HATHWAY CABLE & DATACOM P. LTD, MUMBAI V. ACIT CC 34, MUMBAI

ITA 3000/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49153 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 06-06-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 15-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GOLI SRINIWAS RAO
• Assessee Lawyers: K R LAKSHMI NARAYANAN
• Section: 43B; 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI R.K.PANDA (A .M) ITA NO.3000/MUM/2010(A.Y. 2005-06) HATHWAY CABLE & DATACOM P. LTD. 1 ST FLOOR, RAHEJAS MAIN AVENUE, V.P.ROAD, SANTACRUZ (W), MUMBAI 400 054. PAN:AAACC6814B (APPELLANT) VS. THE ACIT, CEN.CIR.34, AAYKAR BHAVAN, MK ROAD, MUMBAI 20. (RESPONDENT) APPELLANT BY : SHRI K.R. LAKSHMINARAYANAN RESPONDENT BY : SHRI GOLI SRINIWAS RAO ORDER PER N.V.VASUDEVAN, J.M, THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDE R DATED 11/3/2010 OF CIT, CEN.3 MUMBAI RELATING TO THE ASSESSMENT YEA R 2005-06 PASSED UNDER SECTION 263 OF THE INCOME TAX ACT, 1961 (THE ACT). 2. THE CIRCUMSTANCES UNDER WHICH THE ORDER UNDER SE CTION 263 OF THE ACT, WAS PASSED BY THE CIT ARE AS FOLLOWS: THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF CABLE NET WORK SERVICES AND INTERNET SERVICE PROVIDER. FOR A.Y 20 05-06 A RETURN OF INCOME WAS FILED DECLARING TOTAL LOSS OF RS.7,47,18,648/-. AN ORDER UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961(THE ACT) DATED 2 1/12/2007 WAS PASSED BY THE ASSESSING OFFICER DETERMINING THE TOTAL INCO ME AT RS.20,97,16,780/-. 3. THE CIT IN EXERCISE OF HIS POWERS UNDER SECTION 263 OF THE ACT WAS OF THE VIEW THAT THE ORDER PASSED BY THE ASSESSING OFF ICER UNDER SECTION 143(3) ITA NO.3000/MUM/2010(A.Y. 2005-06) 2 DATED 21/12/2007 WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. ACCORDING TO THE CIT FROM PERUSAL OF THE ANNEXURE-2 TO THE AUDIT REPORT IN FORM NO.3CD THE EMPLOYEES CONTRIBUTION TO PF AND ESIC HAD BEEN PAID BY ASSESSEE AFTER THE DUE DATE AND, THEREFORE, IN TERMS OF SECTION 36(1)(VA) OF THE ACT R.W.S. 2(24)(X) OF THE ACT THE DEDUCTION CLAIMED SHOULD HAVE BEEN DISALLOWED. SINCE THE AO DID NOT EXAMINE THIS ASPECT WHILE COMPLETING THE ASSESSMENT, THE CIT WAS OF THE VIEW THAT THE ORDER OF THE AO WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF TH E REVENUE. A SHOW CAUSE NOTICE UNDER SECTION 263 OF THE ACT WAS THEREFORE I SSUED BY CIT. 4. IN REPLY THE ASSESSEE SUBMITTED THAT THE EMPLOY EES CONTRIBUTION TO PF AND ESIC WAS PAID ONE DAY AFTER DUE DATE. IT WAS F URTHER POINTED OUT THAT A GRACE PERIOD OF 5 DAYS IS PERMITTED FOR MAKING PAYM ENTS BY VIRTUE OF CPFCS CIRCULAR NO.E-128(1)60/ III DATED 19/3/1964 AS MODI FIED BY CIRCULAR NO.E/II/128 (SECTION 14/B AMENDMENT)/73, DATED 24/1 0/73. THE ASSESSEE FURTHER BROUGHT TO THE NOTICE OF THE CIT THAT IN VI EW OF THE FOLLOWING DECISIONS CONTRIBUTION PAID WITHIN THE GRACE PERIOD HAVE TO B E CONSIDERED AS PAYMENT MADE ON OR BEFORE THE DUE DATE AND NO DISALLOWANCE CAN BE MADE UNDER SECTION 43B OF THE ACT. (A) CIT VS. MODI SPINNING & WEAVING MILLS, 292 ITR 479 (DEL) (B) CIT VS. SALAM CO-OP SPINNING MILLS LTD. 258 ITR 360 (MAD) (C) CIT VS. ALOM EXECUTIONS LTD. 319 ITR 306 (SC). 5. THE CIT HOWEVER, DID NOT AGREE WITH THE SUBMISS IONS OF THE ASSESSEE. HE FIRSTLY HELD THAT SECTION 43B OF THE ACT IS NOT APP LICABLE TO EMPLOYEES CONTRIBUTION OF PF AND ESIC AND THE QUESTION OF DED UCTION OF THE EMPLOYEES CONTRIBUTION TO PF AND ESIC HAS TO BE DETERMINED AS PER PROVISIONS OF SECTION 36(1)(VA) OF THE ACT. THE CIT WAS OF THE V IEW THAT THE ASSESSING OFFICER HAD NOT MADE ANY ENQUIRIES IN THIS REGARD A ND, THEREFORE, HIS ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF RE VENUE. THE CIT FURTHER HELD THAT SINCE SECTION 43B OF THE ACT IS NOT APPLI CABLE THE PAYMENTS MADE ITA NO.3000/MUM/2010(A.Y. 2005-06) 3 BEYOND DUE DATE HAVE TO BE DISALLOWED. THE CIT ACC ORDINGLY SET ASIDE THE ORDER OF THE ASSESSING OFFICER AND DIRECTED THE ASS ESSING OFFICER TO PASS FRESH ORDER IN THE LIGHT OF THE DIRECTIONS GIVEN IN THE ORDER UNDER SECTION 263. 6. AGGRIEVED BY THE AFORESAID ORDER OF THE CIT THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE ARE OF THE VIEW THAT THE ORDER OF THE CIT UNDER SECTION 263 DESERVES TO BE Q UASHED FOR THE FOLLOWING REASONS: SEC.36(1)(VA) ANY SUM RECEIVED BY THE ASSESSEE FROM ANY OF HIS EMPLOYEE TO WHICH THE PROVISIONS OF SUB-CLAUSE (X) OF CLAUSE (24) OF SECTION 2 APPLY, IF SUCH SUM IS CREDITED BY THE ASS ESSEE TO THE EMPLOYEES ACCOUNT IN THE RELEVANT FUND OR FUNDS ON OR BEFORE THE DUE DATE . EXPLANATION:- FOR THE PURPOSE OF THIS CLAUSE, DUE DATE MEANS THE DATE BY WHICH THE ASSESSEE IS REQUIRED AS AN EMPLO YER TO CREDIT AN EMPLOYEES CONTRIBUTION TO THE EMPLOYEES ACCOUNT I N THE RELEVANT FUND UNDER ANY ACT, RULE, ORDER OR NOTIFICATION ISSUED T HEREUNDER OR UNDER ANY STANDING ORDER, AWARD, CONTRACT OF SERVICE OR O THERWISE;] IN EXERCISE OF POWERS CONFERRED UNDER EMPLOYEES PF ACT, 1952 A CIRCULAR VIZ., CIRCULAR NO.E-128(1)60/ III DATED 19/3/1964 AS MODI FIED BY CIRCULAR NO.E/II/128 (SECTION 14/B AMENDMENT)/73, DATED 24/1 0/73 HAS BEEN PASSED WHEREBY A PERIOD OF 5 DAYS OF GRACE IS ALLOWED FOR MAKING PAYMENT OF PF CONTRIBUTION BY AN EMPLOYER. ADMITTEDLY IN THIS CA SE THE CONTRIBUTIONS HAVE BEEN PAID BY THE ASSESSEE (EMPLOYEES CONTRIBUTION) WITH A DELAY OF JUST ONE DAY IN THE MONTH OF MAY AND OCT. 2004. THE DETAILS IN THIS RE GARD ARE CONTAINED IN PAGE 2 OF THE ASSESSEES PAPER BOOK. IN THE TAX AUDIT REPORT IN FORM NO.3CD IT HAS FURTHER BEEN CLARIFIED THAT THE DELAY OF ONE DAY HAS OCCURRED BE CAUSE THE LAST DAY OF THE DUE DATE (WITHOUT CONSIDERING THE GRACE PERIOD) WAS A SUNDAY. WE ARE, THEREFORE, OF THE VIEW THAT THE DISALLOWANCE SOUGHT TO BE MADE UNDER SECTI ON 36(1)(VA) CANNOT BE SUSTAINED. ITA NO.3000/MUM/2010(A.Y. 2005-06) 4 IN TERMS OF EXPLANATION BELOW SEC.36(1)(VA) OF THE A CT, PAYMENT WHICH IS ALLOWED BY THE RELEVANT ACT, RULE, ORDER OR NOTIFICATION ISSUED TH EREUNDER HAS TO BE CONSIDERED AS PAYMENT WITHIN THE DUE DATE. FURTHER THE HONBLE DELHI HIGH COURT IN CIT VS. AIMIL LIMITED IN ITA NO. 1063 OF 2006 ITA NO.755 OF 2008 ITA NO. 204 OF 2009 ITA NO. 1214/2008 WITH ITA NO. 1246/2008 ITA NO. 50/2009 ITA NO. 78/2009 JUDGMENT DATED DECEMBER 23, 2009 H AD TO DEAL WITH A CASE OF DISALLOWANCE U/S.36(1)(VA) OF THE ACT. THE HONBLE COURT DISCUSSED THE PROVISIONS OF S. 2 (24) (X) WHICH PROVIDES THAT AMOUNTS RECEIVED B Y AN ASSESSEE FROM EMPLOYEES TOWARDS PF CONTRIBUTIONS ETC SHALL BE INCOME AND S. 36 (1) (VA) WHICH PROVIDES THAT IF SUCH SUMS ARE CONTRIBUTED TO THE EMPLOYEES ACCOU NT IN THE RELEVANT FUND ON OR BEFORE THE DUE DATE SPECIFIED IN THE PF ETC LEGISLATION, THE ASSESSEE SHALL BE ENTITLED TO A DEDUCTION. THE HONBLE COURT HELD THAT: (I) THOUGH THE REVENUE HAS ARGUED THAT A DISTINCTI ON IS TO BE MADE BETWEEN EMPLOYERS CONTRIBUTION AND EMPLOYEES CONTRIBUT ION AND THAT EMPLOYEES CONTRIBUTION BEING IN THE NATURE OF TRUST MONEY IN THE HANDS OF THE ASSESSEE CANNOT BE ALLOWED AS A DEDUCTION IF NOT PAID ON OR BEFORE THE DUE DATE SPECIFIED IN THE PF ETC LAW, THE SCHEME OF THE ACT IS THAT EMPLOYEES CONTRIBUTION IS TREATED AS INCOME U/S 2 (24) (X) ON RECEIPT BY THE ASSESSEE AND ALLOWED AS A DEDUCTION U/S 36 (1) (VA) ON MAKIN G DEPOSIT WITH THE CONCERNED AUTHORITIES. S. 43B (B) STIPULATES THAT S UCH DEDUCTION 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 (SC) WHERE THE DELETION OF THE SECOND PROVISO TO S. 43B W.E.F 1.4.2004 WAS HELD APPLICABLE TO EAR LIER YEARS AS WELL. AS THE DELETION OF THE 2ND PROVISO IS RETROSPECTIVE, THE C ASE HAS TO BE GOVERNED BY THE FIRST PROVISO. THE DECISION IN THE CASE OF DHARMENDRA SHARMA 297 ITR 320 (DEL) & P.M. ELECTRONICS 313 ITR 161 (DELHI) WERE 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 MADE IN THE PROVIDENT FUND ACT AS WE LL AS THE ESI ACT. ITA NO.3000/MUM/2010(A.Y. 2005-06) 5 THEREFORE, THE ACT PERMITS THE EMPLOYER TO MAKE THE DEPOSIT WITH SOME DELAYS, SUBJECT TO THE AFORESAID CONSEQUENCES. INSO FAR AS THE INCOME-TAX ACT IS CONCERNED, THE ASSESSEE CAN GET THE BENEFIT IF T HE ACTUAL PAYMENT IS MADE BEFORE THE RETURN IS FILED, AS PER THE PRINCIPLE LA ID DOWN IN VINAY CEMENT . 8. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT TH E ORDER OF THE ASSESSING OFFICER WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO TH E INTEREST OF REVENUE. CONSEQUENTLY THE CIT WAS NOT JUSTIFIED IN EXERCISIN G JURISDICTION UNDER SECTION 263 OF THE ACT. FOR THE REASONS STATED ABO VE WE CANCEL THE ORDER UNDER SECTION 263 OF THE ACT. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 10 TH DAY OF JUNE, 2011. SD/- SD/- (R.K.PANDA ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 10 TH JUNE.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RH BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.3000/MUM/2010(A.Y. 2005-06) 6 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 6/6/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 7/6/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER