DCIT, Circle-2(2), Hyderabad, Hyderabad V. HRH Next Services Pvt.Ltd., Hyderabad, Hyderabad

ITA 290/HYD/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2358 (ITAT-HYDERABAD)
• Duration Of Justice: 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-07-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 21-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUMAN MALIK
• Assessee Lawyers: AJAY GANDHI
• Section: 43B; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 290/HYD/2017 ASSESSMENT YEAR: 2013-14 DY. COMMISSIONER OF INCOME- TAX, CIRCLE 2(2), HYDERABAD VS. HRH NEXT SERVICES PVT. LTD., HYDERABAD. PAN AABCH 8117 R (APPELLANT) (RESPONDENT) REVENUE BY : SMT. SUMAN MALIK ASSESSEE BY : SHRI AJAY GANDHI DATE OF HEARING : 06-06-2017 DATE OF PRONOUNCEMENT : 07-07-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS IS AN APPEAL OF THE REVENUE DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (A) - 2 HYDE RABAD, DATED 30/11/2016 FOR AY 2013-14 WHEREIN THE REVENUE HAS R AISED THE FOLLOWING SUBSTANTIAL GROUND OF APPEAL: IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WHETHER THE CIT(A) IS CORRECT IN LAW IN HOLDING THAT THE PAYMENT OF TH E EMPLOYEES CONTRIBUTION TOWARDS EPF & ESI BY THE EMPLOYER ASSE SSEE, WHICH IS NOT IN CONSONANCE WITH THE EXPLANATION TO SECTION 36(1)(VA) IS ENTITLED FOR DEDUCTION U/S 43B OF THE IT ACT. 2. THE AO HAS DISALLOWED THE PF & ESI CONTRIBUTION S TOWARDS EMPLOYEES MADE BY THE ASSESSEE OF RS. 2,36,680/- ON THE GROUND THAT THE SAME WERE BELATEDLY PAID AND WERE LIABLE T O BE DISALLOWED U/S 36(1)(VA). 2 ITA NO. 290/H/17 HRH NEXT SERVICES PVT. LTD. 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE P REFERRED AN APPEAL BEFORE THE CIT(A) AND CONTENDED BEFORE THE CIT(A) THAT THOUGH THE EMPLOYEE CONTRIBUTIONS OF PF WERE NOT PA ID WITHIN THE PERMISSIBLE TIME UNDER THE RESPECTIVE ACT BUT WAS P AID BEFORE THE DUE DATE OF FILING OF RETURN. FURTHER ASSESSEE RELIED O N THE DECISION OF ITAT IN THE CASE OF TETRA SOFT INDIA PVT. LTD., HYD ERABAD FOR AYS 2008-09 AND 2010-11 IN ITA NOS. 218 & 219/HYD/2015 VIDE ORDER DATED 03/06/2015 WHEREIN ON SIMILAR ISSUE, THE TRIB UNAL DELETED THE ADDITION MADE BY THE AO TOWARDS BELATED CONTRIBUTIO N TO PF. 4. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, DELETED THE DISALLOWANCE FOLLOWING THE DECISION OF THE ITAT IN TETRA SOFT INDIA PVT. LTD. (SUPRA). 5. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENU E IS IN APPEAL BEFORE US. 6. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF REVENUE AUTHORITIES AS WELL AS MATERIAL ON RECORD. THE AO HAS INVOKED THE PROVISIONS OF SECTION 36(1)(VA) TO DISA LLOW ESI & PF PAYMENTS. WE HAVE CAREFULLY GONE THROUGH THE SECTIO N 36(1)(VA) WITH SECTION 2(24)(X) AND ALSO GONE THROUGH DECISION OF THE HONBLE HIGH COURT OF ALLAHABAD IN THE CASE OF SAGUN FOUNDRY (P) LTD. VS. CIT, [2017] 78 TAXMANN.COM 47 (ALL.) WHEREIN THE HONBLE COURT HAS OBSERVED AS UNDER: SECTION 36(1)(VA) PERMITS DEDUCTIONS IN RESPECT TO RELEVANT FUND OF EMPLOYEES. SECTION 43B PERMITS DEDUCTIONS OTHERWISE ALLOWABLE UNDER THE INCOME- TAX ACT IN CASE ANY SUM PAYABLE BY THE ASSESSEE IS PAID ACTUALLY BEFORE THE DATE OF FILING OF RETURN UNDER SECTION 139 AND CARVES OUT AN EXCEPTION IN THIS REGARD. EXPLANATION TO SECTION 36(1)(VA) PROVIDES THAT DED UCTION SHALL BE ALLOWED IN RESPECT TO THE SUM PAID BY THE ASSESSEE TO EMPLOYEE'S ACCOUNT, 3 ITA NO. 290/H/17 HRH NEXT SERVICES PVT. LTD. IN THE RELEVANT FUND, ON OR BEFORE DUE DATE, I.E., SUCH DATE BY WHICH ASSESSEE IS REQUIRED TO CREDIT EMPLOYEE'S CONTRIBUT ION IN THE RELEVANT FUND, UNDER ANY ACT, RULE, ORDER OR NOTIFICATION ISSUED T HEREIN. IN THE INSTANT CASE, DUE DATE, THEREFORE, SHALL BE THE DATE MENTIO NED IN THE 1952 ACT OR 1948 ACT OR RULES FRAMED THEREUNDER, ETC. BY WHICH CONTRIBUTIONS WERE TO BE MADE. ADMITTEDLY AS PER DUE DATE UNDER THE RELEV ANT ACTS, CONTRIBUTIONS WERE NOT PAID BY THE ASSESSEE. SECTIO N 36(1)(VA) TALKS OF ONLY EMPLOYEE'S CONTRIBUTION AND ALLOW DEDUCTION IN RESPECT THERETO IN COMPUTING 'INCOME' UNDER SECTION 28. SO FAR AS SECTION 43B IS CONCERNED, IT WAS INSERTE D WITH EFFECT FROM 1-4- 1984 TO ALLOW DEDUCTIONS PROVIDED PAYMENTS ARE ACTU ALLY MADE BEFORE FILING OF RETURN AS PER DUE DATE UNDER SECTION 139( 1). 'INCOME' DEFINED UNDER SECTION 2(24) INCLUDES 'PROFITS AND GAINS'. U NDER SECTION 2(24)(X), ANY SUM RECEIVED BY ASSESSEE FROM HIS EMPLOYEES AS CONTRIBUTION TO ANY PROVIDENT FUND/SUPERANNUATION FUND OR ANY FUND SET UP UNDER EMPLOYEES STATE INSURANCE ACT, 1948, OR ANY OTHER FUND FOR WE LFARE OF SUCH EMPLOYEES, CONSTITUTE 'INCOME'. IN RESPECT TO SUCH CONTRIBUTIONS DEDUCTION WAS ALLOWED UNDER SECTION 36(1)(VA) WHEN CONTRIBUTI ONS RECEIVED BY EMPLOYER IS DEPOSITED WITHIN TIME PRESCRIBED, UNDER RELEVANT LABOUR WELFARE STATUTE. PRIOR TO 1-4-1984, EVERY ASSESSEE WAS ENTITLED TO DEDUCTION ON MERCANTILE SYSTEM OF ACCOUNTING AS A B USINESS EXPENDITURE BY MAKING PROVISION IN HIS BOOKS OF ACCOUNT IN THAT REGARD AND THIS SITUATION CONTINUED UPTO 1-4-1984. AN ASSESSEE, IF MAINTAINING BOOKS ON ACCRUAL SYSTEM OF ACCOUNTING, EVEN AFTER COLLECTING CONTRIBUTION FROM HIS EMPLOYEE, AND EVEN WITHOUT REMITTING THE AMOUNT TO REGIONAL PROVIDENT FUND COMMISSIONER, HE WOULD HAVE CLAIMED DEDUCTION AS 'BUSINESS EXPENSE' BY MERELY MAKING A PROVISION TO THAT EFFEC T IN HIS BOOKS OF ACCOUNT. A SIMILAR DISCREPANCY WAS NOTICED IN THE C ONTEXT OF SALES TAX WHERE ASSESSEE COLLECTED THE SAME AND OTHER INDIREC T TAXES FROM HIS RESPECTIVE CUSTOMERS AND CLAIMED DEDUCTION ONLY BY MAKING PROVISIONS IN HIS BOOKS WITHOUT ACTUALLY REMITTING THE AMOUNT TO EXCHEQUER. TO CURB THIS PRACTICE, SECTION 43B WAS INSERTED WITH EFFECT FROM 1-4-1984, WHEREBY MERCANTILE SYSTEM OF ACCOUNTING WITH REGARD TO TAX, DUTY AND CONTRIBUTIONS TO WELFARE FUNDS STOOD DISCONTINUED. NOW IT BECAME NECESSARY FOR THE ASSESSEE TO ACCOUNT FOR THE AFORE STATED ITEMS, NOT ONMERCANTILE BASIS, BUT ON CASH BASIS. WITH EFFECT FROM 1-4-1988 SECTION 43B WAS AGAIN AMENDED AND A PROVISO WAS INSERTED. I T PROVIDED, INTER ALIA, IN THE CONTEXT OF ANY SUM PAYABLE BY THE ASSE SSEE BY WAY OF TAX, DUTY, CESS OR FEE, IF SUCH AN ASSESSEE PAYS SUCH TAX, DUT Y, CESS OR FEE EVEN AFTER CLOSING OF ACCOUNTING YEAR BUT BEFORE DATE OF FILIN G OF RETURN UNDER SECTION 139(1), ASSESSEE WOULD BE ENTITLED TO DEDUCTION UND ER SECTION 43B ON ACTUAL PAYMENT BASIS AND SUCH DEDUCTION WOULD BE AD MISSIBLE FOR THE ACCOUNTING YEAR. THIS PROVISO, HOWEVER, WAS NOT MAD E APPLICABLE TO CONTRIBUTIONS MADE BY THE ASSESSEE TO LABOUR WELFAR E FUNDS. BY FINANCE 4 ITA NO. 290/H/17 HRH NEXT SERVICES PVT. LTD. ACT, 1988, WITH EFFECT FROM 1-4-1988, SECOND PROVIS O CAME TO BE INSERTED. SECOND PROVISO WAS FURTHER AMENDED BY FINANCE ACT, 1989 WITH EFFECT FROM 1-4-1989. FROM THE ABOVE PROVISIONS, NOW ASSESSEE BECOMES EN TITLED TO DEDUCTION ONLY IF CONTRIBUTION STAND CREDITED ON OR BEFORE DU E DATE, GIVEN IN LABOUR WELFARE STATUTES. HOWEVER, SECOND PROVISO AGAIN CRE ATED CERTAIN DIFFICULTIES. IN MANY OF THE COMPANIES, FINANCIAL Y EAR ENDED ON 31ST MARCH DID NOT COINCIDE WITH ACCOUNTING PERIOD OF LABOUR W ELFARE STATUTES. IN MANY CASES, TIME TO MAKE CONTRIBUTION OF FUNDS ENDE D AFTER DUE DATE OF FILING OF RETURNS. ON THE REPRESENTATION OF INDUSTR IES, AGAIN PARLIAMENT, VIDE FINANCE ACT, 2003, WITH EFFECT FROM 1-4-2004, MADE AMENDMENT BY DELETING SECOND PROVISO AND AMENDING FIRST PROVISO. THE SUPREME COURT IN THE CASE OF ALOM EXTRUSIONS L TD. (SUPRA) CONSIDERED THE INTENT, PURPOSE AND OBJECT IN THE HI STORICAL BACK DROP OF INSERTION OF SECTION 43B AND ITS PROGRESS BY WAY OF VARIOUS AMENDMENTS AND HELD THAT WHEN THE CONTRIBUTION HAD BEEN PAID B Y THE ASSESSEE TOWARDS PROVIDENT FUND, ETC. PRIOR TO FILING OF RET URN UNDER SECTION 139(1), THE ASSESSEE WOULD BE ENTITLED FOR DEDUCTION UNDER SECTION 43B. [PARA 27] FROM THE AFORESAID JUDGMENT OF THE SUPREME COURT, THE BENCH FINDS THAT IRRESPECTIVE OF THE FACT THAT DEDUCTION IN RESPECT OF SUM PAYABLE BY EMPLOYER'S CONTRIBUTION WAS INVOLVED, BUT THE COURT DID NOT RESTRICT OBSERVATIONS, FINDINGS AND DECLARATION OF LAW TO TH AT CONTEXT BUT LOOKING TO THE OBJECTIVE AND PURPOSE OF INSERTION OF SECTIO N 43B APPLIED IT TO BOTH THE CONTRIBUTIONS, WHETHER BY EMPLOYER OR EMPLOYEE. IT ALSO OBSERVED CLEARLY THAT SECTION 43B IS WITH A NON OBSTANTE CLA USE AND, THEREFORE, OVER RIDE EVEN IF, ANYTHING OTHERWISE IS CONTAINED IN SE CTION 36 OR ANY PROVISION OF THE INCOME-TAX ACT. IN VIEW OF THE AFORESAID, THE ASSESSEE WAS ENTITLE D TO DEDUCTIONS UNDER SECTIONS 43B AND 36(1)(VA). 6.1 AFTER CONSIDERING THE RATIO LAID DOWN BY THE HO NBLE HIGH COURT AS ABOVE IN THE SAID CASE AND RESPECTFULLY FOLLOWIN G THE SAME, WE HOLD THAT NO DISALLOWANCE CAN BE MADE TOWARDS PF/ES I CONTRIBUTIONS MADE BY THE ASSESSEE WITHIN THE FY OR BEFORE FILING OF THE RETURN. IN THE GIVEN CASE, WE DID NOT FIND IN THE ASSESSMENT O RDER OR IN THE CIT(A)S ORDER THAT THE ASSESSEE HAS IN FACT REMITT ED THE ESI & PF PAYMENTS BY THE END OF THE FY, THEREFORE, WE REMIT THIS ISSUE BACK TO THE FILE OF THE AO TO VERIFY WHETHER PAYMENTS WERE MADE BEFORE FILING 5 ITA NO. 290/H/17 HRH NEXT SERVICES PVT. LTD. THE RETURN OF INCOME OR NOT. IF PAYMENTS WERE MADE WITHIN THE FY OR BEFORE FILING RETURN OF INCOME, THE AO IS DIRECTED TO DELETE THE ADDITIONS MADE ON THIS COUNT. 7. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 7 TH JULY, 2017. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RA HMAN) JUDICIAL MEMBER AC COUNTANT MEMBER HYDERABAD, DATED: 7 TH JULY, 2017. KV COPY TO:- 1) DCIT, CIRCLE 2(2), ROOM NO. 513, 5 TH FLOOR, SIGNATURE TOWERS, KONDAPUR, HYDERABAD. 2) M/S HRH NEXT SERVICES PVT. LTD., 4-1-976, G.J. H OUSE, ABIDS, HYDERABAD 500 001. 3) CIT(A) - 2, HYDERABAD 4) PR. CIT - 2, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE