PUNJAB SMALL INDUSTRIES AND EXPORT CORPORATION LTD.,CHANDIGARH V. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 2(1), CHANDIGARH, CHANDIGARH

ITA 627/CHANDI/2024

AI Insights

The case involves the Punjab Small Industries and Export Corporation Ltd., which appealed against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi. The appeal pertained to the disallowance of certain deductions in the Assessment Year 2016-17. The main issues were the disallowance of Rs. 82,78,750 under Section 43B for payments made after the due date of filing the return, and Rs. 5,78,199 under Section 40(a)(ia) for non-deduction of TDS on payments to ex-employees. The Tribunal found that the payments were made after the due date and thus not deductible in AY 2016-17, but could be considered in AY 2017-18. It also upheld the disallowance under Section 40(a)(ia), agreeing that the payments were subject to TDS.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 360929 (ITAT-CHANDIGARH)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Assessment Year: 2016-2017
• Other Referred Cases: PSIEC vs. Derbara Singh & Ors, PSIEC vs. Hari Singh & Ors, All India Reporter Ltd. v. Ramchandra D. Datar
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RANJIT KAUR
• Assessee Lawyers: VINEET KRISHAN; WAY OF TAX; DUTY; CESS OR FEE; BY WHATEVER
• Keywords: Revised return; TDS
• Section: 143(3); 139; 6; 28; 15; 43B; 40(a)(ia)

Judgement Text

"आयकर अपीलीय अिधकरण,चǷीगढ़ Ɋायपीठ “बी” , चǷीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “B”, CHANDIGARH HEARING THROUGH: PHYSICAL MODE ŵी लिलत क ुमार, Ɋाियक सद˟ एवं ŵी मनोज क ुमार अŤवाल, लेखा सद˟ BEFORE: SHRI. LALIET KUMAR, JM & SHRI. MANOJ KUMAR AGGARWAL, AM आयकर अपील सं./ ITA No. 627/Chd/ 2024 िनधाŊरण वषŊ / Assessment Year : 2016-17 Punjab Small Industries and Export Corporation Ltd. Udyog Bhawan, 3rd to 6th Floor, Sector 17-A, Chandigarh बनाम The Asst. CIT Circle 2(1), Chandigarh ˕ायी लेखा सं./PAN NO: AABCP1602M अपीलाथŎ/Appellant ŮȑथŎ/Respondent िनधाŊįरती की ओर से/Assessee by : Shri Vineet Krishan, Advocate राजˢ की ओर से/ Revenue by : Dr. Ranjit Kaur, Addl. CIT, Sr. DR सुनवाई की तारीख/Date of Hearing : 20/05/2025 उदघोषणा की तारीख/Date of Pronouncement : 23/05/2025 आदेश/Order PER LALIET KUMAR, J.M: This is an appeal filed by the Assessee against the order of the Ld. CIT(A)/NFAC, Delhi dt. 27/03/2024 pertaining to Assessment Year 2016-17. 2. In the present appeal Assesse has raised the following grounds: 1. That the order dated 27.03.2024, passed under section 250 by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi in Appeal No. ITBA/NFAC/S/250/2023-24/1063489078 (1) is contrary to law and facts of the case. 2. (a) That in the facts and circumstances of the case, ld. Commissioner of Income Tax (Appeals) gravelly erred in upholding the addition of Rs. 82,78,750/- (Rs. 37,50,000/- on account of bonus payable and Rs. 45,28,750/- on account of ex-gratia payable) made by the ld. Assessing Officer by applying the provisions of Section 43B. (b). Without prejudice to the Ground No.2(a), ld. Commissioner of Income Tax (Appeals) gravelly erred in not allowing the bonus of Rs. 37,50,000/- and ex-gratia of Rs. 45,28,750/- on the payment basis in the A.Y. 2017-18 as per the provisions of Section 43B of the Income Tax Act, 1961. 3. That in the facts and circumstances of the case, Id. Commissioner of Income Tax (Appeals) gravelly erred in upholding the addition of Rs. Rs. 5,78,199/- made by the ld. Assessing Officer on the ground that the appellant did not deduct tax at source on account of payment made to six exemployees at Rs. 19,27,329/- by applying the provisions of Section 40a(ia). 3. Briefly, the facts of the case are that the Punjab Small Industries and Export Corporation Ltd., a Punjab Government-owned company, filed its 2 income tax return for A.Y. 2016-17 on 16/10/2016 , declaring Rs. 71,06,45,900, and a revised return on 28/03/2018, declaring Rs. 72,36,31,460. The return was scrutinized, and the assessment was completed on 24/12/2018, under Section 143(3) by the Deputy Commissioner of Income Tax, Chandigarh. The Assessing Officer (AO) made two additions: (i) Rs. 82,78,750 under Section 43B: Disallowed Rs. 37,50,000 (bonus) and Rs. 45,28,750 (ex-gratia) as they were paid on October 28, 2016, after the return filing due date (October 17, 2016). The Commissioner upheld this, dismissing the appellant’s plea for allowance in A.Y. 2017-18 as outside the appeal’s scope. (ii) Rs. 5,78,199 under Section 40(a)(ia): Disallowed 30% of Rs. 19,27,329 paid as interest to six ex-employees without TDS, as required under Chapter XVII-B. The appellant argued the payments were salary-related, but the Commissioner upheld the disallowance, confirming Section 40(a)(ia) applicability. Interest under Sections 234A, 234B, and 234C was levied and upheld as consequential. General grounds were not adjudicated. The appeal was dismissed on March 27, 2024, by the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi. 4. Against the order of the Ld AO the assessee went in appeal before the Ld. CIT(A) who has since dismissed the appeal of the assessee. 5. Against the order of the Ld. CIT(A) the assessee filed the appeal before the Tribunal. 6. With respect to Ground No. 2 it is contended by the Ld. AR that as per the provisions of Section 43B. The assessee is entitled to deduction in the year in which the payment has been made. The Ld. AR has submitted that as per the assessment order amount of Rs. 82,78,750/- was not deposited into Assessment Year under consideration but was deposited subsequently. 3 Therefore the AO has disallowed the same. The Ld. AR has relied upon the bare provision of the Act. 7. Per contra, the Ld. DR had submitted that the Ld. CIT(A) was right in disallowing the claim as the assessee has not claimed the deduction in the year under consideration. The due date for filing the return was 17/10/2016 and the assessee had made payment of Rs. 37,50,000/- on account of bonus and Rs. 45,28,750/- on account of ex-gratia for the A.Y 2015-16 on 28/10/2016. Therefore the Ld. DR had contended that in the A.Y. 2016-17 no direction can be issued by the Tribunal and she relied upon by the order passed by the lower authorities. 8. We have heard the rival contention and perused the material available on the record. Section 43B provide as under: 43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of – (a) any sum payable by the assessee by way of tax , duty, cess or fee, by whatever name called, under any law for the time being in force, or (b) any sum payable by the assessee as an employer by way of 56contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, or (c) any sum referred to in clause (ii) of sub-section (1) of section 36, or (d) any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or a State financial corporation or a State industrial investment corporation, in accordance with the terms and conditions of the agree ment governing such loan or borrowing , or (da) any sum payable by the assessee as interest on any loan or borrowing from such class of non banking financial companies as may be notified by the Central Government in the Official Gazette in this behalf], in accordance with the terms and conditions of the agreement governing such loan or borrowing, or (e) any sum payable by the assessee as interest on any loan or advances] from a scheduled bank or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank in accordance with the terms and conditions of the agreement governing such loan or advances, or (f) any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee, or (g) any sum payable by the assessee to the Indian Railways for the use of railway assets, or 4 (h) any sum payable by the assessee to a micro or small enterprise beyond the time limit specified in section 15 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006), shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him : Provided that nothing contained in this section except the provisions of clause (h) shall apply in relation to any sum [***] which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub- section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is fur nished by the assessee along with such return. 8.1 We have carefully heard the rival submissions and perused the material available on record, including the CIT(A)’s detailed discussion and the provisions of Section 43B. Section 43B allows certain deductions only on an actual payment basis, notwithstanding the method of accounting. The proviso to Section 43B permits such deduction in the year of accrual, only if the payment is made on or before the due date of filing the return under Section 139(1). Admittedly, in the present case, the due date for AY 2016–17 was 17.10.2016, whereas the assessee made the payment on 28.10.2016. Thus, the deduction was rightly disallowed for AY 2016–17. 8.2 However, from the records and submissions, it is evident that the assessee made the said payment on 28.10.2016, which falls in the subsequent financial year, i.e., FY 2016–17 relevant to AY 2017–18. The claim under Section 43B is thus allowable in AY 2017–18, being the year of actual payment. We find merit in the Ld. AR’s submission that, although the assessee did not claim the said deduction in AY 2017–18, the AO may consider the claim, subject to verification of payment details and supporting documents. 8.3 Accordingly, while upholding the disallowance for AY 2016–17, we direct the AO to consider the assessee’s claim for deduction of Rs.82,78,750/- in AY 2017–18, if otherwise found in order, in accordance with the provisions of Section 43B of the Act. 5 9. In the result, Ground No. 2 is partly allowed for statistical purposes. 9. In the result, this ground of appeal is allowed. 10. With respect to the Ground No. 3, the assessee had drawn our attention to paragraph 6.3 to 6.6 of the order passed by the Ld. CIT(A) which his to the following effect: 6.3 I have carefully considered the facts of the case, the submission of the appellant and evidences on record. I find that the payments to the following parties were made in compliance with the orders passed by the Hon'ble High Court in CM No. 1500 of 1997 in LPA No. 165/97 titled as PSIEC vs. Derbara Singh & Ors and CM No. 1501 of 1997 in LPA No. 166/97 titled as PSIEC vs. Hari Singh & Ors. 6.4 The appellant submitted that the payments were made as per Courts order and the payment was in nature of salary and compensatory interest thereon was for delayed payment and that as such it was submitted by the appellant that the payment was in nature of salary only. The appellant submitted that the provisions of Section 40a(ia) were not applicable to the payment of salary/arrears of salary. 6.5 Section 40(a)(ia) of the Act as it stood during the relevant year reads as under:- “40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head \"Profits and gains of business or profession\",— ………………….. ………………… “(ia) [thirty per cent of any sum payable to a resident], on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139 : Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139 , [thirty per cent of] such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid : Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso. Explanation.—For the purposes of this sub-clause,— (i) \"commission or brokerage\" shall have the same meaning as in clause (i) of the Explanation to section 194H; 6 (ii) \"fees for technical services\" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9; (iii) \"professional services\" shall have the same meaning as in clause (a) of the Explanation to section 194J; (iv) \"work\" shall have the same meaning as in Explanation III to section 194C; (v) \"rent\" shall have the same meaning as in clause (i) to the Explanation to section 194-I; (vi) \"royalty\" shall have the same meaning as in Explanation 2 to clause (vi) of sub- section (1) of section 9;” 6.6 Section 40(a)(ia) of the Act, provides for the disallowance of certain expenses if the tax is not deducted at source (TDS) or if it is deducted but not paid to the government account. From a plain reading of the section 40(a)(ia), it is seen that the section applies to payments made to a resident, including salary, interest, commission, brokerage, rent, royalty, fees for professional or technical services, etc Therefore, the claim of the appellant that the provisions of Section 40(a)(ia) of the Act were not applicable to the payment of salary/arrears of salary is not correct. Deduction of TDS on Salary comes under Chapter XVII-B and therefore 40(a)(ia) of the Act is applicable. As the appellant has not deducted tax at source on account of payment made to six ex-employees at Rs. 19,27,329, I am of the considered view that the addition of an amount of Rs 5,78,199 (30% of Rs 19,27,329) to the total income of the appellant by the AO is sustainable and the appeal on this ground is thus dismissed. 11. It was submitted by the Ld. AR that the amount paid by the assessee was in pursuance of the directions issued by the Hon’ble High Court in LPA Nos. 165/1997 and 166/1997 and was in the nature of compensation. Reliance was placed on the judgment of the Hon’ble Supreme Court in All India Reporter Ltd. v. Ramchandra D. Datar, wherein the Apex Court had observed that amounts awarded by the court as compensation do not fall within the purview of income chargeable to tax, and therefore no tax is deductible at source. 11.1 The Ld. AR further submitted that if an opportunity is granted, the assessee would be in a position to demonstrate that the payment in question was made in compliance with a judicial order and represents a decretal amount towards compensation. It was argued that such amounts, being compensatory in nature, do not attract TDS provisions under Chapter XVII-B of the Act. 12. Per contra, the Ld. DR argued that the provisions of Section 40(a)(ia) squarely apply in the present case. 13. The Ld. DR emphasized that the assessee was under a statutory obligation to deduct tax at source in respect of any payment covered under 7 Chapter XVII-B, which includes salary, interest, commission, rent, fees for technical or professional services, and royalty. 13.1 It was also submitted that the assessee failed to produce any documentary evidence, either during the assessment proceedings or before the CIT(A), to substantiate its claim that the payment was made pursuant to a court order and was in the nature of compensation. 14. We have considered the rival submissions and perused the records. It is well settled that Section 40(a)(ia) mandates disallowance where TDS has not been deducted on payments to residents falling within the ambit of Chapter XVII-B. There is no dispute on this legal proposition. The AO, in para 3.2 of the assessment order, recorded that the assessee failed to respond to the query regarding non-deduction of TDS on the interest payment of Rs.19,27,329/- made to six ex-employees of the Government Hosiery Work Centre, Ludhiana. In the absence of a satisfactory explanation, the AO disallowed 30% of the amount, i.e., Rs.5,78,199/- under Section 40(a)(ia). 15. Aggrieved by the said addition, the assessee approached the CIT(A) and submitted that the payments were made pursuant to the directions of the Hon’ble High Court and were in the nature of salary and compensatory interest for delayed payment. However, it is evident that no supporting documents, such as copies of the High Court order or decree, were furnished before the CIT(A) to substantiate this claim. 16. A perusal of the CIT(A)’s order makes it clear that the amount of Rs.19,27,329/- was treated as interest payment, and the assessee merely asserted, without evidence, that it was compensation or salary-related interest. In our view, the reliance placed on Ramchandra D. Datar (supra) is misplaced. The assessee has failed to demonstrate that the amount was in the nature of compensation and not compensatory interest, and hence the said precedent is factually distinguishable. 8 17. We find merit in the conclusion drawn by the CIT(A) that there is a clear distinction between compensation awarded for wrongful termination of employment and interest paid for delayed salary—both stand on a different footing. Accordingly, the decision relied upon by the assessee is inapplicable to the facts of the present case. Furthermore, no credible evidence was brought on record either before the AO or the CIT(A) to support the contention that the amount was paid pursuant to a court decree as compensation. 18. Before us, the assessee merely made a vague plea for remanding the matter to the AO for fresh consideration, without furnishing any concrete evidence to justify such a remand. In the absence of any additional material and in view of Rule 29 of the ITAT Rules, 1963, we find no justification to admit fresh evidence or interfere with the findings of the CIT(A). Accordingly, we uphold the disallowance of Rs.5,78,199/- under Section 40(a)(ia), and this ground of appeal is dismissed 19. In the result, appeal of the Assessee is partly allowed. Order pronounced in the open Court on 23/05/2025 Sd/- Sd/- मनोज क ुमार अŤवाल लिलत क ुमार (MANOJ KUMAR AGGARWAL) (LALIET KUMAR) लेखा सद˟/ ACCOUNTANT MEMBER Ɋाियक सद˟ /JUDICIAL MEMBER AG आदेश की Ůितिलिप अŤेिषत/ Copy of the order forwarded to : 1. अपीलाथŎ/ The Appellant 2. ŮȑथŎ/ The Respondent 3. आयकर आयुƅ/ CIT 4. आयकर आयुƅ (अपील)/ The CIT(A) 5. िवभागीय Ůितिनिध, आयकर अपीलीय आिधकरण, चǷीगढ़/ DR, ITAT, CHANDIGARH 6. गाडŊ फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar "