• Oct
  • 15
  • 2011

Assessee not eligible for deduction u/s 80IB on the amount disallowed by AO due to delayed payment of employee’s contribution of P.F

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ITO Vs Millenium Writing Products Pvt Ltd. (ITAT Kolkata)

Deduction u/s. 80IB of the Act is available to an assessee whose gross total income includes any profits and gains derived from eligible business as specified in the section. Here the assessee is claiming deduction on an item of disallowance made by the Assessing Officer on account of employees’ contribution to PF, which was not deposited within the due date. This is neither an item of profit or gain of eligible business nor an item of Profit & Loss Account or manufacturing account rather it is just an employees’ contribution to PF, which assessee has to collect from its employees and to deposit with the PF authorities within the due date prescribed. In case, this is not paid within the due dates the same will be disallowed. Here before us, the issue is not whether it is to be allowed in view of the payment made within the due date or within the due date of filing of return but the issue is whether this amount disallowed, the assessee is eligible for deduction u/s. 80IB of the Act or not. We are of the considered view that this is not an item of manufacturing account or P&L Account and it is neither a profit from eligible business nor a disallowance of expenditure pertaining to the assessee’s eligible business. Hence, the deduction u/s. 80IB(1) of the Act cannot be allowed. Hence this issue of the revenue’s appeal is allowed.

In respect of disallowance of contract payments u/s. 194C of the Act, reason being the TDS deducted is not deposited before the expiry of time prescribed u/s. 200(1) of the Act, thereby, Assessing Officer disallowed by invoking provisions of section 40(a)(ia) of the Act. We find that these contract payments are part of Profit and Loss Account and expenditure is disallowed by Assessing Officer in the absence of non deposit of TDS within the due date. First of all, it is to be mentioned that neither the Assessing Officer nor CIT(A) has discussed why this item is not eligible for deduction u/s. 80IB or why it is eligible. But seeing dates of payments of TDS, it seems that these are paid within due date of filing of return of income, the assessee even otherwise is eligible for deduction and the Assessing Officer cannot invoke the provisions of section 40(a)(ia) of the Act for making disallowance. We are of the view that, let the Assessing Officer consider this issue in the light of the allowance of deduction of this expenditure as the assessee has made payment of this TDS within the due date of filing of return of income and in case, the assessee is not allowed deduction of this expenditure by invoking the provisions of section 40(a)(ia) of the Act, he will go into the eligibility of deduction u/s. 80IB of the Act. Hence, this issue of the revenue’s appeal is set aside to the file of the Assessing Officer.

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH: KOLKATA

I.T.A No. 721/Kol/2010

Assessment-Year: 2006-07

Income-tax Officer, Wd-7(1), Kolkata Vs.  Millenium Writing Products Pvt. Ltd.

ORDER

Per Mahavir Singh, JM

This appeal by revenue is arising out of the order of CIT(A)-VIII, Kolkata in Appeal No.522/CIT(A)-VIII/KOL/08-09 vide dated 22.01.2010. The assessment was framed by ITO, Wd-7(1), Kolkata u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for Assessment Year 2006-07 vide his order dated 26.12.2008.

2. The only issue in this appeal of the revenue is against the order of CIT(A) in allowing deduction u/s. 80IB of the Act on delayed payment of employee’s contribution of Provident Fund and contract payments on which payment of TDS was delayed, consequently, Assessing Officer disallowed by invoking provisions of section 4o(a)(ia) of the Act. For this, revenue has raised the following two grounds:

“1. That on the facts and circumstances of the case and in law, the Ld. CIT(Appeals)-VIII, Kolkata, has erred in allowing the deduction u/s. 80IB on disallowance of Rs. 1,58,844/- on delayed payment of employees’ contribution to the Provident Fund and Rs.23,93,016/- u/s. 40(a)(ia) for delayed payment of TDS.

2. That on the facts and circumstances of the case and in law the Ld. CIT(Appeals)-VIII, Kolkata, erred in appreciating that the above disallowances are penal in nature and the assessee is entitled for deduction of the same in the next assessment years.”

3. Brief facts leading to the above issues are that assessee has claimed deduction of employees’ contribution to P.F amounting to Rs. 1,58,844/- and also the contract payment at Rs.23,93,016/-. The Assessing Officer during the course of assessment proceedings required the assessee to give the details of employees’ contribution to PF paid in the previous year 2005-06 relevant to this assessment year 2006-07. The assessee filed the details and the Assessing Officer noted the same as under:

For the Month

Amount

Due Date

Date of payment
       
April, 2005

Rs.11065/-

15.05.05

27.05.05
July, 2005

Rs.13936/-

15.08.05

30.12.05
August, 2005

Rs.15874/-

15.09.05

03.11.05
Sept., 2005

Rs.15012/-

15.10.05

06.12.05
Oct., 2005

Rs.15976/-

15.11.05

06.12.05
Nov., 2005

Rs.14760/-

12.12.05

30.12.05
Dec., 2005

Rs.18717/-

12.01.06

02.02.06
Jan., 2006

Rs.19451/-

15.02.06

17.02.06
Feb., 2006

Rs.16695/-

15.03.06

12.04.06
March, 2006

Rs.17358/-

15.04.06

02.05.06
 

Rs.158844/-

   

The Assessing Officer noted that the payments in respect of employees’ contribution to PF are belated payment and accordingly in view of the provisions of section 2(24)(x) r.w.s. 36(va) of the Act, disallowed and added back to the returned income of the assessee amounting to Rs. 1,58,844/-. Similarly, in respect to the contract payment, the assessee filed details of TDS deducted as under:

Date of TDS

Amount paid

Amount of TDS Due date of payment Actual        date     of
payment
31.01.2006 28.2.2006 15,43,919/- 8,49,097/- 34,586/- 19.021/- 7.2.2006 7.3.2006 10.7.2006 10.7.2006

23,93,016/-

The Assessing Officer noted that TDS payments in terms of section 200(1) of the Act from contract payments were deducted u/s. 194C of the Act but payment made belatedly to the Government Account. Accordingly, Assessing Officer by invoking provisions of section 40(a)(ia) of the Act, disallowed the contract payments and added back to the returned income of the assessee. Aggrieved, assessee preferred appeal before CIT(A). The assessee before CIT(A), claimed that addition on these items are eligible for deduction u/s. 80IB of the Act as these are manufacturing profits. Before CIT(A), the assessee has not claimed that these payments are within the due dates or deduction on account of employees’ contribution to PF or contract payments are allowable rather it was claimed that once the business profit is increased deduction u/s. 80IB of the Act should be allowed. For this, the assessee has raised the following two grounds before CIT(A):

“1. That the learned ITO has wrongly calculated and allowed deductions u/s. 80IB, which is wrong and biased. The appellant is eligible to get 30% of deduction u/s. 80IB of the Income Tax Act, 1961 on Manufacturing Income.

The Learned ITO has disallowed certain expenses and made certain additions, which resulted in increase of Manufacturing Income and hence the deductions u/s. 80IB should be recalculated accordingly.

2. For that other ground or grounds may be urged at the time of hearing.”

4. The CIT(A) allowed the claim of the assessee by giving following findings in his appellate order:

“In this ground, the appellant is disputing the Assessing Officer (A. O) ’s action in not allowing it enhanced deduction under Sec. 80IB of the Income Tax Act, when, as a result of addition made in the assessment order its gross total income has increased. Perusal of the wording of the Sec. 80IB of the Income Tax Act reveals that the deduction is to be worked out at a percentage of profits and gains derived by the appellant in business which is eligible for deduction under Sec. 80IB of the Income Tax Act. The addition made in the assessment order has effectively enhanced such profits and gains. In my opinion, therefore, the appellant is eligible for the statutory deduction on this enhanced figures of profits and gains as computed by the A. O. The A. O. is accordingly directed to do so. This ground of appeal is allowed.”

Aggrieved, revenue is in appeal before us.

5. We have heard rival contentions and gone through facts and circumstances of the case. Ld. DR argued that the assessee before CIT(A) has not challenged the following two additions:

“i)      Rs.1,58,844/- u/s. 2(24)(x) read with section 36(va) as employees contribution to PF was not deposited within due date.

ii)             Rs.23,93,016/- u/s. 40(a)(ia) as tax was not deducted at source.”

Ld. DR stated that the disallowance with respect to employees’ contribution to PF is not part of Profits of eligible business; rather it is a deduction to be allowed after contribution made by the employee to the PF account and this payment, if actually made within the due date, is allowable as deduction. According to him, it is neither a business profit nor an expenditure relating to Profit & Loss Account item, which is disallowed and consequently which enhances business profits. In respect to contract payments disallowed by invoking the provisions of section 40(a)(ia) of the Act, he also made similar argument.

6. On the other hand, Ld. Counsel for the assessee argued that the assessee is a company registered under the Companies Act, 1956 and manufactures ball pens and its components. The assessee is eligible for deduction u/s. 80IB of the Act on its income from manufacture of ball pens and its components and the Assessing Officer not computed deduction u/s. 80IB of the Act, since profits of business has gone up on account of disallowance of employees’ contribution to PF not deposited within the due dates and contract payments disallowed by invoking the provisions of section 40(a)(ia) of the Act. She stated that CIT(A) has rightly allowed the claim of the assessee by directing the Assessing Officer to compute deduction u/s. 80IB of the Act on enhanced total income, which is resulting into addition made in the assessment to its gross total income. According to Ld. Counsel, by making addition the Assessing Officer has effectively enhanced business profits and deduction should have been computed on enhanced figures and CIT(A) has rightly directed the Assessing Officer accordingly.
7. We find that the undisputed facts are that the assessee has not challenged the additions in respect to employees’ contribution to PF not deposited within the due dates nor contract payments on which tax deducted but deposited beyond due dates prescribed u/s. 200(1) of the Act.

a) As we will take up the issue of employees’ contribution to PF, whether addition on this account results into increase in business profits or not. The fact is that employee’s contribution to PF is not part of Profit & Loss Account and it is neither a profit of manufacture nor an expenditure disallowed by Assessing Officer on account of items of Profit & Loss Account. This is merely a deduction to be allowed to the assessee in case employees’ contribution to PF is deposited within the due dates in terms of section 43B read with section 36(va) of the Act. The provisions of section 80IB of the Act allows deduction in terms of sub-section (1) that whether the gross total income of the assessee includes any profits and gains derived from any business referred to in sub-sections 3 to 11, 11A and 11B, i.e. the eligible business, the deduction of such profits and gains will be allowed equal to such percentage and for such number of assessment years as specified in this section. Relevant provisions of section 80IB(1) of the Act is reproduced hereunder:

(1) Where the gross total income of an assessee includes any profits and gains derived from any business referred to in sub-sections (3) to 41[(11),(11A) and

(1 1B)] (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section.”

We find from the above section that deduction u/s. 80IB of the Act is available to an assessee whose gross total income includes any profits and gains derived from eligible business as specified in the section. Here the assessee is claiming deduction on an item of disallowance made by the Assessing Officer on account of employees’ contribution to PF, which was not deposited within the due date. This is neither an item of profit or gain of eligible business nor an item of Profit & Loss Account or manufacturing account rather it is just an employees’ contribution to PF, which assessee has to collect from its employees and to deposit with the PF authorities within the due date prescribed. In case, this is not paid within the due dates the same will be disallowed. Here before us, the issue is not whether it is to be allowed in view of the payment made within the due date or within the due date of filing of return but the issue is whether this amount disallowed, the assessee is eligible for deduction u/s. 80IB of the Act or not. We are of the considered view that this is not an item of manufacturing account or P&L Account and it is neither a profit from eligible business nor a disallowance of expenditure pertaining to the assessee’s eligible business. Hence, the deduction u/s. 80IB(1) of the Act cannot be allowed. Hence this issue of the revenue’s appeal is allowed.

b) In respect of disallowance of contract payments u/s. 194C of the Act, reason being the TDS deducted is not deposited before the expiry of time prescribed u/s. 200(1) of the Act, thereby, Assessing Officer disallowed by invoking provisions of section 40(a)(ia) of the Act. We find that these contract payments are part of Profit and Loss Account and expenditure is disallowed by Assessing Officer in the absence of non deposit of TDS within the due date. First of all, it is to be mentioned that neither the Assessing Officer nor CIT(A) has discussed why this item is not eligible for deduction u/s. 80IB or why it is eligible. But seeing dates of payments of TDS, it seems that these are paid within due date of filing of return of income, the assessee even otherwise is eligible for deduction and the Assessing Officer cannot invoke the provisions of section 40(a)(ia) of the Act for making disallowance. We are of the view that, let the Assessing Officer consider this issue in the light of the allowance of deduction of this expenditure as the assessee has made payment of this TDS within the due date of filing of return of income and in case, the assessee is not allowed deduction of this expenditure by invoking the provisions of section 40(a)(ia) of the Act, he will go into the eligibility of deduction u/s. 80IB of the Act. Hence, this issue of the revenue’s appeal is set aside to the file of the Assessing Officer.

8.       In the result, revenue’s appeal is allowed partly for statistical purposes

9.       Order is pronounced in the open court on 21.4.2011


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