TMI Blog2018 (12) TMI 196X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of electrical stores and other expenditure in assessment year 2006-07. Thus, we do not find any error in the order of the CIT(A) while adjudicating this issue for the Assessment Year 2004-05, came to a conclusion that the liability in question is ascertained liability and hence allowable under the mercantile system of accounting. Assessee made a statement at the Bar that these liabilities were discharged in the immediately succeeding Assessment Year. This is a timing issue i.e. the year of allowability of the expenses is in dispute. On the principle of consistency, we are of the considered opinion that the order of the First Appellate Authority has to be upheld as in the earlier Assessment Year the finding of CIT (Appeals) on the year of allowability has not been challenged by the Revenue. In the result this ground of the Revenue is dismissed Late payment of the employees contribution to Provident Fund and ESI is not allowable to the assessee - Held that:- We note that the Hon’ble Jurisdictional Delhi High Court in the case of CIT Vs AIMIL[2009 (12) TMI 38 - DELHI HIGH COURT] held that the assessee can get benefit of section 36(1)(va), if the actual payment towards the PF/CSI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer and submitted that Cane development expenses incurred for development of the infrastructure facility are in the nature of capital expenditure and thus not allowable. On the contrary, the Ld. counsel of the assessee submitted that this expenditure has been allowed by the Assessing Officer from assessment year 2001-02 to 2006-07 and the disallowance made by the Assessing Officer in assessment year 2007-08, has been deleted by the Ld. CIT(A). He submitted that in the year under consideration, the Ld. CIT(A) following the finding of the Ld. CIT(A) in the earlier year and CBDT circular No. 578 dated 1/02/1990, held that Cane development expenses as revenue expenditure and thus same expenses incurred during the year under consideration are also allowable. 3.1 We have heard the rival submissions on the issue in dispute and perused the relevant material on record. We note from the submission of the assessee before the Ld. CIT(A) that the assessee has incurred sugarcane development expenses for improvement of sugarcane variety, educating the farmers of the area, fertility of land etc in respect of the command area in the vicinity of 8 to 10 kms. of the factory of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of radius of the assessee factory. These include payments on account of seeds, fertilizer, transport subsidy to farmers, seed survey expenses, salary to staff engaged on the said cane development activities, irrigational equipments, computers and software with a view to educate farmers etc. These expenses have to be incurred by the assessee as per the direction or mandate of the State Government; and have been debited as cane development expenses in the profit and loss account which is part of the assessee s main activity of manufacturing of sugar crystals. The cane development expenses debited to the profit loss account and the agricultural income are completely unrelated and therefore, to say that it is directly related to assessee s agricultural income from its own land is sans any material Apart from that as noted above, the similar claim of expenses have always been allowed by the Assessing Officer m the scrutiny assessments right from the assessment year 2001 02 to 2006-07. The Learned CIT (Appeals) has referred to CBDT s circular No. 578 dated 15.2.1990, wherein CBDT has clarified and upheld that the expenditure incurred by the sugar factory on cane development programme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wholly and exclusively for the purposes of his business, is to be allowed as deduction in computing the income chargeable under the head Profits and gains of business or profession . Hence, any expenditure incurred by a sugar factory on cane development programmes would be eligible for deduction in computing the taxable profits if, having regard to the facts and circumstances of the case, the Assessing Officer is satisfied that the conditions laid down in s. 37(1) of the Act are fulfilled. The withdrawal of the tax concession under s. 35C would not affect this position. 3.5 In view of the aforesaid discussion, in our opinion, the order of the Ld. CIT(A) on the issue in dispute is well reasoned and we do not find any error in the same, accordingly, we uphold the same. The ground of the appeal of the Revenue is accordingly dismissed. 4. The ground No. 2 relates to disallowance of ₹ 29,82,870/- on account of provision for outstanding liability. 4.1 The Ld. DR fairly admitted that issue in dispute is covered against the Revenue by the order of the Tribunal in assessment year 2006-07. The Ld. counsel of the assessee also concurred and submitted that the Ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no finding that the expenditure in question crystallized during the year. The Ld. Counsel for the assessee on the other hand points out that the decision of the Ld. Commissioner of Income Tax (Appeals) on the very same issue for the Assessment Year 2004-05 was accepted by the Revenue. He submits that this is ascertained liability. 8. The Ld. Commissioner of Income Tax (Appeals) while adjudicating this issue for the Assessment Year 2004-05, came to a conclusion that the liability in question is ascertained liability and hence allowable under the mercantile system of accounting. The Ld. Counsel for the assessee made a statement at the Bar that these liabilities were discharged in the immediately succeeding Assessment Year. This is a timing issue i.e. the year of allowability of the expenses is in dispute. On the principle of consistency, we are of the 4 considered opinion that the order of the First Appellate Authority has to be upheld as in the earlier Assessment Year the finding of the Ld. Commissioner of Income Tax (Appeals) on the year of allowability has not been challenged by the Revenue. In the result this ground of the Revenue is dismissed. 4.3 On perusa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (24)(x), any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the Employees' State Insurance Act, 1948, or any other fund for welfare of such employees, constitute income. Section 2(24)(x) reads as under Section 2(24)(x) Any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the Employees' State Insurance Act, 1948, or any other fund for welfare of such employees. 7.04. Section 36 of the Act provides for deduction in computing the income referred to in section 28. The relevant provisions applicable to the present cases would be Section 36(l)(va). As per sub-section 36(l)(va), assessee shall be entitled to the deduction in computing the income referred to in section 28 with respect to any sum received by the assessee from his employees to which the provisions of subclause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employees' accounts in the relevant fund or funds on or before the Due Date . As per explanation to section 36(l)(va) for the purpose o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (1) of section 36, and where such payment has been made otherwise than in cash, the sum has been realised within fifteen days from the due date. By the Finance Act, 2003, Second Proviso to section 43B of the Act came to be deleted and even the first proviso to section 43B of the Act came to be amended. The first proviso to section 43B of the Act, after its amendment by the Finance Act, 2003 reads as under :- Provided that nothing contained in this section 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 furnished by the assessee along with such return. 7.06. Considering the aforesaid provisions of the Act, as per section 2(24)(x), any sum received by the assessee from his employees as contribution to any provident fund or superannuation fund or any fund set up under the provisions of ESI Act or any other fund for the welfare of such employees shall be treated as an 'Income'. Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h, the sum has been realised within 15 days from the due date. By the Finance Act 2003, Second Proviso of section 43B of the Act has been deleted and First Proviso to section 43B has also been amended which is reproduced hereinabove. Therefore, with respect to employer's contribution as mentioned in clause (b) of section 43(B), if any sum towards employer's contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of the income under sub-section (1) of section 139, assessee would be entitled to deduction under section 43B on actual payment and such deduction would be admissible for the accounting year. Flowever, it is required to be noted that as such there is no corresponding amendment in section 36(1) (va). Deletion of Second Proviso to section 43B vide Finance Act 2003 would be with respect to section 43B and with respect to any sum mentioned in section 43(B) (a to f) and in the present case, employer's contribution as mentioned in section 43B(b). Therefore, deletion of Second Proviso to sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee from any of his employees to which provisions of sub-clause (x) of sub-section 24 of section 2 applies, assessee shall not be entitled to deduction of such sum in computing the income referred to in section 28 unless and until such sum is credited by the assessee to the employees' account in the relevant fund or funds on or before the due date as mentioned in explanation to section 36(l)(va). Therefore, with respect to the employees contribution received by the assessee if the assessee has not credited the said sum to the employees' account in the relevant fund or funds on or before the due date mentioned in explanation to section 36(1) (va), the assessee shall not be entitled to deductions of such amount in computing the income referred to in section 28 of the Act. 7.07. Now so far as the reliance placed upon the decision of the Hon'ble Supreme Court in the case of Alom Extrusions Ltd. (supra), by the learned ITAT as well as learned advocates appearing on behalf of the assessee in support of their submission that in view of amendment in section 43B pursuant to Finance Act, 2003, by which the second proviso to section 43B has been deleted and therefore even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the Karnataka High Court in the case of Sabari Enterprises (supra) is concerned, on facts and controversy raised in the present appeals, the said decision would not be any assistance to the assessee. In the case before the Karnataka High Court, the dispute was with respect to the employer's contribution and the controversy was whether the amendment to section 43B of the Act would be retrospective in nature or not. In the aforesaid case before the Karnataka High court, there was no dispute with respect to employees' contribution as is there in the present case. 7.10. Similarly, the decision of the Bombay High Court in the case of Pamwi Tissues Ltd. (supra) also would not be applicable to the facts of the case on hand. In the case before the Hon'ble Bombay High Court, the dispute was whether deletion of Second Proviso to section 43B would be applicable retrospectively or not and in that case the dispute was also with respect to employer's contribution. 7.11. Now, so far as the reliance placed upon the decision of the Himachal Pradesh High Court in the case of Nipso Polyfabriks Ltd. (supra); decision of the Karnataka High Court in the case of Spectrum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Hon'ble Supreme Court in the case of Sarabhai Sons Ltd. (supra), by the learned counsel appearing on behalf of the assessee and his submission that if two views are possible and different High Courts have taken a particular view, this Court may not take a different view, is concerned, we are of the opinion that in the present case, and as discussed hereinabove, only one view is possible as canvassed on behalf of the revenue and as observed by under section hereinabove and we are not in agreement with the view taken by the Himachal Pradesh High Court; Karnataka High Court; Rajasthan High Court and Punjab and Haryana High Court in the cases refereed to hereinabove, and therefore, the submission made on behalf of the assessee to follow the decisions of the different High Courts refereed to hereinabove and/or not to take a contrary view cannot be accepted. 8.00. In view of the above and for the reasons stated above, and considering section 36(l)(va) of the Income Tax Act, 1961 read with sub-clause (x) of clause 24 of section 2, it is held that with respect to the sum received by the assessee from any of his employees to which provisions of sub-clause (x) of cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wages of the employees, it will be treated as income at the hands of the assessee. It clearly follows therefrom that if the assessee does not deposit this contribution with PF/ESI authorities, it will be taxed as income at the hands of the assessee. However, on making deposit with the concerned authorities, the assessee becomes entitled to deduction under the provisions of s. 36(1)(va) of the Act. Sec. 43B(b), however, stipulates that such deduction would be permissible only on actual payment. This is the scheme of the Act for making an assessee entitled to get deduction from income insofar as employees contribution is concerned. It is in this backdrop we have to determine as to at what point of time this payment is to be actually made. 12. Since the Tribunal while holding that the amount would qualify for deduction even if paid after the due dates prescribed under the PF/ESI Act but before the filing of the IT returns by placing reliance upon the Supreme Court judgment in Vinay Cement (supra), at this juncture we take note of the discussion of Tribunal on this aspect : 11. We have carefully considered the rival submissions in the light of material placed before u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easons are given and, thus, it amounts to affirmation of the view taken by the High Court of Guwahati. 14. When we keep that proposition in mind and also take into consideration various judgments where Vinay Cement (supra) is applied and followed, it will not be possible to accept the contention of the Revenue. 15. In CIT vs. Dharmendra Sharma (2007) 213 CTR (Del) 609 : (2008) 297 ITR 320 (Del), this Court specifically dealt with this issue and relying upon the aforesaid judgment of the Guwahati High Court, as affirmed by the Supreme Court in Vinay Cement (supra), the appeal of the Revenue was dismissed. More detailed discussion is contained in another judgment of this Court in CIT vs. P.M. Electronics Ltd. (IT Appeal No. 475 of 2007 decided on 3rd Nov., 2008) [reported at (2008) 220 CTR (Del) 635 : (2008) 15 DTR (Del) 258-Ed]. Specific questions of law which were proposed by the Revenue in that case were as under : (a) Whether amounts paid on account of PF/ESI after due date are allowable in view of s. 43B, r/w s. 36(1)(va) of the Act ? (b) Whether the deletion of the 2nd proviso to s. 43B by way of amendment by the Finance Act, 2003 is retrospective i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 SCC 412 and General Finance Co. Anr. vs. Asstt. CIT (2002) 176 CTR (SC) 569 : (2002) 257 ITR 338 (SC). The said submissions found favour with the Division Bench of the Guahati High Court and relying on earlier decisions of its own Court in CIT vs. Assam Tribune (2002) 253 ITR 93 (Gau) and CIT vs. Bharat Bamboo Timber Suppliers (1998) 146 CTR (Gau) 487 : (1996) 219 ITR 212 (Gau) the Division Bench dismissed the appeal of the Revenue. It transpires that the aforesaid matter was taken up in appeal along with other matters including Vinay Cement (supra). The order in Vinay Cement (supra) was passed by the Supreme Court on 7th March, 2007 wherein it observed as follows : Delay condoned. In the present case we are concerned with the law as it stood prior to the amendment of s. 43B. In the circumstances, the assessee was entitled to claim the benefit in s. 43B for that period particularly in view of the fact that he has contributed to PF before filing of the return. SLP is dismissed. 10. In view of the above, it is quite evident that the SLP was dismissed by a speaking order and while doing so the Supreme Court had noticed the fact that the matter in appeal before it pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the view taken by the Supreme Court in Vinay Cement (supra) would bind the High Court as it was non declared by the Supreme Court under Art. 141 of the Constitution. 12. We are in respectful agreement with the reasoning of the Madras High Court in Nexus Computer (P) Ltd. (supra). Judicial discipline requires us to follow the view of the Supreme Court in Vinay Cement (supra) as also the view of the Division Bench of this Court in Dharmendra Sharma (supra). 13. In these circumstances, we respectfully disagree with the approach adopted by a Division Bench of the Bombay High Court in Pamwi Tissues Ltd. (supra). 14. In these circumstances indicated above, we are of the opinion that no substantial question of law arises for our consideration in the present appeal. The appeal is, thus, dismissed. It also becomes clear that deletion of the second proviso is treated as retrospective in nature and would not apply at all. The case is to be governed with the application of the first proviso. 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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