE ASSESSING OFFICER TO RE-CALCULATE THE DISALLOWANCE U/S. 14A OF THE I. T. ACT, 1961 BY FOLLOWING RULE 8D OF THE I. T. RULES. THE ASSESSEES COUNSEL AT THE TIME OF HE ARING BEFORE US SUBMITTED THAT CIT(A) HAS ERRED IN HOLDING THAT THE AMENDMENTS BROUGHT TO SEC TION 14A OF THE ACT, BY THE FINANCE ACT, 2006 W.E.F. 1.4.2007, ARE RETROSPECTIVE IN NATURE A ND HENCE, WOULD APPLY TO THE PRESENT CASE ALTHOUGH THE SAME IS FOR ASSESSMENT YEAR 2005-06. WE FIND THAT HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCEE MFG. CO. LTD. VS. DCI T [2010] 328 ITR 81 (BOM.) AT PAGES 138 & 139 VIDE SUB PARAS (V) TO (VII) HELD THAT RULE 8D IS PROSPECTIVE AS UNDER: (V) THE PROVISIONS OF RULE 8D OF THE INCOME-TAX RU LES WHICH HAVE BEEN NOTIFIED WITH EFFECT FROM MARCH 24, 2008, SHALL APPLY WITH E FFECT FROM THE ASSESSMENT YEAR 2008-09; (VI) EVEN PRIOR TO THE ASSESSMENT YEAR 2008-09, WHE N RULE 8D WAS NOT APPLICABLE, THE ASSESSING OFFICER HAS TO ENFORCE TH E PROVISIONS OF SUB-SECTION (1) OF SECTION 14A. FOR THAT PURPOSE, THE ASSESSING OFF ICER IS DUTY BOUND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED I N RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE AC T. THE ASSESSING OFFICER MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTU NITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD; (VII) THE PROCEEDINGS FOR THE ASSESSMENT YEAR 2002 -03 SHALL STAND REMANDED BACK TO THE ASSESSING OFFICER. THE ASSESSING OFFICE R SHALL DETERMINE AS TO WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE ( DIRECT OR INDIRECT) IN RELATION TO DIVIDEND INCOME/INCOME FROM MUTUAL FUNDS WHICH D OES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER SECTION 14A. THE ASSESSING OFFICER CAN ADOPT REASONABLE BASIS FOR EFFECTING THE APPORTIONM ENT. WHILE MAKING THAT DETERMINATION, THE ASSESSING OFFICER SHALL PROVIDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT AND GERMANE MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CAS E IN VIEW OF FACTS OF THIS CASE AND THE PRINCIPLE LAI D DOWN BY HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCEE MFG. CO. LTD. (S UPRA), THAT RULE 8D IS APPLICABLE FOR AND FROM ASSESSMENT YEAR 2008-09 AND PRIOR TO THAT THE ASSESSING OFFICER CAN MAKE ESTIMATE IN THE GIVEN FACTS AND CIRCUMSTANCES. HEN CE, WE RESTRICT THE DISALLOWANCE TO 1% OF THE CLAIM OF INTEREST EXPENDITURE AND DIRECT THE ASSESSING OFFICER TO CALCULATE THE EXPENDITURE ON THAT BASIS. THIS GROUND OF ASSESSEE S APPEAL IS PARTLY ALLOWED. 9. THE NEXT ISSUE IN THIS APPEAL OF THE ASSESSEE IS AGAINST THE ORDER OF CIT(A) IN UPHOLDING DISALLOWANCE OF THE SUM OF RS.8,94,637/- U/S. 36(1) (VA) READ WITH SECTION 2(24)(X) OF THE ACT. FOR THIS, THE ASSESSEE HAS RAISED THE FOLLOWING GRO UND NO.3: 6 ITA 249&116/K/2009 SUBHASH PROJECTS & MARKETING LTD. A.Y.05-06 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED A.O. ERRED IN UPHOLDING THE DISALLOWANCE OF THE SUM OF RS.8,94,637/- UNDER SECTION 36(1)(VA) READ WITH SECTION 2(24)(X) OF THE INCOME TAX ACT, 1961. 10. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH F ACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT PF AND ESI PAYMENTS ON ACCOUNT OF EMPL OYEES CONTRIBUTION WERE PAID WITHIN THE DUE DATES OF FILING OF RETURN OF RELEVANT ASSESSMEN T YEAR AND FURTHER EVEN THE PAYMENTS MADE WITHIN THE GRACE PERIOD PROVIDED UNDER RESPECTIVE A CTS I.E. THE EMPLOYEE'S PROVIDENT FUND ACT' & 'THE EMPLOYEES STATE INSURANCE ACT'. WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE, AS THE PAYMENTS OF THESE CO NTRIBUTION ARE MADE WITHIN THE DUE DATE OF FILLING OF RETURN OF INCOME AS NOTED BY CIT(A) IN H IS APPELLATE ORDER, BY THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. P.M. ELECTRONICS LTD. (2008) 220 CTR 635 (DEL), WHEREIN THE ISSUE HAS BEEN DISCUSSED IN PARA-4 AS U NDER:- 4. ON 27 TH NOV., 1998 THE ASSESSEE HAD FILED A RETURN OF INCO ME DECLARING A LOSS OF RS.8,92,888. ON 11 TH MAY, 1999 THE RETURN WAS PROCESSED UNDER S. 143(1) (A) OF THE ACT. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY. ACCORDINGLY, A NOTICE DT. 27 TH SEPT., 1999 UNDER S. 143(2) OF THE ACT WAS ISSUED TO THE ASSESSEE. IN RESPONSE TO THE NOTICE AND ON EXAMINATION OF THE DETAILS SUBMITTED BY THE ASSESSEE WITH RESPECT TO PROVIDENT FUND PAYMENTS MADE BOTH ON ACCOUNT OF EMPLOYERS AND EMPLOYEES SHARE REVEALED THAT PAYME NTS IN THE SUM OF RS.17,94,042 WERE LATE AS PER THE PROVISIONS OF S. 36(1)(VA) R.W S. 2(24)( X) AND S. 43B. CONSEQUENTLY, THE AO DISALLOWED THE DEDUCTION AND ADDED A SUM OF RS.17,9 4,042 TOWARDS EPF CONTRIBUTION. AND SUBSEQUENTLY DECIDE THIS ISSUE IN PARA-10 TO 14 OF HON'BLE DELHI HIGH COURT, WHICH READ AS UNDER:- 10. IN VIEW OF THE ABOVE, IT IS QUITE EVIDENT THAT THE SPECIAL LEAVE PETITION WAS DISMISSED BY A SPEAKING ORDER AND WHILE DOING SO THE SUPREME COURT HAD NOTICED THE FACT THAT THE MATTER IN APPEAL BEFORE IT PERTAINS TO A PERIOD PRIOR TO THE AMENDMENT BROUGHT ABOUT IN S. 43B OF THE ACT. THE AFORESAID POSITION AS REGARDS THE STATE OF THE LAW FOR A PERIOD PRIOR TO THE AMENDMENT TO S. 43B HAS BEEN NOTICED BY A DIVISION BENCH OF THIS CO URT IN DHARMENDRA SHARMA (SUPRA). APPLYING THE RATIO OF THE DECISION OF THE SUPREME C OURT IN VINAY CEMENT (SUPRA) A DIVISION BENCH OF THIS COURT DISMISSED THE APPEALS OF THE RE VENUE. IN THE PASSING WE MAY ALSO NOTE THAT A DIVISION BENCH OF THE MADRAS HIGH COURT IN THE CA SE OF CIT VS. NEXUS COMPUTER (P) LTD. BY A JUDGMENT DT. 19 TH AUG., 2008, PASSED IN TAX CASE (APPEAL) NO.1192/20 08 [REPORTED AT (2008) 219 CTR (MAD.) 54 ED.] DISCUSSED THE IMPACT OF BO TH THE DISMISSAL OF THE SPECIAL LEAVE PETITION IN THE CASE OF GEORGE WILLIAMSON (ASSAM) LTD. (SUPRA) AND VINAY CEMENT (SUPRA) AS WELL AS A CONTRARY VIEW OF THE DIVISION BENCH OF IT S OWN COURT IN SYNERGY FINANCIAL EXCHANGE (SUPRA). THE DIVISION BENCH OF THE MADRAS HIGH COU RT HAS EXPLAINED THE EFFECT OF THE DISMISSAL OF A SPECIAL LEAVE PETITION BY A SPEAKING ORDER BY RELYING UPON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF KUNHAYAMMED & ORS.VS. STATE OF KERALA & ANR. (2000) 162 CTR (SC) 97: 119 STC 505 AT P. 526 IN PARA 40 AND NOTED THE FOLL OWING OBSERVATIONS : IF THE ORDER REFUSING LEAVE TO APPEAL IS A SPEAKIN G ORDER, I.E., GIVES REASONS FOR REFUSING THE GRANT OF LEAVE, THEN THE ORDER HAS TWO IMPLICATIONS. FIRSTLY, THE STATEMENT OF LAW CONTAINED IN THE ORDER IS A DECLARATION OF LAW BY THE SUPREME COURT WITHIN THE MEANING OF ART. 141 OF THE CONSTITUTION. SECONDLY, OTHER THAN THE DECLARATION OF LAW, WHATEVER IS STATED IN THE ORDER ARE THE FINDINGS RE CORDED BY THE SUPREME COURT WHICH WOULD BIND THE PARTIES THERETO AND ALSO THE COURT. TRIBUNAL OR AUTHORITY IN ANY PROCEEDINGS SUBSEQUENT THERETO BY WAY OF JUDICIAL D ISCIPLINE, THE SUPREME COURT BEING THE APEX COURT OF THE COUNTRY. BUT, THIS DOES NOT A MOUNT TO SAYING THAT THE ORDER OF THE COURT. TRIBUNAL OR AUTHORITY BELOW HAS STOOD MERGED IN THE ORDER OF THE SUPREME COURT 7 ITA 249&116/K/2009 SUBHASH PROJECTS & MARKETING LTD. A.Y.05-06 REJECTING SPECIAL LEAVE PETITION OR THAT THE ORDER OF THE SUPREME COURT IS THE ONLY ORDER BINDING AS RES JUDICATA IN SUBSEQUENT PROCEEDINGS B ETWEEN THE PARTIES. 11. UPON NOTING THE OBSERVATIONS OF THE SUPREME COU RT IN KUNHAYAMMED & ORS. (SUPRA) THE DIVISION BENCH OF THE MADRAS HIGH COURT IN THE CASE OF NEXUS COMPUTER (P) LTD. (SUPRA) CAME TO THE CONCLUSION THAT THE VIEW TAKEN BY THE SUPREM E COURT IN VINAY CEMENT (SUPRA) WOULD BIND THE HIGH COURT AS IT WAS LAW DECLARED BY THE S UPREME COURT UNDER ART. 141 OF THE CONSTITUTION. 12. WE ARE IN RESPECTFUL AGREEMENT WITH THE REASONI NG OF THE MADRAS HIGH COURT IN NEXUS COMPUTER (P) LTD. (SUPRA). JUDICIAL DISCIPLINE REQUIRES US TO FOLLOW THE VIEW OF THE SUPREME COURT IN VINAY CEMENT (SUPRA) AS ALSO THE VIEW OF THE DIVISION BENCH OF THIS COURT IN DHARMENDRA SHARMA (SUPRA). 13. IN THESE CIRCUMSTANCES, WE RESPECTFULLY DISAGRE E WITH THE APPROACH ADOPTED BY A DIVISION BENCH OF THE BOMBAY HIGH COURT IN PAMWI TISSUES LTD. (SUPRA). 14. IN THESE CIRCUMSTANCES INDICATED ABOVE, WE ARE OF THE OPINION THAT NO SUBSTANTIAL QUESTION OF LAW ARISES FOR OUR CONSIDERATION IN THE PRESENT APP EAL. THE APPEAL IS, THUS, DISMISSED. 11. WE FIND THAT THE HON'BLE DELHI HIGH COURT IN TH E CASE OF P.M. ELECTRONICS LTD. (SUPRA) HAS DECIDED THIS ISSUE OF PAYMENT OF EMPLOYEES CONT RIBUTION TOWARDS PROVIDENT FUND AFTER CONSIDERING THE DECISION OF HON'BLE APEX COURT IN T HE CASE OF CIT VS. VINAY CEMENT LTD. (2007) 213 CTR 268 (SC) AND ALSO DISTINGUISHED THE CASE LAW OF HONBLE BOMBAY HIGH COURT IN CIT VS. PAMWI TISSUES LTD. (2009) 313 ITR 137. WE FURTHER FIND THAT EVEN HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SABARI ENTERPRISES (2008) 298 ITR 141HAS CONSIDERED THIS SPECIFIC ISSUE OF EMPLOYEES CONTRI BUTION FALLING UNDER 36(1)(VA) R.W.S. 2(24)(X) OF THE ACT AND ALLOWED THE CLAIM OF THE ASSESSEE BY HOLDING AS UNDER: THIS CLAUSE IS INSERTED BY THE FINANCE ACT WITH EF FECT FROM APRIL 1, 1988. THE EXPLANATION TO THIS CLAUSE IS READ VERY CAREFULLY. DUE DATE HAS BEEN EXPLAINED STATING THAT : MEANS THE DATE BY WHICH THE ASSESSEE IS REQU IRED AS AN EMPLOYER TO CREDIT CONTRIBUTION TO THE EMPLOYEES ACCOUNT IN THE RELE VANT FUND UNDER ANY ACT, RULE OR ORDER OR NOTIFICATION ISSUED THEREUNDER OR UNDER ANY STAN DING ORDER, AWARD, CONTRACT OF SERVICE OR OTHERWISE. PRIOR TO THE ABOVE CLAUSE WAS INSERT ED TO SECTION 36 GIVING STATUTORY DEDUCTIONS OF PAYMENT OF TAX UNDER THE PROVISIONS O F THE ACT, SECTION 43B(B) WAS INSERTED BY THE FINANCE ACT, 1983, WHICH CAME INTO FORCE WIT H EFFECT FROM APRIL 1, 1984. THEREFORE, AGAIN THE PROVISION OF SECTION 43B(B) C LEARLY PROVIDES THAT NOTWITHSTANDING ANYTHING CONTAINED IN THE OTHER PROVISIONS OF THE A CT INCLUDING SECTION 36(1) CLAUSE (VA) OF THE ACT, EVEN PRIOR TO THE INSERTION OF THAT CL AUSE THE ASSESSEE IS ENTITLED TO GET STATUTORY BENEFIT OF DEDUCTION OF PAYMENT OF TAX F ROM THE REVENUE. IF THAT PROVISION IS READ ALONG WITH THE FIRST PROVISO OF THE SAID SECTI ON WHICH WAS INSERTED BY THE FINANCE ACT, 1987, WHICH CAME INTO EFFECT FROM APRIL 1, 198 8, THE LETTERS NUMBERED AS CLAUSE (A), OR CLAUSE (C) OR CLAUSE (D) OR CLAUSE (E) OR CLAUSE (F) ARE OMITTED FROM THE ABOVE PROVISO AND THEREFORE DEDUCTION TOWARDS THE EMPLOYEES CONTR IBUTION PAID CAN BE CLAIMED BY THE ASSESSEE. THE EXPLANATION TO CLAUSE (VA) OF SECTIO N 36(1) OF THE INCOME-TAX ACT FURTHER MAKES IT VERY CLEAR THAT THE AMOUNT ACTUALLY PAID B Y THE ASSESSEE ON OR BEFORE THE DUE DATE APPLICABLE IN THIS CASE AT THE TIME OF SUBMITT ING RETURNS OF INCOME UNDER SECTION 139 OF THE ACT TO THE REVENUE IN RESPECT OF THE PREVIOU S YEAR CAN BE CLAIMED BY THE ASSESSEES FOR DEDUCTION OUT OF THEIR GROSS INCOME. THE ABOVE SAID STATUTORY PROVISIONS OF THE INCOME-TAX ACT ABUNDANTLY MAKES IT CLEAR THAT, THE CONTENTION URGED ON BEHALF OF THE REVENUE THAT DEDUCTION FROM OUT OF GROSS INCOME FOR PAYMENT OF TAX AT THE TIME OF SUBMISSION OF RETURNS UNDER SECTION 139 IS PERMISSI BLE ONLY IF THE STATUTORY LIABILITY OF 8 ITA 249&116/K/2009 SUBHASH PROJECTS & MARKETING LTD. A.Y.05-06 PAYMENT OF PROVIDENT FUND OR OTHER CONTRIBUTION FU NDS REFERRED TO IN CLAUSE (B) ARE PAID WITHIN THE DUE DATE UNDER THE RESPECTIVE STATUTORY ENACTMENTS BY THE ASSESSEES AS CONTENDED BY LEARNED COUNSEL FOR THE REVENUE IS NO T TENABLE IN LAW AND THEREFORE THE SAME CANNOT BE ACCEPTED BY US. LEARNED COUNSEL SRI PARTHASARATHY AND DR. KRISHNA A PPEARING FOR THE RESPONDENTS, ALSO DREW OUR ATTENTION TO THE DELETION OF THE SECOND PR OVISO TO SECTION 43B OF THE INCOME-TAX ACT BY THE FINANCE ACT, 2003, WHICH PROVISION HAS C OME INTO FORCE, WITH EFFECT FROM APRIL 1, 2004. THE RELIANCE PLACED UPON THE DECISION OF THE APEX COURT IN ALLIED MOTORS P. LTD. V. CIT [1997] 224 ITR 677 A ND ALSO ON THE DECISION IN GENERAL FINANCE CO. V. C IT (ASST.) [2002] 257 ITR 338 ( SC) IN RESPECT OF APPLICABILITY OF SECTION 43B(B) AND ALSO OMISSION OF CLAUSE (A) OR (C) OR (D) OR (E) OR (F) REFERRED TO ABOVE OCCURRED IN THE FIRST PROVISO TO SECTION 43B, SUPPORTS THE CASE OF THE A SSESSEES AND ALSO RELEVANT PARAGRAPHS EXTRACTED FROM ALLIED MOTORS CASE [1997] 224 ITR 677 A ND PARAGRAPH 59 REFERRED TO SUPRA IN THIS JUDGMENT FROM THE FINANCE BILL WITH ALL FOURS SUPPORTS THE CASE OF THE ASSESSEE/ RESPONDENTS. THEREFORE, WE HAVE TO ANSWER THE SUBSTANTIAL QUESTION OF LAW NO. 1 FRAMED BY THIS COURT IN THESE APPEALS AT THE INST ANCE OF THE REVENUE AGAINST THEM, VIZ., IN THE NEGATIVE. ACCORDINGLY, WE ANSWER THE SUBSTAN TIAL QUESTION NO. 1 FRAMED IN THESE APPEALS IN THE NEGATIVE. EVEN THE HONBLE SUPREME COURT IN THE CASE OF CIT V S. ALOM EXTRUSIONS LTD. (2009) 319 ITR 306 (SC) HAS CLEARLY DISCUSSED THE PROVISIONS OF SE CTION 36(1)(VA) OF THE ACT AND HELD AS UNDER: IN VIEW OF THE SECOND PROVISO, WHICH STOOD ON THE STATUTE BOOK AT THE RELEVANT TIME, EACH OF SUCH ASSESSEE(S) WOULD NOT BE ENTITLED TO DEDUCTION UNDER SECTION 43B OF THE ACT FOR ALL TIMES. THEY WOULD LOSE THE BENEFIT OF DEDUC TION EVEN IN THE YEAR OF ACCOUNT IN WHICH THEY PAY THE CONTRIBUTIONS TO THE WELFARE FUN DS, WHEREAS A DEFAULTER, WHO FAILS TO PAY THE CONTRIBUTION TO THE WELFARE FUND RIGHT UP T O APRIL 1, 2004, AND WHO PAYS THE CONTRIBUTION AFTER APRIL 1, 2004, WOULD GET THE BEN EFIT OF DEDUCTION UNDER SECTION 43B OF THE ACT. IN OUR VIEW, THEREFORE, THE FINANCE ACT, 2 003, TO THE EXTENT INDICATED ABOVE, SHOULD BE READ AS RETROSPECTIVE. IT WOULD, THEREFOR E, OPERATE FROM APRIL 1, 1988, WHEN THE FIRST PROVISO WAS INTRODUCED. IT IS TRUE THAT PARLIAMENT HAS EXPLICITLY STATED THAT THE FINANCE ACT, 2003, WILL OPERATE WITH EFFECT FROM APRIL 1, 2004. HOWEVER, THE MATTER BEFORE US INVOLVES THE PRINCIPLE OF CONSTRUCTION TO BE PLACED ON THE PROVISIONS OF THE FINANCE ACT, 2003. THE LD. DR, HOWEVER, RELIED ON THE DECISION OF COOR DINATE BENCH IN THE CASE OF DCIT VS. ASHIKA STOCK BROKING LTD. (2011) 44 SOT 556 (KOL), WHEREIN IT IS INTERPRETED THAT THE PROVISIONS OF SECTION 36(1)(VA) OF THE ACT, BEING S PECIAL PROVISIONS ENACTED TO DEAL WITH SPECIFIC MATTER WOULD PREVAIL OVER GENERAL PROVISIONS OF SEC TION 43B OF THE ACT ON PRINCIPLE THAT A GENERAL CLAUSE DOES NOT EXPLAIN THOSE THINGS THAT H AVE BEEN PREVIOUSLY PROVIDED FOR SPECIFICALLY. THE BENCH FURTHER INTERPRETED THAT TH E ASSESSEE IS NOT ENTITLED TO DEDUCTION UNDER SECTION 36(1)(VA) OF THE ACT OF EMPLOYEES CONTRIBU TION TO PROVIDENT FUND WHICH WAS PAID AFTER DUE DATE AS SPECIFIED IN EXPLANATION TO SECTION 36( 1)(VA) AS SECTION 43B OF THE ACT CANNOT BE PRESSED INTO SERVICE BECAUSE SECTION 43B OF THE AC T COMES INTO PLAY ONLY WHEN A DEDUCTION IS OTHERWISE ALLOWABLE UNDER ACT. THE LD. DR CITED THE CASE LAW OF HONBLE APEX COURT IN THE CASE OF HONDA SIEL POWER PRODUCTS LTD. VS. CIT (200 7)165 TAXMAN 307 (SC), AND ACCORDING TO LD. DR HONBLE APEX COURT HAS RULED THAT THE COORDI NATE BENCHS DECISION IS BINDING ON TRIBUNAL. WE HAVE NO QUARREL OVER THE PROPOSITION, EVEN THOUGH THAT WAS NOT THE ISSUE BEFORE 9 ITA 249&116/K/2009 SUBHASH PROJECTS & MARKETING LTD. A.Y.05-06 HONBLE APEX COURT, BUT ISSUE BEFORE US ISSUE IS CO VERED BY THE DECISIONS OF HONBLE APEX COURT IN THE CASE OF ALOM EXTRUSIONS (SUPRA), WHERE IN THE ISSUE OF EMPLOYEES CONTRIBUTION TO PF AND PAYMENT FALLING UNDER SECTION 36(1)(VA) R.W. S. 2(24)(X) OF THE ACT WERE THE SUBJECT MATTER, WHEREIN IT WAS HELD THAT THE PROVISIONS OF SECTION 43B OF THE ACT ARE APPLICABLE. SIMILAR VIEW WAS TAKEN BY THE FULL BENCH OF HONBLE DELHI H IGH COURT IN P.M. ELECTRONICS (SUPRA), BY HONBLE KARNATAKA HIGH COURT IN THE CASE OF SABARI ENTERPRISES (SUPRA). 12. IN VIEW OF THE ABOVE DECISIONS OF HONBLE APEX COURT IN THE CASE OF ALOM EXTRUSIONS LTD. (SUPRA), VINAY CEMENT (SUPRA) AND THE DECISIONS OF HONBLE DELHI HIGH COU RT AND KARNATAKA HIGH COURT, WE REVERSE THE ORDER OF CIT(A ) AND ALLOW THE CLAIM OF THE ASSESSEE AND DELETE THE DISALLOWANCE MADE ON ACCOUNT OF PAYMENT MADE FOR EMPLOYEES CONTRIBUTION TO ESI AND PF. THIS ISSUE OF THE ASSESSEES APPEAL IS ALL OWED. 13. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED AND THAT OF THE ASSESSEE IS ALLOWED. 14. ORDER PRONOUNCED IN OPEN COURT. SD/- SD/- !' , (AKBER BASHA) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER ( -' -' -' -') )) ) DATED 5 TH DAY OF MAY, 2011 ./ $01 2 JD.(SR.P.S.) ! 3 +4 5!4&6- COPY OF THE ORDER FORWARDED TO: 1 . )* / APPELLANT ACIT, CC-XXVIII, KOLKATA. 2 +,)* / RESPONDENT, SUBHASH PROJECTS & MARKETING LTD., 22 , CAMAC STREET, KOLKATA. 3 . $ ( )/ THE CIT(A), KOLKATA 4. $ / CIT, KOLKATA 5 . => +$ / DR, KOLKATA BENCHES, KOLKATA ,4 +/ TRUE COPY, ! $?/ BY ORDER, 1 /ASSTT. REGISTRAR .
