M/s. Adarsh Textile Mills, Surat V. The Income tax Officer,Ward-5(1), Surat

ITA 2728/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6267 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 21-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 01-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G S SOORYAWANSHI
• Section: 43B; 11; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' BEFORE SHRI T K SHARMA,JM & SHRI A N PAHUJA,AM ITA NO.2728/AHD/2000 (ASSESSMENT YEAR:-2006-07) M/S ADARSH TEXTILE MILLS, C-24 & 25, LUTHRA APARTMENT, NAWABWADI, BEGUMPURA, SURAT V/S INCOME-TAX OFFICER, WARD- 5(1), AAYAKAR BHAVAN, MAJURA GATE,SURAT PAN: AAEFA 3836 F [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI HARDIK VORA, AR REVENUE BY:- SHRI G S SOORYAWANSHI, DR O R D E R A N PAHUJA: THIS APPEAL BY THE ASSESSEE AGAINST AN ORDER DATED 20- 08-2009 OF THE LD. CIT(APPEALS)-III, SURAT, FOR THE ASSESSMENT YEAR 2006-07, RAISES THE FOLLOWING GROUNDS:- [1] ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS L AW ON THE SUBJECT, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO IN MAKING ADDITION OF RS.2,80,991/- ON ACCOUNT OF CL OSING WIP. [2] ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS LA W ON THE SUBJECT, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO IN MAKING DISALLOWANCE OF RS.20,245/- ON ACCOUNT OF EM PLOYEES CONTRIBUTION TOWARDS PF/ESIC U/S 36(1)(VA) OF THE ACT. [3] IT IS THEREFORE PRAYED THAT THE ABOVE TWO ADDITIO NS MADE BY THE AO AND CONFIRMED BY CIT(A) MAY PLEASE BE DELETED. [4] APPELLANT CRAVES LEAVE TO ADD, ALTER OR DELETE AN Y GROUND(S) EITHER BEFORE OR IN THE COURSE OF HEARING OF THE APPEAL . 2. ADVERTING FIRST TO GROUND NO.1 IN THE APPEAL, FA CTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING NIL I NCOME FILED ON 26- 12-2006 BY THE ASSESSEE, ENGAGED IN DYEING AND PRIN TING OF SYNTHETIC FABRIC ON JOB WORK BASIS, WAS SELECTED FO R SCRUTINY WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE INCOME-TAX AC T,1961[HEREINAFTER REFERRED TO AS THE ACT] ON 24.8.2007.DURING THE C OURSE OF 2 ITA NO.2728/AHD/2009 ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICE[AO IN SHORT] NOTICED THAT THE ASSESSEE REFLECTED GROSS PROFIT[GP] @ 12. 13% ON TURNOVER OF RS.3,98,47,392/- AS AGAINST GP@ 8.23% ON TURNO VER OF RS.3,33,79,857/- IN THE IMMEDIATELY PRECEDING YEAR . THOUGH THE ASSESSEE HAD CLOSING STOCK OF RS.12,23,320/-,COMPR ISING COLOUR AND CHEMICALS, COAL, MILL-GIN ETC., THE ASSESSEE DID N OT SHOW ANY CLOSING STOCK OF WORK-IN-PROGRESS. TO A QUERY BY TH E AO, THE ASSESSEE REPLIED THAT IT WAS THEIR PRACTICE TO CLEAR ALL SEMI PROCESSED GOODS OR STOCK OF WORK IN PROCESS DURING THE LAST WEEK OF MAR CH OF EVERY YEAR AND IN SUPPORT ENCLOSED A STATEMENT OF SALE INVOICES FR OM 25TH MARCH TO 31ST MARCH 2006,MENTIOINING SALE OF 379087 METRES OF CLOTH FOR AN AMOUNT OF RS.18,15,507/-.THEREFORE, IT WAS SUBMITTED THAT THE QUESTION OF STOCK OF WORK IN PROCESS DID NOT ARISE. HOWEVER, THE AO DID NOT ACCEPT TH E SUBMISSIONS OF THE ASSESSEE ON THE GROUND THAT NO BILLS WERE FURNISHED FOR SEMI FINISHED OR SEMI PROCESSED GOODS, ESPECIALLY WHEN THE ASSESSEE ADMITTED THAT DYEING OF GOODS TOOK ONLY ONE OR TWO DAYS, PRINTING FOUR OR FIVE DAYS AND DOUBLE PRINTING MORE THAN SEVEN DAYS. SINCE THE ASSESSEE'S MAJOR WORK WAS OF PRINTING SO AT THE END OF THE YEAR THEIR MUST BE WIP AT THE FACTORY, THE AO OBSERVED. ACCORDINGLY, RELYING UPON THE DECISION IN BRITISH PAINTS INDIA L TD. VS. CIT (1978) , 188 ITR 44(SC) , THE AO ESTIMATED 109335 METRES OF WIP, RESU LTING IN ADDITION OF RS.2,80,991/-. 3. ON APPEAL, THE LEARNED CIT(A), FOLLOWING THE VIE W TAKEN BY THE ITAT IN THEIR DECISION DATED 26.10.2007 IN ITA NO.2 551/AHD/2006 IN THE CASE OF AKRUTI DYEING & PRINTING MILLS PVT. LTD., CONFIRMED THE ADDITION IN THE FOLLOWING TERMS:- 3.2. I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SU BMISSIONS MADE BY THE LEARNED AR. IT IS SEEN THAT A SIMILAR ADDITION MAD E IN THE CASE OF AKRUTI DYEING & PRINTING MILLS PVT. LTD. FOR THE A.Y.2003-04 HAS ALSO BEEN CONFIRMED BY THE HON'BLE ITAT, AHMEDABAD IN ITA NO.25 51/AHD/2006 DTD.26.10.2007. IN THE INSTANT CASE, IT IS UNDISPUTED TH AT THE APPELLANT HAD NOT SHOWN CLOSING STOCK OF ITS WORK-IN PROGRESS. IT CANNOT A LSO BE DENIED THAT CERTAIN AMOUNT OF WORK-IN PROGRESS WAS IN EXISTENCE I N THE BUSINESS OF THE APPELLANT AT THE END OF THE RELEVANT PREVIOUS YEAR , WHICH WAS NOT SHOWN IN ITS BOOKS OF A/C. RELYING ON THE DECISION OF THE A PEX COURT IN CIT 3 ITA NO.2728/AHD/2009 VS BRITISH PAINTS (SUPRA), THE ASSESSING OFFICER HAS MADE AN ADDITION FOR THE WORK-IN PROGRESS TO THE CLOSING STOCK. TAKING INTO CONSID ERATION 26 WORKING DAYS IN A MONTH, THE ASSESSING OFFICER HAS WORKED OUT THE AVERAGE CLOTH PROCESSED PER DAY AT 21,867 METERS, ON THE BASIS OF 68,22,574 METERS OF CLOTH PROCESSED DURING THE YEAR BY T HE APPELLANT. CONSIDERING THAT A COMPLETE CYCLE OF PROCESSING IN A TEXTIL E PROCESSING UNIT TAKES 5 DAYS TO COMPLETE THE JOB, THE CLOTH IN PROCESS DURI NG THESE 5 DAYS WAS WORKED OUT AT 1,09,335 METERS. AS THE AVERAGE COST IN CURRED PER METER BY THE APPELLANT WAS RS.5.13, THE AVERAGE COST OF T HE WORK-IN PROGRESS WAS TAKEN @ 50%, I.E., AT RS.2.57 PER METER, CO NSIDERING THE VARIOUS STAGES OF PROCESSING. ON THE ABOVE BASIS, THE WORK-IN PROGRESS WAS VALUED BY THE ASSESSING OFFICER AT RS.2,80,991/-AND ADDE D TO THE TOTAL INCOME OF THE APPELLANT. THE VALUATION OF THE WORK-IN PROGRESS, AS ABOVE, IS NOT DISPUTED BY THE APPELLANT. FURTHER, THE AFORESAID VALUATION ONLY TAKES INTO ACCOUNT THE COST OF VARIOUS INPUTS, LIKE, COL OUR, CHEMICALS, LABOUR CHARGES, ETC., THAT HAVE GONE INTO THE PROCESSING OF CLOTH, WHICH WAS IN PROCESS IN THE LAST 5 DAYS OF THE RELEVANT PREVIOUS YEA R, AND DOES NOT INCLUDE THE CLOTH, WHICH BELONGS TO A THIRD PARTY FO R WHOM THE JOB WORK IS UNDERTAKEN BY THE APPELLANT. IN VIEW OF THE AFORESAI D FACTS AND CIRCUMSTANCES OF THE CASE AND RESPECTFULLY FOLLOWING THE DECISI ON OF THE HON'BLE JURISDICTIONAL TRIBUNAL IN THE CASE OF AKRUTI D YEING & PRINTING MILLS PVT. LTD.