Ocean Agro (India) Ltd., Ahmedabad V. The Deputy Commissioner of Income Tax, Circle-3(1)(2), Ahmedabad

ITA 3365/AHD/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 4105 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2013-2014
• Appeal Filed On: 14-12-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Commercial expediency
• Section: 43B; 37(1); 37

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ./ ITA NO. 3365/AHD/2016 / ASSESSMENT YEAR: 2013-14 OCEAN AGRO (INDIA) LTD. A/207, OXFORD AVENUE ASHRAM ROAD AHMEDABAD 380 009. PAN : AAACO 1849 A VS DCIT, CIR.3(1)(2) AHMEDABAD. / (APPELLANT) / (RESPONDENT) ASSESSEE BY : MS.IRA KAPOOR, WITH SHRI P.M.MEHTA, ARS. REVENUE BY : SHRI MUDIT NAGPAL, SR.DR / DATE OF HEARING : 01/08/2018 /DATE OF PRONOUNCEMENT : 13 /08/2018 O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER : ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST ORDER OF THE LD.CIT(A)- 9, AHMEDABAD DATED 17.10.2016 PASSED FOR THE ASSESSMENT YEAR 2013-14. 2. THOUGH THE ASSESSEE HAS RAISED FIVE GROUNDS OF A PPEAL, IT HAS PRESSED ONLY GROUND NO.2 AND 3 FOR ADJUDICATION. GROUND NO .2 IS REGARDING DISALLOWANCE OF DEDUCTION UNDER SECTION 36(1)(VA) O F THE ACT TOWARDS PROVIDENT FUND AND EMPLOYEES STATE INSURANCE, WHILE GROUND NO.2 IS ITA NO.3365/AHD/2016 - 2 - AGAINST UPHOLDING OF DISALLOWANCE OF RS.26,000/- PA ID TOWARDS LEGAL EXPENSES. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED ITS RETURN OF INCOME ON 30.9.2013 DECLARING TOTAL INCOME AT RS.57 ,96,180/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMEN T AND NOTICE UNDER SECTION 143(2) WAS ISSUED AND SERVED UPON THE ASSES SEE. DURING THE ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO TH AT AN AMOUNT OF RS.5,01,183- RECEIVED BY THE ASSESSEE FROM ITS EMPL OYEES TOWARDS EMPLOYEES CONTRIBUTION TO PF AND ESIC HAS NOT BEEN DEPOSITED BY THE ASSESSEE ON OR BEFORE THE DUE DATE. THE DETAILS AM OUNTS OF CONTRIBUTION BY THE EMPLOYEES, DUE DATE AND DATE OF PAYMENT HAVE BE EN MENTIONED BY THE AO IN THE ASSESSMENT ORDER AT PAGE NO.10. AO PROPO SED TO DISALLOW THE SAME, AND FOR THAT A SHOW CAUSE NOTICE WAS ISSUED T O THE ASSESSEE TO EXPLAIN THE REASON FOR LATE PAYMENT OF PF AND ESCI COLLECTED FROM THE EMPLOYEES. ASSESSEE SUBMITTED A REPLY DATED 7.1.20 16, BUT SUCH REPLY OF THE ASSESSEE DID NOT FIND FAVOUR FROM THE AO. THE AO ACCORDINGLY DISALLOWED THE SAME AND ADDED TO THE INCOME OF THE ASSESSEE. DISSATISFIED WITH THE ORDER OF THE AO, THE ASSESSEE WENT IN APPE AL BEFORE THE LD.FIRST APPELLATE AUTHORITY. THE LD.CIT(A) CONSIDERING SUBM ISSIONS AND DETAILS FURNISHED BY THE ASSESSEE RESTRICTED THE DISALLOWAN CE TO RS.4,10,932/-. 4. BEFORE US, THE LD.COUNSEL FOR THE ASSESSEE REITE RATED SUBMISSIONS AS WERE MADE BEFORE THE REVENUE AUTHORITIES, WHILE LD. DR RELIED UPON THE ORDERS OF REVENUE AUTHORITIES. 5. WE HAVE CONSIDERED SUBMISSIONS OF BOTH THE SIDES AND GONE THROUGH THE RECORD CAREFULLY. THE CLAIM OF THE ASSESSEE IS THAT SINCE PF ITA NO.3365/AHD/2016 - 3 - CONTRIBUTIONS HAVE BEEN MADE WITHIN THE DUE DATE OF FILING OF RETURN, THE SAME WOULD BE ALLOWABLE AS DEDUCTION UNDER SECTION 43B OF THE ACT. WE FIND THAT AMOUNT IN DISPUTE RELATES TO EMPLOYEES CONTRIBUTION AND NOT EMPLOYERS CONTRIBUTION. SECTION 43B RELATES TO SUM PAYABLE BY THE ASSESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTION TO A NY PROVIDENT FUND ETC., WHEREAS SECTION 36(1)(VA) RELATES TO ANY SUM RECEIV ED BY THE ASSESSEE FROM ANY HIS EMPLOYEES TO BE CREDITED TO THE EMPLOYEES ACCOUNT IN THE RELEVANT FUND OR BEFORE THE DUE DATE PROVIDED IN RELEVANT AC T. THEREFORE, THESE TWO SECTIONS ARE DISTINCT AND INDEPENDENT TO EACH OTHER AND APPLY IN DIFFERENT SITUATIONS. THE CLAIM OF THE ASSESSEE FALLS WITHIN THE AMBIT OF SECTION 36(1)(VA) AND THE DUE DATE DEFINED IN THE EXPLANATION ATTACHED TO THIS SECTION FOR DEPOSITING THE SUM DEDUCTED FROM THE SA LARY OF THE EMPLOYEES WITH THE RELEVANT FUND IS THE DATE PROVIDED RELEVAN T ACT AND NOT THE DUE DATE AS PROVIDED IN SECTION 139(1) OF THE INCOME TA X ACT. REVENUE AUTHORITIES HAVE CONSIDERED THIS POSITION OF LAW AN D DISALLOWED THE DEDUCTION. FURTHER, IN NUMBER OF SIMILAR CASES, TR IBUNAL HAS CONSISTENTLY DISMISSED SUCH CLAIM OF THE ASSESSEE BY FOLLOWING T HE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T VS. GSRTC, 265 CTR 64 (GUJ) WHEREIN IT HAS HELD THAT WHERE ASSESSE E DID NOT DEPOSIT EMPLOYEES' CONTRIBUTION TO EMPLOYEES' ACCOUNT IN RE LEVANT FUND BEFORE DUE DATE PRESCRIBED IN EXPLANATION TO SECTION 36(1)(VA), NO DEDUCTION WOULD BE ADMISSIBLE EVEN THOUGH HE DEPOSITS SAME BEFORE DUE DATE UNDER SECTION 43B. THIS BEING THE POSITION, AS INTERPRETED BY TH E HONBLE JURISDICTIONAL HIGH COURT, WE ARE NOT INCLINED TO INTERFERE IN THE ORDER OF THE REVENUE AUTHORITIES ON THIS ISSUE, WHICH IS UPHELD, AND THI S GROUND OF ASSESSEE IS DISMISSED. ITA NO.3365/AHD/2016 - 4 - 6. COMING TO THE NEXT ISSUE OF THE ASSESSEE REGARDI NG DISALLOWANCE OF ALLEGED LEGAL EXPENSES OF RS.26,000/-, BRIEF FACTS ARE THAT DURING THE ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSE SSEE DEBITED A SUM OF RS.26,000/-, WHICH ACCORDING TO THE AO WAS IN THE N ATURE OF PENALTY FOR AN OFFENCE. AO BY ISSUING A SHOW CAUSE NOTICE PROPOSE D DISALLOWANCE OF THE SAME, AND ACCORDINGLY SOUGHT FOR EXPLANATION FROM T HE ASSESSEE. ASSESSEE SUBMITTED THAT THE PAYMENT IN QUESTION WAS TOWARDS COMPOUNDING FEES LEVIED BY THE LEGAL METROLOGY DEPARTMENT, NAGPUR, W HICH WAS COMPENSATORY IN NATURE AND NOT PENAL AS ALLEGED BY THE AO. IT WAS SUBMITTED THAT EXPENDITURE CANNOT BE ALLOWED UNDER EXPLANATION TO SECTION 37 ONLY WHEN IT WAS INCURRED FOR AN OFFENCE OR THE ACTS PROHIBITED BY THE LAW. THE PAYMENT OF COMPOUNDING FEES, WHICH WAS NE ITHER AN OFFENCE NOR PROHIBITED BY THE LAW, CANNOT BE DISALLOWED. THE A O DID NOT ACCEPT THIS SUBMISSION OF THE ASSESSEE AND HELD THAT SINCE LEGA L EXPENSES CLAIMED BY THE ASSESSEE HAS AN ELEMENT OF BREACH OF LAW, THERE FORE, THE SAME WAS PENALTY AND NOT ALLOWABLE UNDER SECTION 37. AGGRIE VED ASSESSEE WENT IN APPEAL BEFORE THE LD.FIRST APPELLATE WHO ALSO CONCU RRED WITH THE FINDING OF THE AO AND CONFIRMED ADDITION. ASSESSEE IS NOW BEFO RE THE TRIBUNAL. 7. BEFORE US ALSO THE ASSESSEE REITERATED SUBMISSIO NS AS WERE MADE BEFORE THE REVENUE AUTHORITIES BELOW. SHE FURTHER CONTENDED THAT IN THE CLAIM OF THE ASSESSEE THERE IS NO ELEMENT OF PENALT Y. IT WAS AN EXPENDITURE MOTIVATED BY COMMERCIAL PURPOSE AND WOULD BE ELIGIB LE FOR DEDUCTION UNDER SECTION 37(1) OF THE ACT. SHE ALSO PLACED ON RECORD COPY OF LETTER OF INSPECTOR OF LEGAL METROLOGY DEPTT. NAGPUR DATED 11 .7.2012 REQUESTING TO MAKE PAYMENT OF COMPOUNDING FEES. THE LD.DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE REVENUE AUTHORITIES. ITA NO.3365/AHD/2016 - 5 - 8. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND GONE TH ROUGH THE RECORD CAREFULLY. A SHORT ISSUE BEFORE US IS, WHETHER COM POUNDING FEES EXPENDED BY THE ASSESSEE IS COMPENSATORY IN NATURE, AND ALLO WABLE EXPENDITURE UNDER SECTION 37(1) OR NOT. WE FIND THAT EXPLANATION 1 APPENDED TO SECTION 37(1) OF THE INCOME TAX ACT PROHIBITS ALLOW ANCE OF ANY EXPENDITURE, IF IT WAS INCURRED FOR ILLEGAL ACTIVIT IES OR TOWARDS INFRINGEMENT OF LAW. THE LD.REVENUE AUTHORITIES CONSTRUED THE P AYMENT MADE BY THE ASSESSEE TO INSPECTOR OF LEGAL METROLOGY DEPARTMENT AS INCURRED TOWARDS VIOLATION OF LAW WHICH IS PENAL IN NATURE. ON THE OTHER HAND, THE STAND OF THE ASSESSEE IS THAT IT IS A COMPENSATORY IN NATURE AND NOT PENAL NATURE AND ACCORDINGLY THE SAME SHOULD NOT BE DISALLOWED. ON DUE CONSIDERATION OF THE FACTS AND CIRCUMSTANCES, WE FIND THAT THE IMPUG NED EXPENDITURE INCURRED BY THE ASSESSEE IS MORE IN THE NATURE OF C OMPENSATORY AND NECESSITATED BY COMMERCIAL EXPEDIENCY. IN THE NORM AL INCIDENCES OF BUSINESS, CERTAIN DAMAGES ARE TO BE PAID BY AN ASSE SSEE AND THE EXPENSES SO INCURRED IS AN ALLOWABLE DEDUCTION IN THE ORDINA RY COURSE OF THE BUSINESS. THE LETTER OF INSPECTOR OF LEGAL METROLO GY, NAGPUR DATED 11.7.2012 STATES THAT THE ASSESSEE TO MAKE PAYMENT OF RS.20,000/- TO AVOID ANY FUTURE LITIGATION. THE ASSESSEE HAS SETTLED TH E ISSUE BY PAYING THE SUM AS COMPENSATION/DAMAGES FOR THE INTEREST OF ITS BUS INESS, WHICH ACCORDING TO US, CANNOT BE TREATED AS INCURRED FOR INFRACTION OF ANY LAW AND THEREFORE TO BE DISALLOWED. WE ARE NOT CONVINCED WITH THE AC TION OF THE AO IN DISALLOWING THE IMPUGNED CLAIM OF THE ASSESSEE, AS THERE IS NO FINDING RECORDED BY THE REVENUE AUTHORITIES BELOW TO DEMONS TRATE THAT EXPENSES INCURRED BY THE ASSESSEE IS A PENAL IN NATURE AND A SSESSEE HAS COMMITTED ANY CONTRAVENTION OF LAW. REVENUE AUTHORITIES SIM PLY TREATED THE ITA NO.3365/AHD/2016 - 6 - EXPENSES AS INADMISSIBLE WITHOUT EXAMINATION OF ANY FACTS. IN THE ABSENCE OF THE SAME, WE ARE NOT INCLINED TO UPHOLD ORDERS O F BOTH THE AUTHORITIES BELOW ON THIS ISSUE, WHICH IS ACCORDINGLY DELETED A ND THE GROUND OF APPEAL OF THE ASSESSEE ON THIS ISSUE IS ALLOWED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 13 TH AUGUST, 2018. SD/- (WASEEM AHMED) ACCOUNTANT MEMBER SD/- (RAJPAL YADAV) JUDICIAL MEMBER