DCIT, CHENNAI V. Diamond Engineering (Chennai) P Ltd, CHENNAI

ITA 865/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8344 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 21-07-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 04-04-2016
• Court: TRIBUNAL
• Department Lawyers: SUPRIYO PAL
• Assessee Lawyers: S SRIDHAR
• Keywords: Earning of tax free income; Question of law
• Section: 43B; 143(3); 14A; 147; 148

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . , . , BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER & SHRI DUVVURU R L REDDY , JUDICIAL MEMBER ./ I T.A. NO. 865 /MDS/201 6 / ASSESSMENT YEAR :20 11 - 12 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1 ( 1 ) , CHENNAI 600 034 . VS. M/S. DIAMOND ENGINEERING (CHENNAI) P. LTD., 501, VANDALUR KELAM BAKKAM MAIN ROAD, MAMBAKKAM, CHENNAI 60 0 127 . [PAN:AA ACD3949E ] ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI SUPRIYO PAL , JCIT / RESPONDENT BY : SHRI S. SRIDHAR, ADVOCATE / DATE OF HEARING : 2 1 . 0 7 .201 6 / DATE OF P RONOUNCEMENT : 07 . 1 0 .201 6 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF I NCOME TAX ( APPEALS ) 1 , CHENNAI , DATED 30 . 1 2 .201 5 RELEVANT TO THE ASSESSMENT YEAR 20 11 - 12 . THE REVENUE HAS RAISED FOLLOWING TWO EFFECTIVE GROUNDS: (I) THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE UNDER SECTION 36(1)(VA) OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT] WITH REGARD TO THE DELAY IN THE PAYMENT OF EMPLOYEE S CONTRIBUTION TO ESIC AND PF, AND I.T.A. NO . 86 5 /M/ 16 2 (II) THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE ADDITION MADE UNDER SECTION 14A OF THE ACT. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN BUSINESS OF ENGINEERING AND FABRICATION AND FILED ITS RETURN OF INCOME ON 26.09.2011 DECLARING TOTAL INCOME OF .19,44,79,495/ - . THE RETURN FILED BY THE ASSESSEE WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. THEREAFTER, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) OF THE ACT WAS ISSUED ON 12.09.2012. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND VERIFICATION OF DETAILS FILED BY IT, THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT W AS COMPLETED BY DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT .21,63,80,826/ - BY MAKING VARIOUS DISALLOWANCES. 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND ALSO CONSIDERING VARIOUS DECISIONS, THE LD. CIT(A) HAS ALLOWED THE APPEAL FILED B Y THE ASSESSEE. 4. ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL BY RAISING TWO GROUNDS WITH REGARD TO THE DELETION OF DISALLOWANCES MADE UNDER SECTION 36(1)(VA) OF THE ACT AND ALSO UNDER SECTION 14A OF THE ACT. BY REFERRING TO THE BO ARD S CIRCULAR DATED 17.12.2015, THE LD. DR HAS ARGUED THAT THE PROVISIONS OF SECTION 43B OF THE ACT WILL BE APPLICABLE ONLY IN RESPECT EMPLOYER S CONTRIBUTION TO THE FUNDS FOR THE WELFARE OF EMPLOYEES AND NOT IN I.T.A. NO . 86 5 /M/ 16 3 RESPECT OF THE EMPLOYER S CONTRIBUTION TO T HE FUNDS . FURTHER, WITH REGARD TO THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D, THE LD. DR HAS RELIED ON IN THE CASE OF GODREJ & BOYCES MFG. CO. LTD. 328 ITR 81 AND ARGUED THAT THE APPLICATION OF SECTION 14A OF THE ACT IS CONSTITUTIONALLY VALID AND RULE 8D IS APPLICABLE FROM THE ASSESSMENT YEAR 2008 - 09 ONWARDS AND PRAYED THAT THE ORDER OF THE LD. CIT(A) ON BOTH THE ISSUES SHOULD BE REVERSED. 5. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE FIRST ISSUE INVOLVED IN THE APPEAL OF THE REVENUE WITH REGARD TO DISALLOWANCE MADE UNDER SECTION 36(1)(VA) OF THE ACT IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. M/S. INDUSTRIAL SECURITY & INTELLIGENCE INDIA P VT. LTD. IN TCA NOS. 585 AND 586 OF 2015. WITH REGARD TO THE ISSUE OF DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT, THE LD. COUNSEL FOR THE ASSESSEE HAS STRONGLY RELIED ON THE DECISION IN THE CASE OF CHEMINVEST LTD. V. CIT (DEL) (HC) (2015) 61 TAXMANN.CO M 118 AND PLEADED THAT BOTH THE GROUNDS RAISED BY THE REVENUE SHOULD BE DISMISSED. 6. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE FIRST ISSUE RELATES TO DISALLOWANCE OF .2,09 ,62,709/ - UNDER SECTION 36(1)(VA) OF THE ACT BEING EMPLOYEE S CONTRIBUTION MADE BY THE EMPLOYER TO PF AND ESI. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE I.T.A. NO . 86 5 /M/ 16 4 HAS FAILED TO REMIT THE STATUTORY WELFARE DUES BEING EMPLOYEE S CON TRIBUTION TO PF WITHIN THE DUE DATES STIPULATED. WHEN THE ASSESSEE WAS ASKED TO EXPLAIN, THE ASSESSEE HAS SUBMITTED THAT DUE TO PAUCITY OF FUNDS, THE CONTRIBUTIONS WERE PAID LATE. THUS, THE ASSESSING OFFICER MADE THE DISALLOWANCE SINCE THE ASSESSEE WAS NOT REMITTED THE ABOVE CONTRIBUTIONS WITHIN THE DUE DATES. BY REITERATING THE SUBMISSIONS AS MADE BEFORE THE ASSESSING OFFICER, BEFORE THE LD. CIT(A), THE ASSESSEE HAS CONTENDED THAT THE REMITTANCE WERE MADE BEFORE THE DUE DATE FOR FILING OF THE RETURN, THE S AME SHOULD BE TREATED AS AN ALLOWABLE DEDUCTION. HE ALSO RELIED ON VARIOUS DECISIONS AND PLEADED THAT THE DISALLOWANCE SHOULD BE DELETED. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND BY CONSIDERING VARIOUS INCLUDING THE DECISION IN THE CASE OF AIM IL LTD. 321 ITR 508, THE LD. CIT(A) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. BEFORE US, THE LD. DR HAS SUBMITTED THAT THE PROVISIONS OF SECTION 43B OF THE ACT WILL BE APPLICABLE ONLY IN RESPECT EMPLOYER S CONTRIBUTION TO THE FUNDS FOR THE WELFARE OF EM PLOYEES AND NOT IN RESPECT OF THE EMPLOYER S CONTRIBUTION TO THE FUNDS. PER CONTRA, BY FILING COPY OF THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. M/S. INDUSTRIAL SECURITY & INTELLIGENCE INDIA PVT. LTD. (SUPRA), THE LD. COUNS EL FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE. WE HAVE PERUSED THE ABOVE DECISION, WHEREIN, THE HON BLE HIGH COURT HAS OBSERVED AND HELD AS UNDER: 2. THE BRIEF FACTS OF THE CASE ARE AS FOLLOWS: I.T.A. NO . 86 5 /M/ 16 5 THE RESPONDENT/ASS ESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEARS IN QUESTION. THE SAID RETURNS WERE PROCESSED AND WERE NOT SELECTED FOR SCRUTINY. SUBSEQUENTLY, THE ASSESSING OFFICER NOTICED THAT THERE WAS ESCAPEMENT OF INCOME AND HENCE REOPENED THE ASSESSMENTS UNDER SECTION 147 OF THE INCOME TAX ACT BY ISSUING NOTICE UNDER SECTION 148 OF THE INCOME TAX ACT. WHILE COMPLETING THE RE - ASSESSMENT, THE ASSESSIN G OFFICER DISALLOWED THE EXPENSES CLAIMED BY WAY OF EMPLOYEE'S CONTRIBUTION TO PF AND ESI HOLDING THAT THE ASSESSEE HAD NOT PAID THE EMPLOYEE'S CONTRIBUTION OF PF AND ESI WITHIN THE DUE DATES SPECIFIED UNDER THE RESPECTIVE ACT. AGGRIEVED BY THE SAID ORDER OF ASSESSMENT, THE ASSESSEE PREFERRED APPEALS BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) CHALLENGING THE REOPENING AS WELL AS THE DISALLOWANCE. THE COMMISSIONER OF INCOME TAX (APPEALS) SUSTAINED THE ORDER OF THE ASSESSMENT, THEREBY DISMISSED THE APP EALS. AGGRIEVED BY THE SAME, THE ASSESSEE PREFERRED FURTHER APPEALS BEFORE THE TRIBUNAL. THE TRIBUNAL RELIED UPON THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT V. ALOM EXTRUSIONS LTD . REPORTED IN 319 ITR 306, DECISION OF THE DELHI HIGH COURT IN THE CASE OF CIT V. AMIL LTD . REPORTED IN 321 ITR 508 AND THAT OF THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S.VENKATESWARA ELECTRICAL I NDUSTRIES P. LTD. V. DCIT IN ITA NOS.1344, 1345 AND 1636/MDS/2014 DATED 28.8.2014 HELD AS FOLLOWS: 5. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHORITIES AND THE DECISIONS RELIED ON BEFORE US. IT IS NOT IN DISPUTE THAT ALL THESE PAYMENTS OF PROVIDENT FUND RS.16,20,571/ - AND ESI RS.17,51,490/ - WERE MADE BEYOND THE GRACE PERIOD/DUE DATE ALLOWED UNDER PROVIDENT FUND & ESI ACTS BUT BEFORE DUE DATE FOR FILING OF INCOME - TAX RETURN. THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY VARIOUS HIGH COURT S FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. ALOM EXTRUSIONS LTD. (319 ITR 306), WHEREIN THE HON'BLE SUPREME COURT HELD THAT OMISSION OF SECOND PROVISO TO SECTION 43B AND AMENDMENT OF FIRST PROVISO BY FINANCE ACT , 2003 ARE CURATIVE IN NATURE AND ARE EFFECTIVE RETROSPECTIVELY AND THUS WITH EFFECT FROM 1.4.1988 I.E. THE DATE OF INSERTION OF FIRST PROVISO. THE CO - ORDINATE B ENCH OF THIS TRIBUNAL CONSIDERING A SIMILAR ISSUE IN THE CASE OF M/S.VENKATESWARA ELECTRICAL INDUSTRIES P. LTD. VS. DCIT (SUPRA) FOLLOWING THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. AMIL LTD. (321 ITR 508) HELD THAT EVEN THE EMPLOYEES CONTRIBUTION TO PROVIDENT FUND IS TO BE ALLOWED AS DEDUCTION IF IT IS PAID WITHIN DUE DATE FOR FILING OF RETURN. WHILE HOLDING SO, THE TRIBUNAL OBSERVED AS UNDER: - I.T.A. NO . 86 5 /M/ 16 6 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH THE SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW, AS WELL AS THE JUDGMENTS/DECISIONS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE. IT IS AN UN - DISPUTED FACT THAT THERE HAS BEEN DELAY IN REMITTANCE OF EMPLOYEES CONTRIBUTION OF ESI AND PROVIDENT FUND IN BOTH T HE AYS I.E., 2008 - 09 & 2009 - 10. IT IS EQUALLY UN - DISPUTED THAT THE ASSESSEE HAS DEPOSITED THE AMOUNT TOWARDS EMPLOYEES CONTRIBUTION OF ESI AND PROVIDENT FUND BEFORE THE DUE DATE OF FILING OF RETURN. THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. AMI L LTD., REPORTED AS 321 ITR 508 HAS HELD THAT IF THE ASSESSEE HAD DEPOSITED EMPLOYEES CONTRIBUTION TOWARDS PROVIDENT FUND AND ESI AFTER DUE DATE AS PRESCRIBED UNDER THE RELEVANT ACT BUT BEFORE THE DUE DATE OF FILING OF RETURN UNDER THE INCOME TAX ACT , NO DISALLOWANCE COULD BE MADE IN VIEW OF THE PROVISIONS OF SECTION 43B AS AMENDED BY THE FINANCE ACT , 2003. THE DECISION OF THE HON'BLE DELHI HIGH COURT HAS BEEN FOLLOWED BY THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF JCIT VS. M/S. S.M.APPARELS (P) LTD. (SUPRA). THE TRIBUNAL HAS BEEN CONSISTENTLY FOLLOWING THE VIEW TAKEN BY THE HON'BLE DELHI HI GH COURT. ACCORDINGLY, WE HOLD THAT THE ASSESSEE IS ENTITLED TO CLAIM EXPENDITURE ON EMPLOYEE'S CONTRIBUTION TOWARDS ESI AND PROVIDENT FUND FOR BOTH THE AYS. ACCORDINGLY, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. 6. RESPECTFULLY FOLLOWING THE ABOV E, DECISION, WE DIRECT THE ASSESSING OFFICER TO DELETE DISALLOWANCES MADE UNDER SECTION 43B OF THE ACT FOR BOTH THESE ASSESSMENT YEARS. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE ALLOWED.' 3. AG GRIEVED BY THE SAID ORDER OF THE TRIBUNAL, THE REVENUE IS BEFORE THIS COURT. 4. HEARD LEARNED STANDING COUNSEL APPEARING FOR THE REVENUE AND PERUSED THE MATERIALS PLACED BEFORE THIS COURT. 5. WE FIND THAT THE TRIBUNAL HAS RIGHTLY RELIED ON THE DECISI ON OF THE SUPREME COURT IN THE CASE OF CIT V. ALOM EXTRUSIONS LTD . REPORTED IN 319 ITR 306, WHEREBY, THE SUPREME COURT HELD THAT OMISSION OF SECOND I.T.A. NO . 86 5 /M/ 16 7 PROVISO TO SECTION 43B AND AMENDMENT TO FIRST PROVISO BY FINANCE ACT , 2003 ARE CURATIVE IN NATURE AND ARE EFFECTIVE RETROSPECTIVELY, I.E., WITH EFFECT FROM 1.4.1988 I.E., THE DATE OF INSERTION OF FIRST P ROVISO. THE DELHI HIGH COURT IN THE CASE OF CIT V. AMIL LTD . REPORTED IN 321 ITR 508 HELD THAT IF THE ASSESSEE HAD DEPOSITED EMPLOYEE'S CONTRIBUTION TOWARDS PROVIDENT FUND AND ESI AFTER DUE DATE AS P RESCRIBED UNDER THE RELEVANT ACT, BUT BEFORE THE DUE DATE OF FILING OF RETURN UNDER THE INCOME TAX ACT , NO DISALLOWANCE COULD BE MADE IN VIEW OF THE PROVISIONS OF SECTION 43B AS AMENDED BY FINANCE ACT , 2003. 6. IN THE PRESENT CASE, THE ASSESSEE HAD REMITTED THE EMPLOYEES CONTRIBUTION BEYOND THE DUE DATE FOR PAYMENT, BUT WITHIN THE DUE DATE FOR FIL ING THE RETURN OF INCOME. HENCE, FOLLOWING THE ABOVE - SAID DECISIONS, WE FIND NO REASON TO DIFFER WITH THE FINDINGS OF THE TRIBUNAL. ACCORDINGLY, WE FIND NO QUESTION OF LAW MUCH LESS ANY SUBSTANTIAL QUESTION OF LAW ARISES FOR CONSIDERATION IN THESE APPEAL S. ACCORDINGLY, BOTH THE TAX CASE (APPEALS) STAND DISMISSED. NO COSTS. CONSEQUENTLY, M.P.NO.1 OF 2015 IS ALSO DISMISSED. 7. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE HON BLE HIGH COURT, WE FIND NO REASON TO INTERFERE WITH THE ORDER PASSED BY T HE LD. CIT(A) ON THIS ISSUE AND ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 8. WITH REGARD TO THE ISSUE OF DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT, IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS OBSERVED FROM THE BALANCE SHEET THAT THE ASSESSEE HAD INVESTED IN MUTUAL FUNDS TO THE TUNE OF .10,00,000/ - SINCE THE INVESTMENT IS CAPABLE OF GENERATING EXEMPT INCOME AND ALSO THE ASSESSEE HAS TO INCUR CERTAIN INDIRECT EXPENDITURE TO ASCERTAIN THE INVESTMENT, THE ASSESSING OFFICER COMPUTED THE DISALLOWANCE UNDER SECTION 14A OF THE ACT R.W. RULE 8D AT .18,343/ - . AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND BY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF ACIT V. M. BASKARAN 50 TAXMANN.COM 138, THE LD. CIT(A) HAS I.T.A. NO . 86 5 /M/ 16 8 DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION MADE UNDER SECTI ON 14A OF THE ACT R.W. RULE 8D. IN VIEW OF THE DECISION OF THE HON BLE MUMBAI HIGH COURT IN THE CASE OF GODREJ & BOYCES MFG. CO. LTD. (SUPRA), WHEREIN, IT WAS HELD THAT THE APPLICATION OF SECTION 14A OF THE ACT IS CONSTITUTIONALLY VALID AND RULE 8D IS APPL ICABLE FROM THE ASSESSMENT YEAR 2008 - 09 AND ONWARDS. IN VIEW OF THE PROVISIONS OF CLAUSE (III) TO RULE 8D(2), ANY INVESTMENTS MADE WOULD DEFINITELY INVOLVE CERTAIN ADMINISTRATIVE AND ESTABLISHMENT COST SINCE THE DECISION TO MAKE INVESTMENTS, TRACK INVESTME NTS, AND FOLLOW - UP ACTIVITY WOULD ENTAILS DEFINITE COSTS. UNDER THE ABOVE FACTS AND CIRCUMSTANCES, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND SUSTAIN THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE ACT. THUS, THE GRO UND RAISED BY THE REVENUE IS ALLOWED. 9 . IN THE RESULT, THE APPEAL OF REVENUE IS PARTLY ALLOWED . ORDER PRONOUNCED ON THE 07 TH OCTOBER , 2016 AT CHENNAI. SD/ - SD/ - (A. MOHAN ALANKAMONY ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATE D, THE 07 . 1 0 .201 6 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.