M/s. WILSON SANDHU LOGISTICS (INDIA) P. LTD, MUMBAI V. ADDL CIT RG 8(3), MUMBAI

ITA 4183/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7672 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 28-01-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 12-06-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: HITESH P SHAH
• Keywords: Opportunity of being heard; Bonafide belief; Set aside
• Section: 43B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G : MUMBAI BEFORE SHRI D.K. AGARWAL, (JM) AND SHRI R.K. PAND A ,(AM) S. NO . ITA NO. APPELLANT RESPONDENT ASSTT. YEAR 1. 4183/MUM/2008 M/S. WILSON SANDHU LOGISTICS (INDIA) PVT. LTD. 2, SWAROOP CHAMBERS OPP., AAI IMPORT WARE HOUSE SAHAR PIPE LINE ROAD, ANDHERI (E) MUMBAI- 400 099. P.A. NO. (AAACW 3666 K) ADDL. COMMISSIONER OF INCOME TAX RANGE-8(3) ROOM NO.220, 2 ND FLOOR AAYAKAR BHAVAN MAHARSHI KARVE ROAD MUMBAI- 20. 2005-06 2. 4017/MUM/2008 ADDL. COMMISSIONER OF INCOME TAX RANGE-8(3) M/S. WILSON SANDHU LOGISTICS (INDIA) PVT. LTD. 2005-06 ASSESSEE BY : S HRI HITESH P. SHAH DEPARTMENT BY : SHR I MOHD. USMAN O R D E R PER D.K. AGARWAL (JM). THESE CROSS APPEALS BY THE ASSESSEE AND THE REVENUE ARE DIRECTED AGAINST THE ORDER DATED 19.03. 2008 PASSED BY THE LD. CIT(A) FOR THE ASSESSMENT YEAR 2005-06. SINCE ISSUES INVOLVED ARE COMMON, BOTH THESE APPEALS ARE DISPOSED OF FOR THE SAKE OF CONVEN IENCE. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF INTERNATIONAL FREIGHT FORW ARDING AND ALLIED ACTIVITIES. IT FILED RETURN DECLARING TOTAL INCOME AT RS.5,77,84,190/-. DURING THE COURSE OF ASSESSMENT PROCEEDING IT WAS INTERALI A OBSERVED ITA NOS.4183 & 4017/M/08 A.Y: 05-06 2 BY THE AO THAT THE ASSESSEE HAD MADE LATE PAYMENT IN RE SPECT OF EMPLOYEES CONTRIBUTION TO PF AND EMPLOYEES STATE INSURA NCE SCHEME. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY LATE PAYMENT MAY NOT BE DISALLOWED. IT WAS INTERALIA EXPLAINED BY THE ASSESSE E THAT THE ASSESSEE WAS UNDER A BONAFIDE BELIEF THAT THE DELAYED PAYMENT WAS AT PAR WITH BENEFITS GIVEN TO EMPLOYERS CONTRIBUTION U /S.43B THE PAYMENT OF WHICH MAY BE MADE BEFORE THE DUE DATE OF FILING OF RETURN. FURTHER AS PER PF ACT AND ESIC ACT PAYMENTS MADE WITHIN THE GRACE DAYS ARE REGARDED AS PAYMENTS MADE WITHIN THE STIPULATE D TIME, THEREFORE, THE SAME MAY BE ALLOWED. THE AO AFTER CONSI DERING ASSESSEES EXPLANATION WAS OF THE VIEW THAT THE ASSESSEE HAS N OT PAID RESPECTIVE AMOUNTS ON OR BEFORE DUE DATE, THEREFORE, H E ADDED RS.15,32,448/- BEING EMPLOYEES PF AND RS.50,105/- BEIN G EMPLOYEES STATE INSURANCE SCHEME TO THE INCOME OF THE ASSESSEE. IT WAS FURTHER OBSERVED BY THE AO THAT THE ASSESSEE HAS CHARGED INTEREST O F RS.2,56,748/- ON THE ADVANCES, NO INTEREST HAS BEEN CHARG ED ON THE DEPOSITS GIVEN TO DIRECTORS FOR PREMISES TAKEN ON RENT. ON THE OTHER HAND THE ASSESSEE HAS TAKEN OVERDRAFT FROM THE BANKS APPA RENTLY FOR THE PURPOSE OF BUSINESS. THESE OVERDRAFTS WOULD HAVE BEE N LOWER IF THE INTEREST FREE DEPOSITS MENTIONED ABOVE HAD NOT BEE N MADE BY THE ASSESSEE . THE AO FOLLOWING THE APPELLATE ORDER FOR TH E ASSESSMENT YEAR 2003-04 WHEREIN SUCH DISALLOWANCE OF INTEREST WAS C ONFIRMED BY ITA NOS.4183 & 4017/M/08 A.Y: 05-06 3 THE LD. CIT(A) DISALLOWED RS.6,48,600/- OUT OF INTER EST PAID AND ACCORDINGLY COMPLETED THE ASSESSMENT AT AN INCOME OF RS.6,00,15,340/- VIDE ORDER DT.15.10.07 PASSED U./S. 14 3(3) OF THE INCOME TAX ACT, 1961(THE ACT). ON APPEAL, THE LD. CIT (A) WHILE HOLDING THAT THE PAYMENT OF EMPLOYEES PF AND ESIC M ADE WITHIN THE GRACE PERIOD SHOULD BE ALLOWED AS DEDUCTION, CONFIRMED T HE DISALLOWANCE OF PAYMENT MADE BEYOND GRACE PERIOD. ON DISALLOWANCE OF INTEREST THE LD. CIT(A) DIRECTED TO RE-QUANTIFY T HE DISALLOWANCE AS PER DIRECTIONS CONTAINED IN PARA 3.4 OF HIS ORDER AND A CCORDINGLY PARTLY ALLOWED THE APPEAL. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) T HE ASSESSEE AND REVENUE BOTH ARE IN APPEAL BEFORE US. 4. GROUND NO.1 AND 2 TAKEN BY THE ASSESSEE READ AS UNDE R : 1. THE LD. CIT(A) ERRED IN PARTLY CONFIRMING THE DISALLOWANCE OF INTEREST ON BANK OVERDRAFT WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF APPELLA NTS CASE. 2. THE LD. CIT(A) AND THE LD. A.O. FAILED TO APPREC IATE THE FACT THAT THE APPELLANT COMPANY WAS HAVING SUFFICIE NT INTEREST FREE FUNDS OF ITS OWN. 5. THE ADDITIONAL GROUND NO.1, 2 AND 3 TAKEN BY THE ASSESSEE READ AS UNDER : ITA NOS.4183 & 4017/M/08 A.Y: 05-06 4 1. THE LD. CIT(A) AS WELL AS THE LD.A.O. ERRED IN ASSUMING AND PRESUMING THAT THE INTEREST INCURRED O N BORROWING, WAS NOT MADE FOR THE PURPOSE OF BUSINESS . 2. THE LD. CIT(A) AS WELL AS LD. A.O. OUGHT TO HAVE APPRECIATED THE FACT THAT ALL THE PREMISES TAKEN ON LEASE FROM THE DIRECTORS, WERE USED BY THE COMPANY FOR IT S BUSINESS PURPOSES ONLY. 3. THE LD. CIT(A) ERRED IN HOLDING THAT THE RENT I N RESPECT OF 102, 103-SWAROOP CHAMBERS AND 224/224(1) - KRISHNA CHAMBERS, IS SLIGHTLY HIGHER THAN THE GOOL MANSION. 6. GROUND NO.1 TAKEN BY REVENUE READS AS UNDER : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALL OWANCE OUT OF INTEREST EXPENSES ON ACCOUNT OF INTEREST FRE E DEPOSITS GIVEN TO DIRECTORS FOR PREMISES TAKEN ON L EASE FROM THEM, WITHOUT APPRECIATING THE FACTS OF THE CA SE. 7. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSE SSEE, AT THE OUTSET, SUBMITS THAT THE ASSESSEE HAS HIS OWN INTEREST FREE FUNDS OF RS.37,43,93,444/- AS PER BALANCE SHEET AS ON 31.3.2005 A PPEARING AT PAGE-2 OF ASSESSEES PAPER BOOK AND THE SAID INTEREST FREE FUND IS MORE THAN THE ADVANCE GIVEN TO THE DIRECTORS. FURTHER THE SECURED LOANS WERE UTILISED FOR THE PURPOSE FOR WHICH IT WAS TAK EN, THEREFORE, THE DISALLOWANCE OF INTEREST MADE BY THE AO AND SUSTAIN ED BY THE LD. CIT(A) IS LIABLE TO BE DELETED. HOWEVER, HE CONFIRMS T HAT THIS PLEA WAS NOT BEING TAKEN BEFORE THE AO OR THE LD. CIT(A) THE REFORE, IN THE INTEREST OF JUSTICE THE ISSUE MAY BE SET ASIDE TO THE FIL E OF THE AO. ITA NOS.4183 & 4017/M/08 A.Y: 05-06 5 8. ON THE OTHER HAND, THE LD. DR WHILE RELYING ON T HE ORDER OF THE AO SUBMITS THAT HE HAS NO OBJECTION IF THE MATTER IS REST ORED BACK TO THE FILE OF THE AO. 9. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE RIVAL P ARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD WE FIND M ERIT IN THE PLEA OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ISSUE OF DISALLO WANCE OF INTEREST HAS NOT BEEN EXAMINED IN THE LIGHT OF INTER EST FREE FUNDS AVAILABLE WITH THE ASSESSEE. THE HONBLE SUPREME COURT IN MUNJAL SALES CORPORATION VS. CIT AND ANOTHER (2008) 298 ITR 298 (SC) HELD ( PAGE 298 HEADNOTE) ..THAT SINCE THE OPENING BALANCE OF THE PROFITS O F THE ASSESSEE-FIRM AS ON APRIL 1, 1994,, WAS RS.1.91 CRORES, AND THE PROFITS WERE SUFFICIENT TO COVER TH E LOAN GIVEN TO A SISTER CONCERN OF RS.5 LAKHS ONLY, THE A PPELLATE TRIBUNAL OUGHT OT HAVE HELD THAT THE LOAN GIVEN WAS FROM THE ASSESSEES OWN FUNDS. IN THE LIGHT OF THE RATIO OF THE ABOVE DECISION WE AR E OF THE VIEW THAT IN THE INTEREST OF JUSTICE THE MATTER SHOULD GO BACK TO TH E FILE OF THE AO AND ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY THE REVE NUE AUTHORITIES ON THIS ACCOUNT AND SEND BACK THE MATTER TO T HE FILE OF THE AO WHO SHALL DECIDE THE SAME AFRESH AND ACCORDINGLY TO L AW AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE ITA NOS.4183 & 4017/M/08 A.Y: 05-06 6 GROUNDS TAKEN BY ASSESSEE AND THE REVENUE ARE THEREFORE, PARTLY ALLOWED FOR STATISTICAL PURPOSES. 10. GROUND NO.3 TAKEN BY THE ASSESSEE READS AS UNDER : THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF EMPLOYEES CONTRIBUTION AND EMPLOYE RS CONTRIBUTION TO PROVIDENT FUND AND ESIC MADE AFTER THE GRACE PERIOD WITHOUT APPRECIATING THE FACT THAT THE SAME WERE MADE BEFORE THE DUE DATE OF FILING OF RETURN. 11. GROUND NO.2 TAKEN BY THE REVENUE READS UNDER: 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELTING TH E DISALLOWANCE OF EMPLOYEES CONTRIBUTION TO PF & ESI C MADE WITHIN THE GRACE PERIOD AS SPECIFIED IN RESPEC TIVE ACTS. 12. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSESSEE AFTER REFERRING TO THE LATEST DECISION OF HONBLE SUPREME COU RT IN CIT VS. ALOM EXTRUSIONS LTD. (2009) 319 ITR 306(SC) SUBMITS TH AT ALL THE PAYMENT MADE BEFORE THE DUE DATE OF FILING OF THE R ETURN MAY BE ALLOWED. 13. ON THE OTHER HAND THE LD. DR SUPPORTS THE ORDER O F THE AO. 14. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE R IVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THERE IS NO DISPUTE THAT THE AO HAS MADE THE DISALLOWANCE OF EMPLO YEES ITA NOS.4183 & 4017/M/08 A.Y: 05-06 7 CONTRIBUTION TO PF RS.15,32,448/- AND EMPLOYEES STATE INSURANCE SCHEME RS.50,105/- ON THE GROUND THAT THE SAID AMOUNTS HAVE NOT BEEN PAID BEFORE THE DUE DATE AS PROVIDED UNDER SECTIO N 36(1)(VA) R.W.S. U/S.2(24)(X) OF THE ACT. THE LD. CIT(A) FOLL OWING THE DECISION OF THE CO-ORDINATE BENCHES OF THE TRIBUNAL THAT IF THE P AYMENTS OF EMPLOYEES CONTRIBUTION TO PF AND ESIC ARE MADE WITHI N THE GRACE PERIOD, PROVIDED UNDER THE RELEVANT ACT, THE DISALLO WANCE OF THE SAME IS NOT JUSTIFIED, HELD THAT THE ADDITION IN RESPECT OF DELAYED PAYMENT OF EMPLOYEES CONTRIBUTION TO PF AND ESIC WITHIN THE GRACE PERIOD IS DELETED AND THE PAYMENTS MADE BEYOND GRACE PERIOD IS U PHELD. 15. IN CIT VS. ALOM EXTRUSIONS LTD. SUPRA, THE SHORT QUE STION BEFORE THEIR LORDSHIPS WAS WHETHER OMISSION (DELETION) OF SECO ND PROVISO TO SECTION 43B OF THE INCOME TAX ACT, 1961, BY THE FINANCE ACT, 2003, OPERATED W.E.F. APRIL 1, 2004, OR WHETHER IT OPERAT ED RETROSPECTIVELY W.E.F. APRIL 1, 1988 ? . IT HAS BEEN HELD ( PLACIT UM 18 PAGE 316 OF 319 ITR): FOR THE AFORESTATED REASONS, WE HOLD THAT THE FINANCE ACT, 2003, TO THE EXTENT INDICATED ABOVE, I S CURATIVE IN NATURE, HENCE, IT IS RETROSPECTIVE AND IT WOULD OPERATE WITH EFFECT FROM APRIL 1, 1988 (WHEN THE FI RST PROVISO CAME TO BE INSERTED). FOR THE ABOVE REASON S, WE FIND NO MERIT IN THIS BATCH OF CIVIL APPEALS FILED BY THE DEPARTMENT WHICH ARE HEREBY DISMISSED WITH NO ORDER AS TO COSTS. ITA NOS.4183 & 4017/M/08 A.Y: 05-06 8 THUS, THE ISSUE BEFORE THE HONBLE SUPREME COURT WAS DIF FERENT THAN THE ISSUE BEFORE US. THAT BEING SO, AND KEEPING IN V IEW THAT IT IS NOBODYS CASE THAT THE AMENDED PROVISIONS OF SECTION 43B ARE NOT APPLICABLE TO THE ASSESSEES CASE WHICH PERTAINS TO THE AY 05-06, WE KEEPING IN VIEW, THE CONSISTENT VIEW OF THE COORDINATE BENCHES OF THE TRIBUNAL UPHOLD THE FINDING OF THE LD. CIT(A) IN D ELETING THE DISALLOWANCE OF EMPLOYEES CONTRIBUTION TO PF AND ESIC IF PAID WITHIN THE GRACE PERIOD AND IN UPHOLDING THE DISALLOWANCE IF PAID BEYOND THE GRACE PERIOD. THE GROUNDS TAKEN BY THE ASSESSEE AND REVE NUE ARE, THEREFORE, REJECTED. 16. IN THE RESULT, BOTH THE APPEALS STAND PARTLY ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 12.2.2010. SD/- SD/- ( R.K. PANDA ) ( D.K. AGARWAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 12.2.2010. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI. ITA NOS.4183 & 4017/M/08 A.Y: 05-06 9 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 28.1.10 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 29.1.10 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 12.2.10 SR.PS/PS 7. FILE SENT TO THE BENCH CLERK 15.2.10 SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER