ADDL. CIT, SPECIAL RANGE- 7, NEW DELHI V. PEREGRINE GUARDING PVT. LTD., NEW DELHI

ITA 5968/DEL/2017

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 7843 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2021
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: F
• Assessment Year: 2014-2015
• Appeal Filed On: 18-09-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: AJAY MANGOTIA
• Keywords: Deemed to accrue or arise in india; Question of law; Corroborative evidences; Set aside
• Section: 37(1); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “F” BENCH: NEW DELHI (THROUGH VIDEO CONFERENCING ) BEFORE SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER & SHRI KUL BHARAT, JUDICIAL MEMBER ITA No.5968/Del/2017 Assessment Year : 2014-15 Addl. CIT, Special Range-7, New Delhi. vs Peregrine Guarding Pvt.Ltd., RZ-1B, Kapashera Crossing, New Delhi-110037. PAN-AADCP2498P APPELLANT RESPONDENT Appellant by Sh. I P S Bindra, CIT DR Respondent by Sh. Ajay Mangotia, Adv. Date of Hearing 20.10.2021 Date of Pronouncement 24.11.2021 ORDER PER KUL BHARAT, JM : This appeal filed by the Revenue pertaining to assessment year 2014-15 is directed against the order of Ld. CIT(A)-38, Delhi dated 16.06.2017. The Revenue has raised following grounds of appeal:- 1. “On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law by deleting the addition/disallowance of Rs. 11,31,26,215/- made by the AO u/s 2(24)(X) r.w.s.36(1)(va) on account of delayed payment of EPF and ESIC, ignoring the clarification issued by the binding Circular No. 22/2015 of CBDT. 2. On the facts and circumstances of the case, Ld. CIT (A) erred in law by deleting the addition/disallowance of Rs. 67,96,840/- on account of Sponsorship Fees for higher education of Director's son u/s 37(1) of the IT Act on the basis of a self serving agreement which does not prove any nexus between the expenses claimed and business purposes of the assessee. ITA No.5968/Del/2017 Assessment Year : 2014-15 Page | 2 3. The appellant craves to be allowed to add any fresh ground(s) of appeal and / or delete or amend any of the ground(s) of appeal.” 2. Facts giving rise to the present appeal are that the assessee company filed its original return of income on 29.11.2014 declaring income of Rs.15,46,10,480/-. The case was selected for complete scrutiny assessment. Thereafter, the Assessing Officer issued requisite notice u/s 143(2) of the Income Tax Act, 1961 (“the Act”). In response to the notice issued, Ld. AR for the assessee attended the proceedings. The Assessing Officer during the course of assessment proceedings recorded that the assessee had debited a sum of Rs.67,96,840/- as the expenditure on sponsorship fee in respect of Mr. Angad Rajain, son of one of the Directors of the assessee company pursuing MBA in USA. The Assessing Officer after considering the submissions of the assessee disallowed the deduction and made addition of the same to the income of the assessee. The Assessing Officer also noticed that in respect of employee’s contribution towards provident fund and ESIC, there was a delay in depositing the amount. In respect to the query of the Assessing Officer, Ld. Counsel for the assessee stated that the delay in depositing was unintentional and the said contribution of Rs. 11,31,26,215/- was deposited before the due dates of filing of return of income. However, the Assessing Officer did not accept this explanation of the assessee and proceeded to make additions. Hence, the Assessing Officer assessed the income at Rs.27,45,33,540/- against the income of Rs.15,46,10,480/- declared by the assessee. 3. Aggrieved against this, the assessee preferred appeal before Ld.CIT(A) who after considering the submissions, partly allowed the appeal. Thereby, ITA No.5968/Del/2017 Assessment Year : 2014-15 Page | 3 Ld.CIT(A) deleted the addition in respect of the payment of EPF and ESIC and sponsorship fee. 4. Aggrieved against this, the Revenue is in appeal before this Tribunal. 5. Ground No.1 raised by the Revenue is against the deletion of addition of Rs.11,31,26,215/- made by the Assessing Officer in respect of EPF & ESIC contribution. 6. Ld.CIT DR supported the order of the Assessing Officer and placed reliance on the decision of the Hon’ble Delhi High Court rendered in the case of CIT vs Bharat Hotels Ltd. [2019] 103 Taxmann.com 295 (Delhi). He submitted that Ld.CIT(A) therefore, was not justified in deleting the addition. 7. Per contra, Ld. Counsel for the assessee supported the order of Ld.CIT(A) and submitted that the Hon’ble Jurisdictional High Court in the case of CIT vs AIMIL Ltd. 321 ITR 508 and also in the case of PCIT vs Pro Interactive Service (India) Pvt.Ltd. in ITA No.983/2018 [Del.] order dated 10.09.2018 submitted that in view of the binding precedents, the Assessing Officer was not justified in making the addition. The Ld.CIT(A) has therefore, rightly deleted the same. 8. We have heard the rival contentions and perused the material available on record. The Hon’ble Delhi High Court in the case AIMIL Ltd. (supra) has held as under:- 17. “We may only add that if the employees’ contribution is not deposited by the due date prescribed under the relevant Acts and is deposited late, the employer not only pays interest on delayed payment ITA No.5968/Del/2017 Assessment Year : 2014-15 Page | 4 but can incur penalties also, for which specific provisions are made in the Provident Fund Act as well as the ESI Act. Therefore, the Act permits the employer to make the deposit with some delays, subject to the aforesaid consequences. Insofar as the Income Tax Act is concerned, the assessee can get the benefit if the actual payment is made before the return is filed, as per the principle laid down by the Supreme Court in Vinay Cement (supra).” 9. It appears that the above decision was not brought to the notice of the Hon’ble Delhi High Court in the case of Bharat Hotels vs CIT (supra) wherein the Hon’ble High Court has decided the issue in favour of the Revenue by observing as under:- 8. “Having regard to the specific provisions of the Employees‟ Provident Funds Act and ESI Act as well as the concerned notifications which granted a grace period of 5 days (which appears to have been late withdrawn recently on 08.01.2016), we are of the opinion that the ITAT‟s decision in this case was not correct. The assessee undoubtedly was entitled to claim the benefit and properly treat such amounts as having been duly deposited, which were in fact deposited within the period prescribed (i.e. 15 + 5 days in the case of EPF and 21 days + any other grace period in terms of the extent notification). As far as the amounts constituting deductions from employees‟ salaries towards their contributions, which were made beyond such stipulated period, obviously the assessee was not entitled to claim the deduction from its returns.” 10. However, Hon’ble Delhi High Court in the case of PCIT vs Pro Interactive Service (India) Pvt.Ltd. in ITA No.983/2018 [Del.] order dated 10.09.2018 held as under:- ITA No.5968/Del/2017 Assessment Year : 2014-15 Page | 5 “In view of the judgement of the Division Bench of Delhi High Court in Commissioner of Income Tax versus AIMIL Limited, (2010) 321 ITR 508 (Del.) the issue is covered against the Revenue and, therefore, no substantial question of law arises for consideration in this appeal. The legislative intent was/is to ensure that the amount paid is allowed as an expenditure only when payment is actually made. We do not think that the legislative intent and objective is to treat belated payment of Employee’s Provident Fund (EPD) and Employee’s State Insurance Scheme (ESI) as deemed income of the employer under section 2(23)(x) of the Act.” Respectfully following the same and ratio laid down by the Hon’ble Jurisdictional High Court in above-mentioned cases, this ground raised by the Revenue is dismissed. 11. Now, coming to Ground No.2 raised by the Revenue as aggrieved by the decision of Ld.CIT(A) for deleting disallowance of Rs.67,96,840/- made on account of sponsorship fee for higher education of Director’s son u/s 37(1) of the Act. 12. Ld. CIT DR vehemently argued that Ld.CIT(A) was not justified in deleting the disallowance as the assessee has not provided any evidence suggesting that sponsorship fee of study of the son of the Director was authorized by the Board and there is no evidence suggesting that after completion of the study of the son of the Director, worked for the assessee company. In the absence of such evidences, there was no justification in allowing the expenditure incurred on the studies of the son of the Director of the company. ITA No.5968/Del/2017 Assessment Year : 2014-15 Page | 6 13. On the contrary, Ld. Counsel for the assessee supported the order of Ld.CIT(A) and submitted that the copy of agreement dated 26.07.2012 was furnished before Ld.CIT(A). He submitted the studies were sponsored as per the Agreement and it is allowable expenditure. 14. We have heard the rival contentions and perused the material available on record. We find that Ld.CIT(A) has deleted the disallowance by observing as under:- 4.2. “I have considered the facts of the case, the submissions of appellant and the assessment order. The Ld. Assessing Officer has held that sponsorship fee of Rs.67,96,840/- paid by appellant on account of fees of Mr. Angad Rajain, son of one of the director of appellant for perusing MBA in USA should not be allowed u/s 37(1) of the IT Act, 1961. However, appellant has apart from furnishing copy of agreement dated 26.07.2012 between the appellant and Sh. Angad Rajain and other documents in support of the fact that Sh. Angad Rajain had complied with all the conditions set out in the agreement, also relied on a plethora of judicial pronouncements in support of admissibility of claim of deduction of sponsor fee u/s 37(1) of the IT Act, 1961. Respectfully following the decision of Hon'ble Delhi High Court in the case of M/s Kostub Investments Ltd. vs ACIT in ITA No. 10/2014, the facts of which case are very similar to the facts of the instant case, I hold that the expenditure claimed by appellant to fund the higher education of Sh. Angad Rajain had an intimate and direct connection with its business and that it is therefore, deductible u/s 37(1) of the Act. Therefore, ground of appeal ii is allowed.” 15. We find that the agreement dated 26.07.2012 was not notarized by the assessee nor any other supporting evidences suggesting that in pursuance of the agreement, son of the Director had worked for the company after ITA No.5968/Del/2017 Assessment Year : 2014-15 Page | 7 completing the MBA. In the absence of such evidence, we do not see any justification for deleting the disallowance by Ld.CIT(A). Under these facts, the impugned order on this issue is hereby set aside and the issue is restored to the file of the Assessing Officer to decide it afresh after giving opportunity to the assessee regarding evidence related to the services rendered by the son of the Director, namely Mr. Angad Rajain after completing his study. This ground is allowed for statistical purposes. 16. Ground No.3 raised by the Revenue is general in nature, needs no separate adjudication. 17. In the result, the appeal of the Revenue is partly allowed for statistical purposes. Above decision was pronounced on conclusion of Virtual Hearing in the presence of both the parties on 24 th November, 2021. Sd/- Sd/- (N.K.BILLAIYA) (KUL BHARAT) ACCOUNTANT MEMBER JUDICIAL MEMBER *Amit Kumar* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI