TMI Blog2011 (9) TMI 1223X X X X Extracts X X X X X X X X Extracts X X X X ..... hat there was dispute regarding the rates charged for various items and non delivery of items on time. As a result, those invoices were not passed for payment and subsequently, when dispute was resolved in the year ended 31.3.2002, payments were made. Therefore, the same were booked as expenditure in the accounts for the year ended 31.3.2002. However, the AO did not accept the said contention of the assessee and after stating that the assessee had adopted Mercantile system of accounting , the expenditure must be incurred in that previous year. Therefore, the expenditure incurred after the expiry of the relevant previous year is not allowable as a deduction. The AO after placing reliance on the decisions as mentioned in para-6 of the assessment order disallowed the said claim of the assessee on the ground that those expenses are relating to prior year expenses. Being aggrieved, assessee filed appeal before Ld. CIT(A). 4. It was contended that said expenses were legitimate business expenses. Since dispute had been settled in the assessment year under consideration, the assessee was entitled to claim the expenses in the assessment year relevant to previous year. It was also contend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... air view of the state of affairs of the business of the assessee in the financial statements prepared and submitted that under para-7 of the said accounting standards if the prior period items are separately disclosed in the Profit and loss account in the previous year together with their nature and amount in a manner so that their impact on profit or loss in the previous year can be perceived and the same are to be allowed. 6. The Ld. AR referred to page-29 of the Paper book which is a copy of Profit Loss Account as on 31.3.2002 and submitted that against the sales of ₹ 89.58 crores, the prior period expenses debited is only ₹ 69.93 lacs which is only 0.8% of total sales. He submitted that ITAT Mumbai Bench in ITA No. 4691/Mum/2005 in the case of John Fowler (India) Pvt. Ltd Vs ITO vide its order dt. 8.12.2010 by following the decision of ITAT Delhi Bench in the case of Escorts Ltd. Vs Inspecting Asstt. Commissioner (2004) 89 TTJ 221 (Del) held that where the turnover of the assessee is substantial, some bona fide adjustments in the books of accounts where the accounts for the relevant year may have been closed or the assessee s avenues with claiming these deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee herein is also covered in its favour by the decision of the co ordinate Bench in the case of John Fowler (India) Pvt. Ltd Vs ITO (supra) which has been decided by following the decision of the ITAT Delhi Bench in the case of Escorts Ltd. (supra). In view of above, we allow ground No. 1 of the appeal by deleting the disallowance of ₹ 69,93,000/-. Hence ground No. 1 of the appeal is allowed. 9. In ground No. 2 of the appeal, the assessee has disputed the confirmation of disallowance of ₹ 76,15,000/- being compensation paid to Managing Director on his resignation. 10. The relevant facts are that the assessee debited a sum of ₹ 76,15,000/- under the head Exceptional item on account of payment made to its Managing Director as compensation. In Clause-7 of B Notes to Accounts, it is stated that the Managing Director resigned on 8.11.2001 and the assessee company paid an amount of ₹ 76,15,000/- for the unexpired period of the contract as compensation for loss of office. The AO has stated that during the course of assessment proceedings, the Authorised Representative of the assessee had neither divulged the reason for resignation nor submitted cop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he necessary details in view of the fact that there was an operational merger of two Companies and majority of the employees either resigned from the services of the Company or took VRS. The appellant was maintaining its accounts on BPCs system whereas accounts of Pfizzer ltd. were being maintained in Sun System. One Mr. Mukesh Shah was attending to the taxation maters of the company, however, it was not possible for him to submit all the details / accounts immediately at the time of hearing. The appellant could compile the details only after consultation with ex-employees of the Company. It is stated that at that time it was beyond appellant s control to compile the details and submit the same to the Assessing Officer. Request was made in terms of Rule 46 A for entertaining additional evidences. The same were confronted to the AO who objected to such additional evidence by stating that as evident from the contents of the assessment order, the AO had specifically required all relevant details in support of the deduction claimed. The reasons stated for non furnishing of them is not worthy of consideration at this stage as there was no compelling reasons for non furnishing of them at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He submitted that when the assessee wanted to furnish the details before Ld. CIT(A), Ld. CIT(A) did not consider those details on the ground that they were additional documents and the assessee was not prevented for any sufficient reason to produce the same before the AO. The Ld. AR referred to letter dt. 27.6.2011 which contains copy of letter dt. 2.11.2009, letter dt. 4.2.2007 which addressed to Ld. CIT(A) and submitted that assessee wanted to furnish the said letters and also copy of Resolution explaining the reasons for payment of compensation to its ex-Managing Director Shri Tapan Ray. The Ld. CIT(A) had not accepted the same stating these are additional evidences. . The Ld. AR relying on the decision of Hon ble Apex Court in the case of Sessoon J. David Co. Pvt. Ltd., Vs CIT (1979) 10 CTR 383 submitted that the retrenchment was held to be business expenditure as the same was stated to be incurred by the assessee wholly and exclusively for its business purpose. He submitted that the above disallowance be deleted by considering said additional documents which the assessee wanted to produce before Ld. CIT(A). 14. However, the Ld. Departmental Representative relied on the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d No. 3 of the appeal is as under: The CIT(A) erred in confirming the disallowance of deduction u/s. 80HHC 3.1 The appellants submit that, since profit declared by the assessee has increased consequent to disallowances made in the assessment order, deduction u/s. 80HHC should consequently be recomputed/allowed on the basis of profit as assessee 17. At the time of hearing, it was submitted by Ld. AR that it is connected with grounds No. 1 2 of the appeal. He submitted that both the grounds i.e. grounds No. 1 2 if are allowed in favour of the assessee, ground No. 3 will become infructuous. 18. Since we have decided ground No. 1 of the appeal in favour of the assessee and ground No. 2 has been restored to the AO for his fresh adjudication, we direct the AO that if ground No. 2 is decided in favour of the assessee, the deduction allowed u/s. 80HHC of the Act will not have any impact. However, if ground No. 2 is decided against the assessee, we direct the AO that he will recompute the deduction allowable to the assessee u/s. 80HHC of the Act by considering said addition. Hence ground No. 3 of the appeal is allowed for statistical purposes as indicated above. 19. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the I.T. Act is not applicable in respect of employees contribution to provident fund/ ESIC. 23. We have carefully considered the submissions of the Ld. Representatives of the parties and orders of the authorities below. We have also gone through the order of the co ordinate Bench dt. 28.1.2010 and the cases cited in the said order of ITAT. 24. In respect of payment to DLIF, employees welfare fund, it was pointed out at the time of hearing that it was a contractual fund created by the assessee as an employees welfare fund and the contribution is made to it. It was pointed out that it is not a statutory fund. In view of above submission and in the absence of any contrary facts brought on record by Ld. DR, we hold that the provisions of Sec. 36(1)(va) of the I.T. Act will not be applicable to the contribution to the employees welfare fund and therefore even if the deposit is made by the assessee to the above employees welfare fund beyond the date as may be mentioned in the scheme, the same cannot be disallowed. Hence, we delete the addition of ₹ 1,490/-. 25. However, in respect of employees contribution to provident fund and ESIC of ₹ 47,563/- and ₹ 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P.M. Electronics Ltd. AIT 2008 - 397 - HC. 7. We have heard the learned representatives of the parties and have considered the orders of the authorities below. We have also considered the cases cited by the learned representatives of the parties in support of their submissions. We observe that there is no dispute to the fact that assessee had paid employees' contribution to provident fund after the due date. We observe that the above issue as to whether the employees' contribution to provident fund is also subject to the provisions of section 43B of the Act or not. In this respect we consider it necessary to state the relevant provisions of section 36(1)(va ) and relevant clauses of section 43B of the Act which are as under : 36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- (i)** ** ** (ia)** ** ** (ib)** ** ** (iia )** ** ** ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n under the employees a/c to the relevant fund. As regards the term due date as appearing in section 36(1)(va ), the Explanation to section 36(1)(va) specifies the due date as the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise. The term due date as specified in the Explanation to section 36(1)(va) does not refer to the due date fixed for filing the return of income under section 139(1). Hence the due date as fixed for filing the return of income under section 139(1) cannot be read into the Explanation to section 36(1)(va). The due date for crediting any sum received by the assessee from his employees as contributions towards any provident fund or superannuation fund or any fund for the welfare of the employees by the employer-assessee to the employee's account in the relevant fund or funds must be the one specified in the Explanation to section 36(1)(va) and not the due date for filing the return of income under section 139(1). In the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of any sum referred to in clauses (a) to (f ) upon actual payment is restricted to those deductions only, which are otherwise allowable under the Income-tax Act. Thus the factum of actual payment by itself is not sufficient to successfully claim a deduction under section 43B, which is otherwise not allowable under the Income-tax Act. In other words, all those deductions, which are otherwise not allowable under the Income-tax Act, cannot be allowed even on actual payment under section 43B. (iv)The proviso to section 43B carves out an exception and allows deduction in respect of any sum referred to in clauses (a) to (f) which is actually paid by the assessee on or before the due date for furnishing the return of income under section 139(1) in respect of the previous year in which the liability to pay such sum was incurred. However, the proviso applies only to those matters which are specifically referred to in section 43B to which it has been added. Proviso to section 43B cannot therefore be made applicable to those deductions which are otherwise not allowable under the Income-tax Act. 9. From the above we are of the view that a claim/deduction which is otherwise not allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised before the Court which forms precedent and not particular words or phrases. 11. In view of the above we hold that the assessee is not entitled to deduction under section 36(1)(va) of the employees' contribution to provident fund which was paid after the due date as specified in Explanation to section 36(1)(va) of the Act as section 43B cannot be pressed into service because section 43B comes into play only when a deduction is otherwise allowable under the Income-tax Act. Hence, we confirm the action of the Assessing Officer by reversing order of the learned CIT(A) and accordingly allow ground No. 1 taken by the department. 26. The above order of ITAT Kolkata Bench has been followed by ITAT Kolkata Bench in the case of Bengal Chemicals Pharmaceuticals Ltd. in ITA No. 1680/Kol/2010 order dt. 7.1.2011 reported in (2011) 11 Taxman 328(Kol) and Revenue s appeal was allowed by reversing the order of Ld. CIT(A) to hold that employees contribution to provident fund and ESIC could not be allowed u/s. 43B by taking it to be employers contribution. 27. In view of the above, decisions of Special Bench ITAT Kolkata (supra) and co-ordinate Benches ITAT Kolkata (supra) and f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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