(SUPRA), THE ADDITION OF RS.2,80,991/- MADE B Y THE ASSESSING OFFICER ON ACCOUNT OF WORK-IN PROGRESS IS FOUND TO BE IN ORDER AND IS, THEREFORE, CONFIRMED. THE ASSESSING OFFICER IS, HOWEVER, DI RECTED TO ADOPT THIS CLOSING STOCK OF WIP AS THE OPENING STOCK OF WIP IN THE IMMEDIATELY SUCCEEDING YEAR. THIS GROUND OF APPEAL IS DISMISSED. 4. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED AR ON B EHALF OF THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVER ED BY THE DECISION DATED 13-05-2011 OF THE ITAT IN THE CASE O F JAY SANTOSHI TEX PRINTS PVT. LTD. VS. ITO IN ITA NO.130/AHD/2009 AS ALSO BY ANOTHER DECISION 16-07-2010 IN THE CASE OF KRISHNA ART SILK CLOTH (P) LTD. VS. DCIT IN ITA NO.1264/AHD/2010.THE LEARN ED DR, ON THE OTHER HAND, SUPPORTED THE IMPUGNED ORDER. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE AFORESAID DECISIONS OF THE ITA T. WE FIND THAT WHILE ADJUDICATING AN IDENTICAL ISSUE, THE ITAT IN THEIR DECISION DATED 28.5.2010 IN THE CASE OF ITO VS. M/S RISHAB H DYEING & PRINTING MILLS (P) LTD. IN ITA NO. 1823/AHD./2007 H ELD AS UNDER :- 4 ITA NO.2728/AHD/2009 3. AGAINST THIS LD. AR SUBMITTED THAT SIMILAR ISSU E HAD COME BEFORE THE TRIBUNAL IN THE CASE OF PRATIK PROCESSOR S PVT. LTD V DCIT IN ITA NO.1956/AHD/2007, WHEREIN TRIBUNAL HAS HELD THAT THERE CANNOT BE ANY WORK-IN-PROGRESS IN A CASE WHERE BUSI NESS OF DYEING AND PRIMING OF CLOTH IS DONE ON JOB WORK BASIS. HE REFERRED TO PARA-6 FROM THAT ORDER AS UNDER:- '6. AT THE TIME OF HEARING BOTH THE REPRESENTATIVES AGREED THE SIMILAR ISSUE AROSE IN AN APPEAL BY THE REVENUE IN ITA NO. 2649/AHD/2006 IN THE CASE OF VIPUL INDUSTRIES PVT. LTD. V/S ACIT ORDER D ATED 17.9.2003 IN THE SAID CASE, WHEN IN THE SAID CASE THE ASSESSEE WHICH IS ENGAGED IN THE BUSINESS OF DYEING AND PRINTING OF CLOTH ON JOB WOR K BASIS AND WHERE THE ASSESSES HAD NOT SHOWN ANY WORK-IN-PROGRESS AT THE YEAR END, THE SAME WAS ESTIMATED TO BE 50% OF THE JOB RECEIPT OF THE L IKELY STOCK REMAINING IN PROCESS. HOWEVER WAS DELETED BY THE LD. CIT(A) BY O BSERVING AS UNDER: 12 I HAVE CAREFULLY CONSIDERED THE FACT OF THE C ASE AND SUBMISSIONS MADE BY THE ID AR. AS REGARDS THE ADDITION MADE IN RESPECT OF ESTIMATED WORK IN PROGRESS, IT IS SEEN THAT THE APPELLANT IN THE INSTANT CASE IS A JOB- WORKER AND PROCESS GREY CLOTH FOR ITS CUSTOMERS ACC ORDING TO THEIR REQUIREMENT. THE APPELLANT NOT ENGAGED IN ANY MANUF ACTURING ACTIVITIES OF ITS OWN. THE CLOTH PROCESSED BY THE APPELLANT TH US BELONG TO ITS CUSTOMERS IS PROCESSED BY THE APPELLANT AND. AFTER PROCESSING THE SAME IN ACCORDANCE WITH THE CUSTOMERS REQUIREMENT, IT IS RETURNED. IN THE ABOVE FACTS OF THE CASE THE QUESTION OF SHOWING ANY WORK IN PROGRESS IN THE BOOKS OF ACCOUNT OF THE APPELLANT IN RESPECT OF THE CLOTH BELONGING TO ITS CUSTOMERS DID NOT ARISE AS SUCH CLOTH WAS REQUI RED TO BE SHOWN IN THE CLOSING STOCK OF THE CONCERNED CUSTOMERS. ON THE BASIS OF THE COMPLETION OF WORK ON THE CUSTOMERS CLOTH, THE APPE LLANT IS ENTITLED TO RECEIVE ITS WORK CHARGES. NO INTERIM PAYMENTS OR ADVANCES PAYMENTS ARE RECEIVED BY THE APPELLANT FROM ITS CUSTOMERS DU RING THE PENDENCY OF THE JOB WORK. THE RECEIPTS FROM THE JOB WORK AR E BEING ACCOUNTED FOR BY THE APPELLANT ON COMPLETED CONTRACT METHOD AS PER A S-9. THE CLOSING STOCK OF MATERIALS USED FOR PROCESSING OF CLOTH, I. E. COLOUR, CHEMICALS ETC. HAVE BEEN DULY ACCOUNTED FOR BY THE APPELLANT IN AC CORDANCE WITH AS-9 IN REGARD TO THE VALUE ADDITION MADE BY THE APPELLA NT ON THE CUSTOMER'S CLOTH, WHICH MAY HAVE BEEN AT DIFFERENT INTERMEDIAT E STAGES OF PROCESSING AS ON 31.3.2003, NEITHER ANY OPENING STOCK NOR CLOS ING STOCK WAS EVER SHOWN BY THE APPELLANT. AS PER THE PRINCIPLES OF AC COUNTING LAID DOWN BY THE ICAI, UNDER THE SCOPE OF VALUATION OF INVENTORI ES IN ITEM 1 (SUB-ITEM (B) OF AS-2 (REVISED) THE 'WORK-IN-PROGRESS AR ISING IN THE ORDINARY COURSE OF BUSINESS OF SERVICE PROVIDER' HAS BEEN SP ECIFICALLY SCOPED OUT OF THE SAID STATEMENT. FURTHER, IN THE DEFINITIONS PRO VIDED UNDER ITEM 3 OF THE AS-2 'INVENTORIES' HAVE BEEN DEFINED AS 'ASSETS (A) HELD FOR SALE IN 5 ITA NO.2728/AHD/2009 THE ORDINARY COURSE OF BUSINESS (B) IN THE PROCESS OF PRODUCTION, FOR SUCH SALE' OR (C) IN THE FORM OF MATERIALS OR SUPPLIES T O BE CONSUMED IN THE PRODUCTION FOR SALE' OR IN THE RENDERING OF SERVICE S. SINCE THE APPELLANT WAS NOT ENGAGED IN THE BUSINESS OF SALE OF THE PROC ESSED CLOTH OR IN THE PRODUCTION FOR SALE OF THE PROCESSED CLOTH BUT WAS ENGAGED IN THE BUSINESS OF RENDERING OF SERVICES FOR PROCESSING OF GREY CLOTH FOR ITS CUSTOMERS THE PRINCIPLES LAID DOWN IN AS-2 FOR ;HE 'VALUATION OF INVENTORIES' WERE NOT APPLICABLE IN ITS CASE IN ACC ORDANCE WITH ITEM L(B) THEREOF. HOWEVER, THE MATERIALS OR SUPPLIES TO BE C ONSUMED IN THE PRODUCTION PROCESS OR IN THE RENDERING OF SERVICES WOULD EVIDENTLY FAIL IN CATEGORY (C) OF THE AFORESAID DEFINITIONS' PROVIDE D IN ITEM 3 OF THE ACCOUNTING PRINCIPLES LAID DOWN IN AS-2, AND THE SA ME WOULD BE REQUIRED TO BE ACCOUNTED FOR BY IT IN THE FORM OF STOCK, WHI CH HAS BEEN DONE IN THE INSTANT CASE. THE METHOD OF ACCOUNTING FOLLOWED BY THE APPELLANT IS THUS SEEN TO BE IN ACCORDANCE WITH THE ACCOUNTING PRINCI PLES LAID DOWN BY THE ICAI. 13 IT IS FURTHER SEEN THAT THE AFORESAID METHOD OF ACCOUNTING OF OPENING/CLOSING STOCK HAS BEEN REGULARLY AND CONSIS TENTLY FOLLOWED BY THE APPELLANT COMPANY SINCE THE BELONGING THE APPELLANT HAS ALSO CONSISTENTLY FOLLOWED, THE ACCOUNTING POLICY OF REC OGNIZING REVENUE OF COMPLETED CONTRACT METHOD. WHILE THE PRINCIPLES OF RES-JUDICATA ARE NOT APPLICABLE TO THE INCOME-TAX PROCEEDINGS, IT HAS BE EN HELD BY THE COURTS IN SEVERAL JUDGMENTS: THAT, WHERE THE APPELLANT HAS BEEN FOLLOWING REGULAR SYSTEM OF ACCOUNTING SINCE THE LAST SO MANY YEARS AN SUCH METHOD WAS BASED ON ACCEPTED PRINCIPLES OF ACCOUNTING THER E WAS NO JUSTIFICATION FOR REJECTING THE SAID METHOD FOR VALUATION OF STOC K. THIS WOULD ESPECIALLY HOLD IN A CASE WHERE THE PROPOSED CHANGE IN THE MET HOD OF VALUATION IS FOUND TO HAVE NO IMPACT, AS IN THE INSTANT CASE, IF THE CHANGED METHOD ADOPTED BY THE ASSESSING OFFICER WERE APPLIED FOR V ALUATION OF THE OPENING AS WELL AS THE CLOSING STOCK. 14 FOR REASONS DISCUSSED ABOVE IN DETAILS, IN MY OP INION THERE WAS NO BASIS OR JUSTIFICATION IN MAKING THE ANY ESTIMATED ADDITION ON ACCOUNT OF WORK-IN-PROGRESS IS THIS CASE. THE ADDITION OF RS.1 2.56.970/- MADE BY THE AO IN RESPECT OF ESTIMATED WORK IN PROGRESS IS THER EFORE DELETED. THIS GROUND OF APPEAL IS ALLOWED ' THUS DELETION WAS CONFIRMED BY THE TRIBUNAL. THER EFORE IN, THE PRESENT CASE ALSO FOLLOWING THE DECISION OF THE TRI BUNAL CONFIRM THE ORDER OF THE CIT(A), THE ADDITION ON ACCOUNT OF EST IMATED VALUE OF WORK-IN-PROGRESS IS REQUIRED TO BE DELETED. 5.1 FOLLOWING THE VIEW TAKEN IN THE AFORCITED DEC ISION, THE ITAT IN THEIR DECISION DATED 16-07-2010 IN THE CASE OF KRIS HNA ART SILK CLOTH 6 ITA NO.2728/AHD/2009 (P) LTD. VS. DCIT IN ITA NO.1264/AHD/2010, IN WHICH CASE ALSO, THE LD. CIT(A) UPHELD THE FINDINGS OF THE AO IN THE LIG HT OF DECISION DATED 26.10.2007 IN THE CASE OF AKRUTI DYEING & PRINTING MILLS PVT. LTD. IN ITA NO.2551/AHD/2006, ALLOWED THE CLAIM OF THE ASSE SSEE. 5.2 IN ANOTHER DECISION DATED 13-05-2011,FOLLOW ING THE VIEW TAKEN BY THE ITAT IN THEIR DECISION DATED 3.04.09 IN ITA NO. 167/AHD/2 009 IN THE CASE OF KANHAIYA PROCESSORS PVT. LTD. VS. ITO , WE CONCLUDED AS UNDER: 7. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY GONE T HROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE TRIBUNAL IN THE CASE OF KANHAIYA PROCESSORS PRIVATE LTD. (SUPRA) OBSERVED THAT THE AO COULD N OT BE ABLE TO APPRECIATE THE TRUE NATURE OF THE BUSINESS OF A PROCESSIN G HOUSE. HE UNDERTOOK THE JOB WORK. THE FABRIC DOES NOT BELONG TO T HE ASSESSEE. THERE IS DIFFERENCE IN RAW MATERIAL AND THE CONSUMABLES. RAW MATERIAL ONCE CONSUMED DOES NOT LOSE ITS IDENTITY, IT ONLY GETS ITS UTIL ITY TRANSFERRED. WHILE THE CONSUMABLES, ONCE CONSUMED, CANNOT BE SEPARATELY IDENT IFIED AND IT LOSES ITS IDENTITY. WHEN THE ASSESSEE HAS BEEN ENGAGED IN T HE BUSINESS OF DYEING AND PRINTING OF ART-SILK CLOTH ON JOB WORK BASIS, T HE RAW MATERIAL DOES NOT BELONG TO THE ASSESSEE. THE ASSESSEE HAS SIMPLY TO INCU R THE EXPENDITURE ON COLOUR, CHEMICAL, WAGES, POWER AND FUEL. COLOUR AND CHEMICALS ARE CONSUMABLES AND ONCE THESE ARE APPLIED TO T HE FABRIC UNDER PROCESS, THEY LOSE THEIR IDENTITY AND CANNOT BE PART OF THE STOCK IN PROCESS. THE ASSESSEE IS VALUING THE STOCK BY FOLLOWING THE SAME METHOD CONSISTENTLY IN WHICH THERE IS NO ILLEGALITY. ON THIS BASIS, ADDITION MADE ON ACCOUNT OF SUPPRESSED WORK-IN- PROGRESS IS DELETED BY THE TR IBUNAL, 'D' BENCH VIDE ORDER DATED 3 RD APRIL, 2009 IN THE OF KANHAIYA PROCESSORS PVT. LTD. (SUPRA). 7.1 THE SIMILAR VIEW HAS BEEN TAKEN IN OTHER CASES RELIED ON BY THE ID. COUNSEL OF ASSESSEE. UNDER THE FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE AO WAS MOT CORRECT IN LAW IN VALUING THE WORK-IN-PROGRESS IN RESPECT OF VARIOUS EXPENSES INCURRED BY THE ASSESSEE RELATI NG TO FABRIC WHILE IN PROCESS FOR DYEING AND PRINTING. WE. ACCORDINGLY, DELETE THE ADDITION OF RS.4,11,335/-. RESULTANTLY, THE APPEAL OF THE ASSESSEE IS ALLOWED. 5.3 IN THE LIGHT OF VIEW TAKEN IN THE AFORESAID DECISIONS ON IDENTICAL FACTS AND CIRCUMSTANCES, WE HAVE NO ALTER NATIVE BUT TO ALLOW THE CLAIM OF THE ASSESSEE IN THE INSTANT CASE . THEREFORE, GROUND NO.1 IN THE APPEAL IS ALLOWED. 7 ITA NO.2728/AHD/2009 6. GROUND NO.2 IN THE APPEAL RELATES TO DISALLOWAN CE OF RS.20,245/-. ON PERUSAL OF AUDIT REPORT, THE AO NOT ICED THAT THE ASSESSE DEPOSITED EMPLOYEES CONTRIBUTION TOWARDS PF/ESIC BEYOND THE DATES STIPULATED UNDER THE RELEVANT ENAC TMENTS. THE RELEVANT DETAILS EXTRACTED FROM THE ASSESSMENT ORDE R ARE AS UNDER: LATE PAYMENT OF PF- EMPLOYEES CONTRIBUTION MONTH AMOUNT DUE DATE DATE OF PAYMENT JUNE 5981 15.07 25.07 JULY 5926 15.08 19.08 OCT 6480 15.11 25.11 18387 LATE PAYMENT OF ESIC- EMPLOYEES CONTRIBUTION MONTH AMOUNT DUE DATE DATE OF PAYMENT JUNE 893 21.07 25.07 OCT 965 21.11 25.11 1858 THE AFORESAID AMOUNT OF EMPLOYEES CONTRIBUTION TOWARDS PF/ESI , PAID AFTER THE DUE DATE(S) WAS ACCORDINGLY, DISALLO WED BY THE AO U/S 36(1)(VA) OF THE ACT . 7. ON APPEAL, THE LEARNED CIT(A) ADJUDICATED THE I SSUE IN THE LIGHT OF DECISION OF THE ITAT, KOLKATA (SPECIAL BEN CH) IN THE CASE OF JCIT VS ITC LTD.,112 ITD 57,FOLLOWED BY THE ITAT, AHMEDABAD BENCH IN THEIR DECISION DATED 30.5.2008 IN THE CASE OF JAYANT PAPER MILLS LTD, IN ITA NO.L388/AHD/2006. ACCORDINGLY, THE LD. CIT(A) DIRECTED THE AO TO VERIFY THE FACTS REGARDING THE DATES 8 ITA NO.2728/AHD/2009 OF PAYMENT AND TO GIVE DEDUCTION ONLY IN RESPECT OF SUCH PAYMENTS THAT HAVE BEEN MADE WITHIN THE DUE DATE OR WITHIN THE GRACE PE RIOD PERMITTED. 8. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED AR ON BEHALF OF THE ASSESSEE RELIED UPON THE DECISION OF THE HON'BLE SU PREME COURT IN THE CASE OF CIT VS. ALOM EXTRUSIONS LTD. (2009) 319 ITR 306 (SC) AND CONTENDED THAT THEIR CLAIM SHOULD BE ALLOWED IN FULL. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE FINDINGS OF TH E LEARNED CIT(A). 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUG H THE FACTS OF THE CASE AS ALSO THE AFORESAID DECISIO NS OF THE ITAT. AS REGARDS EMPLOYERS AND EMPLOYEES CONTRIBUTION TOWA RDS PF/ESI , WE FIND THAT THE ITAT AHMEDABAD BENCHES HAVE BEEN CON SISTENTLY FOLLOWING THE DECISION OF THE HONBLE DELHI HIGH CO URT IN THE CASE OF CIT V. P.M.ELECTRONICS LTD., 220 CTR 635 (DELHI), W HEREIN RELYING UPON THE DECISION OF HONBLE APEX COURT IN THE CAS E OF CIT VS. VINAY CEMENT LTD.,213 CTR (SC) 268 , THE HONBLE C OURT CONCURRED WITH THE VIEW TAKEN BY THE HONBLE MADRAS HIGH COUR T IN NEXUS COMPUTER (P) LTD.,219 CTR(MAD) 54 IN HOLDING THAT EMPLOYER/EMPLOYEES CONTRIBUTION TOWARDS PROVIDENT FUND PAYMENTS MADE AFTER THE DUE DATE PRESCRIBED UNDER THE EMPLOY EES PROVIDENT FUND ACT AND RULES MADE THEREUNDER AND BEFORE THE D UE DATE FOR FURNISHING THE RETURN OF INCOME UNDER SUB SEC. 1 OF SEC. 139 OF THE ACT, ARE ALLOWABLE UNDER S.36(1)(VA) READ WITH SEC. 2(24(X) AND SEC. 43B OF THE ACT. 9.1 MOREOVER, RECENTLY HONBLE APEX COURT IN THE CASE OF CIT VS ALOM EXTRUSIONS LTD., 319 ITR 306 (SC) HELD THAT TH E OMISSION OF THE SECOND PROVISO TO SECTION 43B OF THE ACT BY THE FIN ANCE ACT, 2003, OPERATED, RETROSPECTIVELY, WITH EFFECT FROM, APRIL 1, 1988 AND NOT PROSPECTIVELY FROM APRIL 1, 2004. HONBLE COURT OBS ERVED THAT EARLIER UNDER THE SECOND PROVISO TO SECTION 43B AS AMENDED BY THE 9 ITA NO.2728/AHD/2009 FINANCE ACT, 1989, THE ASSESSEES WERE ENTITLED TO DEDUCTION ONLY IF THE CONTRIBUTION STOOD CREDITED ON OR BEFORE THE DU E DATE GIVEN IN THE PROVIDENT FUNDS ACT. THIS CREATED FURTHER DIFFI CULTIES AND ON A REPRESENTATION MADE TO THE FINANCE MINISTRY, ONE MO RE AMENDMENT WAS MADE BY THE FINANCE ACT, 2003. THOUGH THIS AME NDMENT WAS MADE APPLICABLE WITH EFFECT FROM APRIL 1, 2004, THE AMENDMENT WAS CURATIVE IN NATURE AND APPLIED RETROSPECTIVELY WITH EFFECT FROM APRIL 1, 1988.IT WAS CLARIFIED THAT WHEN A PROVISO IN A S ECTION IS INSERTED TO REMEDY UNINTENDED CONSEQUENCES AND TO MAKE THE S ECTION WORKABLE, THE PROVISO WHICH SUPPLIES AN OBVIOUS OMI SSION THEREIN IS REQUIRED TO BE READ RETROSPECTIVELY IN OPERATION, P ARTICULARLY TO GIVE EFFECT TO THE SECTION AS A WHOLE. 9.2 HONBLE KARNATAKA HIGH COURT IN THEIR DECIS ION IN ANZ INFORMATION TECHNOLOGY P LTD., 318 ITR 123 WHILE FO LLOWING THEIR EARLIER DECISION IN CIT VS. SABARI ENTERPRISES,298 ITR 141(KAR.) CONCLUDED THAT DEPOSITS MADE BY THE EMPLOYER OF THE EMPLOYEES CONTRIBUTION BELATEDLY AND CONTRIBUTION TOWARDS ESI & PF UNDER THE RELEVANT ENACTMENTS CAN NOT BE TREATED AS INCOME OF THE ASSESSEE U/S 36(1)(VA) READ WITH SEC. 2(24)(X) IN VIEW OF P ROVISIONS OF SEC. 43B OF THE ACT. 9.3 HONBLE DELHI HIGH COURT IN ANOTHER DECISION DATED 23.12.2009 IN CIT VS. AIMIL LTD.(DELHI)IN ITA NO. 1063/2008 OB SERVED THAT SEC. 2(24)(X) PROVIDES THAT AMOUNTS RECEIVED BY AN ASSES SEE FROM EMPLOYEES TOWARDS PF CONTRIBUTIONS ETC. SHALL BE I NCOME. S. 36 (1) (VA) PROVIDES THAT IF SUCH SUMS ARE CONTRIBUTED TO THE EMPLOYEES ACCOUNT IN THE RELEVANT FUND ON OR BEFORE THE DUE D ATE SPECIFIED IN THE PF LEGISLATION, THE ASSESSEE SHALL BE ENTITLED TO A DEDUCTION. THE SECOND PROVISO TO S. 43B (B) PROVIDED THAT ANY SUM PAID BY THE ASSESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTION TO A NY PROVIDENT FUND SHALL BE ALLOWED AS A DEDUCTION ONLY IF PAID O N OR BEFORE THE DUE DATE SPECIFIED IN 36(1)(VA) OF THE ACT. AFTER T HE OMISSION OF THE 10 ITA NO.2728/AHD/2009 SECOND PROVISO W.E.F 1.4.2004, THE DEDUCTION IS ALL OWABLE UNDER THE FIRST PROVISO IF THE PAYMENT IS MADE ON OR BEFORE T HE DUE DATE FOR FURNISHING THE RETURN OF INCOME. THE HONBLE HIGH C OURT WHILE CONSIDERING WHETHER THE BENEFIT OF S. 43B CAN BE E XTENDED TO EMPLOYEES CONTRIBUTION AS WELL, WHICH ARE PAID AFT ER THE DUE DATE UNDER THE PF LAW BUT BEFORE THE DUE DATE FOR FILING THE RETURN, HELD THAT (I) THOUGH THE REVENUE HAS ARGUED THAT A DISTINCTIO N IS TO BE MADE BETWEEN EMPLOYERS CONTRIBUTION AND EMPLOYEES C ONTRIBUTION AND THAT EMPLOYEES CONTRIBUTION BEING IN THE NATURE OF TRUST MONEY IN THE HANDS OF THE ASSESSEE CANNOT BE ALLOWED AS A DE DUCTION IF NOT PAID ON OR BEFORE THE DUE DATE SPECIFIED IN THE PF ETC LAW, THE SCHEME OF THE ACT IS THAT EMPLOYEES CONTRIBUTION I S TREATED AS INCOME U/S 2 (24) (X) ON RECEIPT BY THE ASSESSEE AN D ALLOWED AS A DEDUCTION U/S 36 (1) (VA) ON MAKING DEPOSIT WITH TH E CONCERNED AUTHORITIES. S. 43B (B) STIPULATES THAT SUCH DEDUCT ION WOULD BE PERMISSIBLE ONLY ON ACTUAL PAYMENT; (II) THE QUESTION AS TO WHEN ACTUAL PAYMENT SHOULD BE MADE IS ANSWERED BY VINAY CEMENTS 213 CTR 268 WHERE THE DEL ETION OF THE SECOND PROVISO TO S. 43B W.E.F 1.4.2004 WAS HELD AP PLICABLE TO EARLIER YEARS AS WELL. AS THE DELETION OF THE 2ND P ROVISO IS RETROSPECTIVE, THE CASE HAS TO BE GOVERNED BY THE F IRST PROVISO. DHARMENDRA SHARMA 297 ITR 320 (DEL) & P.M. ELECTRON ICS 313 ITR 161 (DELHI) FOLLOWED; (III) IF THE EMPLOYEES CONTRIBUTION IS NOT DEPOSIT ED BY THE DUE DATE PRESCRIBED UNDER THE RELEVANT ACTS AND IS DEPOSITED LATE, THE EMPLOYER NOT ONLY PAYS INTEREST ON DELAYED PAYMENT BUT CAN INCUR PENALTIES ALSO, FOR WHICH SPECIFIC PROVISIONS ARE M ADE IN THE PROVIDENT FUND ACT AS WELL AS THE ESI ACT. THEREFOR E, THE ACT PERMITS THE EMPLOYER TO MAKE THE DEPOSIT WITH SOME DELAYS, SUBJECT TO THE AFORESAID CONSEQUENCES. INSOFAR AS THE INCOM E-TAX ACT IS CONCERNED, THE ASSESSEE CAN GET THE BENEFIT IF THE ACTUAL PAYMENT IS MADE BEFORE THE RETURN IS FILED, AS PER THE PRINCIP LE LAID DOWN IN VINAY CEMENT. 9.4 IN VIEW OF THE FOREGOING, WE HAVE NO HESITAT ION IN HOLDING THAT THE EMPLOYEES CONTRIBUTION TOWARDS PF/ESI MADE B Y THE ASSESSEE BEFORE THE DUE DATE OF FILING OF RETURN U/S 139(1) OF THE ACT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION IS ADMISSIBLE. THEREFORE, WE VACATE THE FINDINGS OF THE LD. CIT(A) AND CONSEQUEN TLY, DIRECT THE AO TO ALLOW PAYMENTS MADE ON ACCOUNT OF EMPLOYEES CO NTRIBUTION TOWARDS PF/ESI ON OR BEFORE THE DUE DATE OF FILING OF THE RETURN U/S 11 ITA NO.2728/AHD/2009 139(1) OF THE ACT. WITH THESE DIRECTIONS, GROUND NO . 2 IN THE APPEAL IS ALLOWED. 10. GROUND NO.3 BEING MERE PRAYER NOR ANY SUBMISSI ONS HAVING BEEN MADE ON THIS GROUNDS, DOES NOT REQUIRE ANY SEP ARATE ADJUDICATION WHILE NO ADDITIONAL GROUND HAVING BEEN RAISED BEFORE US IN TERMS OF RESIDUARY GROUND NO. 4 IN THE APPEAL, A CCORDINGLY, THESE GROUNDS ARE DISMISSED. 11. IN THE RESULT, APPEAL IS ALLOWED ORDER PRONOUNCED IN THE COURT TODAY ON 30 -06-2011 SD/- SD/- ( T K SHARMA ) JUDICIAL MEMBER ( A N PAHUJA ) ACCOUNTANT MEMBER DATED : 30 -06-2011 COPY OF THE ORDER FORWARDED TO: 1. M/S ADARSH TEXTILE MILLS, C-24 & 25, LUTHRA APAR TMENT, NAWABWADI, BEGUMPURA, SURAT 2. THE ITO, WARD-5(1), SURAT 3. CIT CONCERNED 4. CIT(A)-III, SURAT 5. DR, ITAT, AHMEDABAD BENCH-C, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD