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2017 (6) TMI 783 - ITAT PUNE

2017 (6) TMI 783 - ITAT PUNE - TMI - Disallowance of provident fund contribution made on behalf of the sub contractors claimed as expenditure - expenditure incurred is "wholly and exclusively" for the purpose of business - Held that:- Assessing Officer cannot question the reasonableness by putting himself in the arm-chair of the businessman and assume status or character of the assessee and that it is for the assessee to decide whether the expenses should be incurred in the course of his busines .....

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allowance of employees contribution of Provident Fund (as made by AO) & that of employers contribution of Provident Fund (as enhanced by CIT (A)] was uncalled for and therefore set aside. Thus the grounds of Assessee are allowed. - ITA No.1698/PUN/2014 - Dated:- 31-5-2017 - MS.SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI AM For The Appellant : Shri Nikhil Pathak For The Respondent : Shri Shivanand Kalakeri ORDER PER ANIL CHATURVEDI, AM : The appeal of the assessee is emanating out of the order CIT .....

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der of AO, Assessee carried the matter before Ld CIT(A), who vide order dtd 24.7.2014 (in appeal Nos PN/CIT(A)-V/ITO(OSD) ud/677/11-12) granted partial relief to the assessee. Aggrieved by the order of Ld CIT(A), Assessee is now in appeal before us and has raised the following grounds: 1] The learned CIT(A) erred in confirming the disallowance of ₹ 9,73,953/- on account of payment made by the assessee company o account of contribution to provident fund on behalf of the employees of the sub .....

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business of the assessee company. 3] The learned CIT(A) erred in holding that - a. The assessee had no contractual obligation to pay the provident fund contribution on account of the subcontractors and their employees and hence, the same could not be allowed as a deduction while computing the business income of the assessee. b. The assessee had failed to prove that the above payments towards provident fund were made out of commercial expediency and hence, the said payments were not allowable as .....

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o contractual liability, the said payment should have been allowed as a deduction while computing the business income of the assessee. 6] The learned CIT (A) erred in confirming the disallowance to the extent of ₹ 1,13,281/- out of the total disallowance of ₹ 2,26,562/- made by the learned A.O. on an adhoc basis in respect of the following expenses on that the ground that the said expenses were not properly supported by vouchers/bills- a. Worker Welfare Expenses ₹ 69,779/- b. L .....

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er amend or delete any of the above grounds of appeal. 3. Before us at the outset, the Ld AR submitted that ground no 7 is general and requires no adjudication and he did not wish to press ground no 6. He further submitted that as far as other grounds are concerned, though the assessee has raised various grounds but all the grounds are interconnected and the sole controversy which requires adjudication is with respect to disallowance of provident contribution. In view of the aforesaid submission .....

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ng the employers contribution in respect of labourers employed through sub contractors. Assessee was asked to justify it claim to which assessee interalia submitted that the assessee is engaged in the business of industrial construction and that the assessee gets its job work done through various subcontractors. As per the agreement entered into by the Assessee with its various clients, the assessee is liable for provident fund expenditure. It was further submitted that many of the sub contracto .....

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were engaged by the assessee, no such deduction was made from the wages/salaries of the concerned employees. He was therefore of the view that the amount of ₹ 9,73,953/- (being the employees contribution of sub contractors) cannot be considered to be contractual obligation of the assessee and the same, according to the Assessing Officer, was therefore not allowable. He, accordingly, disallowed the claim of expenditure of ₹ 9,73,953/-. Aggrieved by the order of Assessing Officer, Asse .....

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d payments in respect of work done for the respective companies and since sub contractors were not having PF registration the onus fell upon the appellant to discharge this liability. The argument of the appellant is difficult to be accepted as nothing prevented the appellant to debit the account of sub-contractors on account of such payments in case these sub-contractors were not having PF registration members. I also find that observation of the Assessing Officer is quite correct regarding non .....

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placed as the appellant has not been able to prove that the payment was made out of commercial expediency. Therefore, I do not find any merit in the submissions of the appellant and disallowance of ₹ 9,73,953/- being employees contribution of contractors is upheld. 9. During the course of appellate proceedings, it was noticed that while the Assessing Officer disallowed employees contribution pertaining to sub-contractors amounting to ₹ 9,73,953/-, no such disallowance was made on acc .....

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under: 11. I have carefully considered the facts of the case as well as reply of the appellant. In this case, it is seen that the reply of the appellant is on similar lines as in the case of employees contribution. Since, both the amounts i.e. employees contribution and employer s contribution stand on the same footing, the Assessing Officer is directed to further disallow amount of ₹ 11,04,624/- being employers contribution, which is neither a contractual liability of the appellant nor c .....

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carried out construction of buildings etc for various companies by engaging labourers of subcontractors who are petty contractors. As per the contract entered into by the Assessee with the client companies, the Assessee had undertaken to ensure that the provisions of labour laws including the Provident Fund(PF) Act would be complied with by the Assessee in respect of the labours employed by the Assessee and by sub contractors. He further submitted that many of the subcontractors were not regist .....

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s the principal employer who is liable to make the payment of contribution of provident fund, he pointed to the section 30 of the Employees Provident Funds Scheme, 1952 and section 8A of the Employers Provident Fund (Miscellaneous) Provision Act, 1952. He further submitted that the expenditure was incurred during the course of business out of commercial expediency and therefore even on that ground it was allowable. He therefore submitted that the entire expenditure (including the enhancement mad .....

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work undertaken by it, Assessee employs the labourers supplied by sub contractors. Assessee has placed in the paper book the copy of the conditions of contract it had entered into with Kansai Nerolac Paints Ltd for its proposed paint manufacturing facility. As per the conditions of contract, responsibility has been cast upon the contractor (i.e. Assessee) by Kansai Nerolac Paints Ltd to comply with the requirements of Employees Provident Fund Act. The relevant clause of the agreement reads as un .....

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ractor of the provisions of the Employees Provident Fund Act and the Scheme thereunder. 8. The perusal of the aforesaid clause shows that it was the duty of the Assessee to cover all the employees (including that of sub-contractor) under the Provident Fund Act. We further find that section 8A of the Employees Provident Fund & Miscellaneous Provisions Act 1952, which is with reference to recovery of money by employers and contractors reads as under: 8A. Recovery of moneys by employers and con .....

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ny contract or as a debt payable by the contractor. (2) A contractor from whom the amounts mentioned in sub-section 1 may be recovered in respect of any employee employed by or through him, may recover from such employee the employee s contribution under any Scheme by deduction from the basic wages, dearness allowance and retaining allowance if any payable to such employee. (3) Notwithstanding any contract to the contrary, no contractor shall be entitled to deduct the employer s contribution or .....

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employer shall, in the first instance, pay both the contribution payable by himself (in this Scheme referred to as the employer s contribution) and also, on behalf of the member employed by him directly or by or through a contractor, the contribution payable by such member (in this Scheme referred to as the member s contribution). (2) In respect of employees employed by or through a contractor, the contractor shall recover the contribution payable by such employee (in this Scheme referred to as .....

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dministrative charges. 10. The perusal of the aforesaid sections of the Employees Provident Fund & Miscellaneous Provisions Act 1952 and Employees Provident Fund Scheme 1952 together with the clauses of the agreement that the Assessee had entered into with his clients shows that Assessee is responsible for the deduction of provident fund dues of the employees including those employed through subcontractor and its deposit with the appropriate authorities. In the present case, the rendering of .....

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such a situation the expenses can be disallowed? We are of the view that the same cannot be disallowed as an expenditure more so when the rendering of services by the subcontractors for the business of the assessee is not in doubt & in such a situation the expenditure can be allowed u/s 37(1) of the Act. 11. For an amount to be treated as an admissible expenditure under section 37(1) the necessary conditions that are required to be satisfied are first the expenditure must be revenue expendit .....

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