TMI Blog2017 (7) TMI 258X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount of ₹.1,43,500/- towards customs duty and the assessee has not paid the amount to the agent. Further, with regard to car rent paid to two different person did not exceed ₹.1,20,000/- individually as per proviso to sub-section (b) to section 194I of the Act. Thus, we find no infirmity in the order of the ld. CIT(A) on this issue and therefore, the ground raised by the Revenue is dismissed. Disallowance under section 14A - restricted addition to 5% of the exempt income earned - Held that:- When Rule 8D was not exist during the assessment year 2007-08, there is no question of its application retrospectively since Rule 8D was notified on 24.03.2008 and applicable with effect from the assessment year 2008-09 onwards only. Therefore, there is no question of applying the provisions of Rule 8D for determining the expenditure for earning dividend income. Since application of provisions of section 14A of the Act is ‘constitutionally valid’, the Assessing Officer is duty bound to determine expenditure by adopting a reasonable basis or method. But, in this case, the Assessing Officer has estimated the expenditure over and above the dividend income earned by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber, And Shri Duvvuru RL Reddy, Judicial Member For The Appellant : Shri Shiva Srinivas, JCIT For The Respondent : Shri Mohammed Shaffiq, Advocate ORDER PER DUVVURU RL REDDY, JUDICIAL MEMBER: All the four appeals filed by the Revenue, pertain to same assessee are directed against one common order of the Commissioner of Income Tax (Appeals) VI, Chennai dated 11.02.2013 for the assessment years 2006-07, 2008-09 and 2009-10 and for the assessment year 2007-08 also, the Revenue has preferred an appeal against the order of the ld. CIT(A) I, Chennai dated 18.02.2014. 2. The first common ground raised in the all the appeals of the Revenue is that the ld. CIT(A) has erred in deleting the addition made towards retention money deducted from sales . 2.1 The facts relating to the ground raised by the assessee are that the Assessing Officer has noticed in the memo of income that the assessee has reduced from the profits as per Profit and Loss Account an amount of ₹.1,02,74,318/- in the assessment year 2006-07 towards Retention Money deducted from Sales to arrive at the taxable income. Against the query raised by the Assessing Officer, vide its letter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,65,47,175 16,54,718 14.06.2007 19.06.2006 2.2 From the above table, the Assessing Officer has noticed that the money which is claimed to have been retained by the assessee's customers have in fact been received by the assessee company during the same financial year. When the assessee has actually received the money supposed to have been retained. It is only proper that the entire sale value is recognised as the assessee's income. After analyzing the details furnished by the assessee, the Assessing Officer has observed as under: (i) The assessee has reduced an amount of ₹.1,02,74,318/- from the taxable income in the Memo of Income citing the reason that such money has been retained by its customers. (ii) It is found that such money has not been retained by the assessee's customers but has been received entirely during the same financial year for which assessment is done now. (iii) The assessee company has only given bank guarantee for the amounts for 10% of the invoice value to ensure performance. (iv) Even after the maturity of the bank g:Jarantee, i.e., the expiry of the bank guarantee, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght to tax in the assessment year 2006-07. Similarly, by following the above observation, the Assessing Officer has disallowed ₹.1,22,33,053/- in the assessment year 2007-08, and ₹.2,31,95,886/- in the assessment year 2008-09. 3. The assessee carried the matter in appeal before the ld. CIT(A). After considering the submissions of the assessee and material facts, the ld. CIT(A) has observed that the withheld consideration has been recognized as income as and when it was received, specifically in the next financial year and the same was offered to taxation in the subsequent financial year. By considering the accounting treatment and tax computation in the subsequent years, the ld. CIT(A) was of the view that there is no reason to sustain the addition made. He also observed that it was not the case of the Assessing Officer that the monies representing withheld consideration offered for taxation in the subsequent years were not taken into computation of income. Therefore, with regard to the issue of retention money deducted from sales , the additions made by the Assessing Officer in various assessment years were deleted. 4. On being aggrieved, the Revenue is in appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and invoice, etc. to arrive at a conclusion that the assessee company has only given bank guarantee for the amounts of 10% of the invoice value to ensure performance. It may be a fact that against the 10% value of the invoice, the assessee has received PBG. However, as per the details furnished by the assessee for the assessment year 2006-07 before the Assessing Officer and reproduced herein above, it is evident that the assessee has received the retention money in the financial year relevant to the assessment year under consideration except in the case of Emami Papers and ITC Limited, where the assessee received the retention money in the subsequent financial year i.e., 25.04.2006 and 19.06.2006. Until the purchaser satisfies the performance of the equipment purchased after its successful commission, he will not release the balance 10% payment to the assessee. As per the copy of the bank guarantee filed in the paper book page 111 