DCIT, CHENNAI V. M/s. Meridian Apparels Ltd., CHENNAI

ITA 2830/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4730 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2017
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 09-03-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 29-09-2016
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: RAMACHANDRAN CA
• Keywords: Depreciation; Revenue expenditure
• Section: 43B; 143(3); 142(1); 32; 2

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . , . , ' # BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NO. 2830/MDS/2016 / ASSESSMENT YEAR : 2011-12 DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE - 4(1), CHENNAI 600 034. VS. M/S. MERIDIAN APPARELS LIMITED, NO. 121/3, MERIDIAN HOUSE, TTK ROAD, ALWARPET, CHENNAI 600 018. [PAN: AAACM 7762Q] ( / APPELLANT) ( / RESPONDENT) % & / APPELLANT BY : SHRI SHIVA SRINIVAS, JCIT )*% & / RESPONDENT BY : SHRI RAMACHANDRAN, CA & /DATE OF HEARING : 09.03.2017 & /DATE OF PRONOUNCEMENT : 28.04.2017 /O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER: THE REVENUE HAS FILED AN APPEAL AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-8, CHENNAI IN ITA NO. 54/2014-15 DATED 28.07.2016 PASSED U/S. 143(3) OF THE INCOME T AX ACT. :-2-: I.T.A. N0. 2894/MDS/2016 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 2. THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.Z47,94,851/- BEING AMOUNT PAID TOWARDS PF& ESI U /S.36(1)(VA) R. W.S.2(24)(X). 2.1. THE CIT(A) FAILED TO APPRECIATE THE FINDINGS O F THE AO THAT REMITTANCE OF EMPLOYEES CONTRIBUTION TO PROVIDENT F UND AND ESI HAD BEEN DELAYED BY THE ASSESSEE BEYOND THE DUE DATE OF PAYMENT PRESCRIBED UNDER THE RESPECTIVE ACTS AND THEREFORE THE CUMULATIVE FIGURE OF ALL DEFAULTED PAYMENTS NEEDS TO BE DISALL OWED UNDER SECTION 36(1)(VA) READ WITH SECTION 2(24)(X). 2.2. THE CIT(A) FAILED TO TAKE NOTE THAT ON A READI NG OF SECTION 36(1)(VA), IT IS APPARENT THAT ANY SUM RECEIVED BY THE ASSESSEE FROM HIS EMPLOYEES TO WHICH THE PROVISIONS OF SUB-CLAUSE (X) OF CLAUSE (24) OF SECTION 2 APPLY, WAS CREDITED BY THE ASSESSEE TO TH E EMPLOYEES' ACCOUNT IN THE RELEVANT FUND OR FUNDS ON OR BEFORE THE DUE DATE PRESCRIBED UNDER EXPLANATION 1 TO SECTION 36(1)(VA), IS ENTITL ED TO DEDUCTION. IT THUS MEANS THAT SECTION 36(1)(VA) TAKES CARE OF CON TRIBUTION RECEIVED ON ACCOUNT OF THE EMPLOYEES AND CREDITED BY THE ASS ESSEE TO THE EMPLOYEES' ACCOUNT IN THE RELEVANT FUND OR FUNDS ON OR BEFORE THE DUE DATE AS PROVIDED UNDER THE RELEVANT STATUTE ALONE W ILL BE ENTITLED TO GET DEDUCTION. 2.3. THE CIT(A) FAILED TO TAKE NOTE THAT FOR THE PU RPOSES OF 36(1)(VA) READ WITH SECTION 2(24 )(X) ''DUE DATE' M EANS THE DATE BY WHICH THE ASSESSEE IS REQUIRED AS AN EMPLOYER TO CR EDIT AN EMPLOYEE'S CONTRIBUTION TO THE EMPLOYEE'S ACCOUNT IN THE RELEV ANT FUND OR FUNDS ON OR BEFORE THE DUE DATE AS PER EXPLANATION TO SECTIO N 36(1)(VA) OF THE ACT T. E. DATE BY WHICH THE CONCERNED ASSESSEE WAS REQUIRED AS AN EMPLOYER TO CREDIT EMPLOYEES' CONTRIBUTION TO THE E MPLOYEES' ACCOUNT IN :-3-: I.T.A. N0. 2894/MDS/2016 THE PROVIDENT FUND UNDER THE PROVIDENT FUND ACT AND /OR IN THE ESI FUND UNDER THE ESI ACT. 2.4. HAVING REGARD TO THE HON'BLE HIGH COURT OF KER ALA IN THE CASE OF CIT V. MERCHEM LTD (2015) 61 TAXMANN.COM 119 (KE RALA) WHEREIN IT IS HELD THAT SO FAR AS EMPLOYEES CONTRIBUTION IS CO NCERNED. ASSESSEE IS ENTITLED TO GET DEDUCTION OF AMOUNTS AS PROVIDED UN DER SECTION 36(1)(VA) ONLY IF AMOUNTS SO RECEIVED FROM EMPLOYEE IS CREDITED IN SPECIFIED ACCOUNT WITHIN DUE DATE AS PROVIDED UNDER RELEVANT STATUTE, THE CIT(A) OUGHT TO HAVE UPHELD THE DISALLOWANCE U/ S.36(1)(VA). 2.5. IT IS SUBMITTED THAT THE CIT(A)'S RELIED UPON DECISION OF HON 'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. INDUS TRIAL SECURITY & INTELLIGENCE INDIA PVT. LTD IN TCA NO.585 & 586 OF 2015 DATED 24.072015 HAS NOT BECOME FINAL AND AGAINST WHICH TH E DEPARTMENT HAD FILED SLP BEFORE THE HON'BLE APEX COURT. 3. THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.2,291120/- U/S.32 ON MOTOR VEHICLE. 3.1. THE CIT(A) ERRED IN NOT APPRECIATING THE FINDI NGS OF THE AD THAT THE ASSESSEE IS NOT THE OWNER OF THE VEHICLE A ND THERE IS NO EVIDENCE PRODUCED THAT THE VEHICLE IS USED BY THE A SSESSEE. 4. THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF 20% OF VEHICLE MAINTENANCE EXPENSES OF RS. 8,93,033/-. 4.1. THE CIT(A) ERRED IN NOT APPRECIATING THE FINDI NGS OF THE AO THAT TWO OF THE VEHICLES ARE NOT REGISTERED IN THE NAME OF THE ASSESSEE AND HENCE THE AO HAS RIGHTLY MADE THE DISALLOWANCE OF 20% OF VEHICLE MAINTENANCE EXPENSES OF RS.8,93,033/-. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE COMPANY IS IN THE BUSINESS OF TEXTILES HANDLOOMS POWER LOOMS AND FILE D THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2011-12 ON 28.09.2011 ADMIT TING TOTAL LOSS OF RS :-4-: I.T.A. N0. 2894/MDS/2016 1,23,707/-. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S. 143(2) AND 142(1) OF THE ACT WAS ISSUED. IN COMPLIA NCE TO NOTICE, LD. AR OF THE ASSESSEE APPEARED FROM TIME TO TIME AND PRODUCE D AUDIT REPORT, FORM 3CD, LEDGER ACCOUNT OF DIRECTORS, LOANS & ADVANCES AND OTHER DETAILS PERTAINING TO TAX AUDIT REPORT AND BANK STATEMENT. THE LD. ASSESSING OFFICER CONSIDERING THESE FACTS ON VERIFICATION FOUND THAT THE ASSESSEE HAS CLAIMED DEPRECIATION IN RESPECT OF TWO VEHICLES THE USED BY THE COMPANY, THOUGH REGISTERED IN THE NAME OF THE DIRECTOR. THE ASSESSI NG OFFICER IS OF THE OPINION THOUGH THE FUNDS ARE FROM THE COMPANY, BUT THE VEHI CLES ARE PURCHASED IN THE NAME OF THE DIRECTOR, THEREFORE THE ASSESSEE COMPAN Y IS NOT ELIGIBLE FOR DEPRECIATION, AS NO EVIDENCE WAS PRODUCED WHERE THE VEHICLE IS USED EXCLUSIVELY BY THE ASSESSEE COMPANY AND THEREFORE, THE LD. AO HAS DISALLOWED THE CLAIM OF DEPRECIATION OF RS. 2,29,120/-. SIMILA RLY, THE ASSESSING OFFICER DISALLOWED VEHICLE MAINTENANCE ON THESE VEHICLES RS . 8,93,033/-. 3.1 ON THE THIRD DISPUTED ISSUE, THE ASSESSING OFF ICER FOUND THAT THE ASSESSEE COMPANY MENTIONED IN FORM 3CD THAT ESI & P F EMPLOYEES CONTRIBUTION WAS PAID WITHIN DUE DATE U/S. 139(1) O F THE ACT WHICH IS BEYOND THE DUE DATE SPECIFIED IN THEIR RESPECTIVE ACTS. TH E ASSESSING OFFICER MADE ADDITION OF RS. 2,47,94,851/- BEING THE EMPLOYEES C ONTRIBUTION OF ESI & PF DEPOSITED AFTER THE DUE DATE AND PASSED ORDER U/S. 143(3) DATED 28.03.2014. :-5-: I.T.A. N0. 2894/MDS/2016 4. AGGRIEVED BY THE ORDER, THE ASSESSEE HAS FILED AN APPEAL WITH THE CIT(A). IN THE APPELLATE PROCEEDINGS THE LD. AR ARG UED THE GROUNDS AND MADE SUBMISSIONS ON THE DISPUTED ISSUE. THE LD. CIT(A) F IND THAT THE LD. AO HAS DISALLOWED DEPRECIATION AS THE VEHICLES ARE NOT REG ISTERED IN THE NAME OF THE COMPANY BUT IN THE NAME OF THE DIRECTOR. BUT THE LD . CIT(A) RELIED ON THE JUDICIAL DECISIONS AND OBSERVED THAT THOUGH THE VEH ICLE IS NOT REGISTERED BUT USED FOR THE PURPOSE OF BUSINESS, HENCE, ALLOWED TH E DEPRECIATION ON VEHICLE AND ON THE DISPUTED ISSUE OF DISALLOWANCE OF VEHICL E MAINTENANCE RS. 8,93,033/-, THE LD. CIT(A) HAS DIRECTED THE ASSESSI NG OFFICER TO DELETE THE ADDITION. ON THE THIRD DISPUTED ISSUE OF DEPOSIT OF EMPLOYEES CONTRIBUTION TO ESI & PF BEYOND THE DUE DATE RS. 2,47,94,851/-. THE LD. CIT(A) CONSIDERED THE HONBLE APEX COURT AND JURISDICTIONAL HIGH COUR T DECISION CIT VS INDUSTRIAL SECURITY INTELLIGENCE INDIA PVT. LTD., (SUPRA) AND DELETED THE ADDITION AND ALLOWED THE APPEAL. 5. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVEN UE HAS FILED AN APPEAL WITH THE TRIBUNAL. BEFORE US, THE LD. AR ARGUED THA T THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF EMPLOYEES CONTRIBUTION OF ESI & PF U/S. 36(1)(VA) R.W.S. 2(24)(X) OF THE ACT AND THE DECISI ON OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS M/S. INDUSTRIAL SECURIT Y & INTELLIGENCE INDIA PVT. LTD TCA NO. 585 & 586/2015, WAS NOT ACCEPTED BY THE REVENUE AND SLP WAS :-6-: I.T.A. N0. 2894/MDS/2016 FILED BEFORE THE HON'BLE SUPREME COURT. CONTRA, THE LD. AR RELIED ON THE ORDER OF THE CIT(A) AND THE JURISDICTIONAL HIGH COURT DEC ISION. 6. WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MAT ERIAL ON RECORD AND JUDICIAL DECISIONS. THE GROUND ENVISAGED BY THE LD. AR THAT THE ASSESSEE COMPANY HAS COMPLIED THE CONDITIONS OF PAYMENT OF P F/ESI AND FOR THE DELAY IN DEPOSITS THE ASSESSEE IS LIABLE FOR PAYMENT OF I NTEREST. BUT UNDER THE PROVISIONS OF INCOME TAX ACT THE ASSESSEE COMPANY H AS DEPOSITED EMPLOYEES CONTRIBUTION OF ESI AND EPF BEFORE DUE DATE SPECIFI ED U/S. 139(1) OF THE ACT AND ARE COVERED BY THE PROVISIONS OF SEC. 43B OF TH E ACT. WE FOUND SIMILAR ISSUE WAS CONSIDERED BY THE JURISDICTIONAL HIGH COU RT IN THE CASE OF CIT VS. M/S. INDUSTRIAL SECURITY & INTELLIGENCE INDIA PVT. LTD TCA NO. 585 & 586/2015 HELD AS UNDER:- 5. 'WE FIND THAT THE TRIBUNAL HAS RIGHTLY RELIED ON THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT V. ALOM EXTRUSIONS LTD. REPORTED IN 319 ITR 306, WHEREBY TH E SUPREME COURT HELD THAT MISSION OF SECOND PROVISO TO SECTIO N 438 AND AMENDMENT TO FIRST PROVISO BY FINANCE ACT 2003 ARE CURATIVE IN NATURE AND ARE EFFECTIVE RETROSPECTIVELY I.E., WITH EFFECT FROM 1.4.1988 I.E, THE DATE OF INSERTION OF FIRST PROVIS O. THE DELHI HIGH COURT IN THE CASE OF CIT V. AMIL LTD. REPORTED IN 3 21 ITR 508 HELD THAT IF THE ASSESSEE HAD DEPOSITED EMPLOYEE'S CONTR IBUTION TOWARDS PROVIDENT FUND AND ESI AFTER DUE DATE AS PR ESCRIBED UNDER THE RELEVANT ACT BUT BEFORE THE DUE DATE OF F ILING OF RETURN UNDER THE INCOME TAX ACT NO DISALLOWANCE COULD BE M ADE IN VIEW :-7-: I.T.A. N0. 2894/MDS/2016 OF THE PROVISIONS OF SECTION 438 AS AMENDED BY FINA NCE ACT 2003. WE RESPECTFULLY FOLLOW THE JURISDICTIONAL HIGH COUR T DECISION AND WE FIND THE LD. CIT(A) HAS DEALT ON THE PROVISIONS AND FACTS AN D JUDICIAL DECISIONS AND DIRECTED AO TO DELETE THE ADDITION AND ACCORDINGLY, WE UPHOLD THE ACTION OF THE CIT(A) AND DISMISS THE GROUNDS OF APPEAL OF THE REVENUE. 7. ON THE SECOND DISPUTED ISSUE OF CLAIM OF DEPREC IATION ON THE VEHICLE WHICH ARE NOT REGISTERED IN THE NAME OF THE ASSESSE E COMPANY BUT IN THE NAME OF THE DIRECTOR AND USED FOR THE PURCHASE OF B USINESS. THE LD. DR SUBMITTED THAT THE LD. CITCA) HAS ERRED IN DELETING THE DISALLOWANCE OF DEPRECIATION RS. 2,29,120/- WITHOUT APPRECIATING TH E FACT THAT THE ASSESSEE IS NOT THE OWNER OF THE VEHICLE AND PRAYED FOR ALLOWIN G THE APPEAL. THE LD. AR RELIED ON THE ORDERS OF THE CIT(A) AND SUBMITTED TH AT UNDER THE PROVISIONS OF SECTION 32 OF THE ACT THE ASSESSEE SHOULD BE AN OWN ER OF THE PROPERTY. WE PERUSE THE PROVISIONS OF SECTION 32 OF THE ACT AS U NDER: 'OWNER' FOR THE PURPOSES OF SECTION 32 IS A PERSON WHO IS ENTITLED TO RECEIVE INCOME FROM THE PROPERTY IN HIS OWN RIGHT; IN ORDER TO CLAIM THE BENEFIT OF SECTION 32, IT IS NOT NECESSARY THAT THE ASSESSEE SHOULD BE A COMPLETE OWNER. THE LD. AR SUBMITTED THAT THERE IS NO CONTRAVENTION UNDER THE MOTOR VEHICLE ACT ON REGISTRATION OF VEHICLES, WHERE THE VEHICLE ROAD TAX IS SAME IF REGISTERED :-8-: I.T.A. N0. 2894/MDS/2016 IN THE NAME OF THE COMPANY OR ANY OTHER INDIVIDUAL. THE LD. AR ALSO SUBMITTED THAT THE ASSESSEE IS ENTITLED FOR DEPRECI ATION EVEN THOUGH HE IS NOT THE OWNER AND PLACED RELIANCE ON THE JUDICIAL DECIS IONS. 8. WE CONSIDERED THE APPARENT FACTS, MATERIAL ON R ECORD AND JUDICIAL DECISIONS. THE FACT BEING THE TWO VEHICLES ARE NOT REGISTERED IN THE NAME OF THE ASSESSEE COMPANY BUT IN THE NAME OF DIRECTOR AN D THE PAYMENTS WERE MADE OUT OF THE COMPANY FUNDS. FURTHER, SECTION 32 OF THE ACT INSISTS THAT THE ASSESSEE SHOULD BE THE OWNER OF ASSET FOR ALLOWING THE DEPRECIATION AND IT SHOULD BE USED FOR THE PURPOSE OF ASSESSEE'S BUSINE SS. WE FOUND THAT THE DEPRECIATION CANNOT BE GRANTED ON SUCH TRANSACTIONS AS THE PROVISIONS CLEARLY SPECIFY THAT ASSESSEE SHOULD BE A OWNER OF THE VEHI CLE AND THE REASONS EXPLAINED BY LD. AR ARE NOT SATISFACTORY. ACCORDING LY, WE ARE INCLINED TO SET ASIDE THE ORDER OF THE CIT(A) ON THIS GROUND AND RE STORE THE ADDITION AND ALLOW THE GROUNDS OF APPEAL OF THE ASSESSEE. 9. ON THE THIRD DISPUTED ISSUE THE ASSESSING OFFIC ER MADE DISALLOWANCE OF VEHICLE MAINTENANCE OF RS. 8,93,033/- BEING 20% OF ACTUAL VEHICLE MAINTENANCE THOUGH THEY ARE IN THE NAME OF ASSESSEE 'S COMPANY AND THE LD. AR RELIED ON THE ORDERS OF THE CIT(A). THE FACT BEI NG THOUGH THE VEHICLE IS NOT REGISTERED IN THE NAME OF THE ASSESSEE, BUT THE ASS ESSEE COMPANY HAS INCURRED EXPENDITURE ALONG WITH OTHER VEHICLES MAIN TENANCE WHICH ARE WHOLLY :-9-: I.T.A. N0. 2894/MDS/2016 AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. SO WE ARE OF THE OPINION THAT SUCH EXPENDITURE IS FOR THE PURPOSE OF BUSINESS AND IN THE NATURE OF REVENUE EXPENDITURE AND THE ASSESSEE COMPANY HAS RIGHTLY CL AIMED SUCH EXPENDITURE PROFIT & LOSS ACCOUNT. THEREFORE, WE ARE NOT INCLIN ED TO INTERFERE WITH THE ORDER OF THE CIT(A) ON THE DISALLOWANCE OF VEHICLE MAINTE NANCE WHO HAS CONSIDERED THE SUBMISSIONS AND DELETED THE ADDITION. ACCORDING LY, THE GROUNDS OF APPEAL OF THE REVENUE ARE DISMISSED. IN THE RESULT, THE REVENUE APPEAL IS PARTLY ALLOWED . ORDER PRONOUNCED ON FRIDAY, THE 28 TH APRIL, 2017 AT CHENNAI. SD/ - ( . ) ( A. MOHAN ALANKAMONY ) # / ACCOUNTANT MEMBER SD/ - ( . ) (G. PAVAN KUMAR) ) # /JUDICIAL MEMBER /CHENNAI, 0 /DATED: 28 TH APRIL, 2017 JPV & )'23 43 /COPY TO: 1. %/ APPELLANT 2. )*% /RESPONDENT 3. 5 ( )/CIT(A) 4. 5 /CIT 5. 3 )'' /DR 6. 9 /GF