112, the life of the bank guarantee is 15 months of its execution. Depending upon the successful commission of equipment and its performance, there is every possibility to get the 10% retention money within the same financial year or otherwise, it ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oof of deduction of TDS, the Assessing Officer disallowed the expenditure and brought to tax. 7.2 On appeal, after examining the details of the assessee, the ld. CIT(A) has observed that the payments towards clearing forwarding charges paid to M/s. Medore Equipments of ₹.1,43,500/- relates to customs duty reimbursement to the clearing and forwarding agent and the assessee has not made the payment for any services. Further, the payment towards car lease charges were not paid to single agent but were paid to two officers with a break-up of ₹.87,792/- and ₹.75,000/-, which were below the qualifying amount under section 194I of the Act of ₹.1,20,000/-, both the payments are not liable for section 194I and nor under section 40a(ia) of the Act. 7.3 We have heard rival contentions. On perusal of reconciliation statement for the assessment year 2006-07 filed by the assessee in paper page No. 114 to 121, it is evident at page 121 that M/s. Medore Equipments received the amount of ₹.1,43,500/- towards customs duty and the assessee has not paid the amount to the agent. Further, with regard to car rent paid to two different person did not exceed ₹.1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 07-08, there is no question of its application retrospectively since Rule 8D was notified on 24.03.2008 and applicable with effect from the assessment year 2008-09 onwards only. Therefore, there is no question of applying the provisions of Rule 8D for determining the expenditure for earning dividend income. Since application of provisions of section 14A of the Act is constitutionally valid , the Assessing Officer is duty bound to determine expenditure by adopting a reasonable basis or method. But, in this case, the Assessing Officer has estimated the expenditure over and above the dividend income earned by the assessee. By following the order of the Tribunal in the case of ACIT v. Celebrity Fashions Ltd. (supra), the ld. CIT(A) has restricted the disallowance to the extent of 5% of gross dividend income, which was not accepted by the assessee. Hence, we find no infirmity in the order of the ld. CIT(A) on this issue and accordingly, the ground raised by the Revenue is dismissed. 9. The next ground raised in the appeal of the Revenue for the assessment year 2008-09 is that the ld. CIT(A) has erred in deleting the disallowance in respect of short payment of TDS on royalty charges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o ₹.1,03,775/- and accordingly, he added to the total income of the assessee. 10.2 Before the ld. CIT(A), the assessee has argued that the delay in remitting the above payment was less than 15 days and relied on the decisions in the case of M.N. Chari 310 ITR 445 [Kar.] and Harisons Malayalam Ltd. 315 ITR 81. In view of the above decisions and since the delay was being less than 15 days, the ld. CIT(A) directed the Assessing Officer to delete the disallowance of ₹.1,03,775/-. 10.3 Before us, the ld. DR has argued that the provisions of section 43B of the Act covers only the sums payable by way of contribution by the assessee as an employer, i.e., the employer s contribution to the PF and ESI funds and it does not cover the employees contribution. While the employer s contribution is allowable under section 37(1), the employee s contribution collected by the employer is deemed to be his income under section 2(24)(x) of the Act and is allowable as a deduction under section 36(1)(va) of the Act only if it is paid to the relevant fund by the due date as prescribed in the relevant legislation. Therefore, the ld. DR has pleaded that the order of the ld. CIT(A) on this i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red 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: The respondent/assessee 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 Assessing 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 appeals. Aggrieved by the same, the assessee preferred further appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 High 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 above, 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. Aggrieved 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 fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 43B(f) of the Act, the Assessing Officer disallowed the same and added back to the total income of the assessee. 11.2 On appeal, after examining the ledger copies and case law, the ld. CIT(A) has observed and held as under: 12.3 I have gone through the ledger copies and case laws relied upon and contra- distinguished with the orders of the AO. Firstly, the AO has wrongly taken the entire amount of ₹ 19,67,943/- as appearing in the Balance Sheet as the amount eligible for disallowance, since ₹ 9,96,787/- alone has been debited as provision for leave encashment based on actuarial evaluation. If at all the disallowance is to be carried out, it should be confined to this amount only which has been debited to the profit and loss account but not the entire amount outstanding in the Balance Sheet. Thus, the AO has not appreciated the accounting treatment. Going to the eligibility of the said deduction, the deduction has been claimed on debiting the said liability arrived at by actuarial valuation. The liability thus arrived by the actuarial valuation becomes contractual liability thereby employing that the liabilities has crystallized and the expenses are deductible. I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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