prpri No section 43B disallowance for PF deposited within permissible grace period No section 43B disallowance for PF deposited within permissible grace period

Case Law Details

Case Name : Zyg Pharma Pvt. Ltd. Vs. DCIT (ITAT Mumbai)
Appeal Number : ITA No.3225/Mum/2010
Date of Judgement/Order : 03/07/2013
Related Assessment Year : 2006-07

Zyg Pharma Pvt. Ltd. Vs. DCIT (ITAT Mumbai)

While scrutinizing the return of income, the Assessing Officer noticed that the assessee has deposited the employees contribution to provident fund beyond the 15thday of next month and thereby violated the provisions of section 2(24)(x) r.w.s. 36(1)(va) and added the amount of Rs.1,41,324/- to the income of the assessee. When the matter was agitated before the CIT(A), the CIT(A) declined to interfere with the findings of the Assessing Officer.

Before us the counsel for the assessee strongly submitted that the payments have been made within the grace period of five days, which is permissible under the Provident Fund Act. The counsel drew out attention to the chart, which is part of Form 3CD. A perusal of the assessment order shows that the Assessing Officer himself had admitted that the assessee had deposited the employees contribution to provident fund account within the grace period. As the amount has been deposited within the permissible grace period, we do not find any reason for the disallowance of Rs.1,41,324/-. We accordingly direct the Assessing Officer to allow the claim of the assessee to the tune of Rs.1,41,324/-.

FULL TEXT OF THE ITAT JUDGEMENT

The assessee has preferred this appeal against the order of the CIT(A) -13, Mumbai dated 05.01.2010. The assessee has raised two substantive grounds of appeal.

2. Ground no.1. with its sub ground relates to the taxability of Rs.49,81,640/-being the amount waived by the sale tax department. Facts at the stage of assessment show that the assessee is in the line of manufacturing of creams, ointments and lotions. For the year under consideration the return was filed on 24.11.2006 declaring total income at Rs.2,17,82,605/- The return was selected for scrutiny assessment and accordingly statutory notices were issued and served upon the assessee. During the course of scrutiny assessment the Assessing Officer noticed that the assessee has added a sum of Rs.49,81,640/- credited to the capital reserve account representing the adjustment in the sales tax deferment loan from Government of Madhya Pradesh on prepayment of loan installments falling due in the financial years 2007-08 and 2008-09. It was explained that the assessee had availed of sales tax deferment loan of Madhya Pradesh Government in accordance with the scheme of 2005 of Madhya Pradesh Government. It was further explained that the sales tax was converted into new loan liability and, therefore, on the reduction of it, it cannot be subjected to tax either u/s. 28(iv) or section 41(1) of the Act. The Assessing Officer disregarded the submissions made by the assessee. The Assessing Officer was of the firm belief that the assessee had paid portion of the sales tax liability in advance and it got benefit of waiver of portion of the amount and only thereafter the balance amount was converted into loan. Therefore, the amount waived by the Sales Tax Department is before it its converted into loan under the scheme of Madhya Pradesh Government. Therefore, it is not the case of waiver of the loan but waiver of sales tax liability and, hence, it is taxable under the head “business income” of the assessee. The assessee carried this matter before the CIT(A) but without any success. The CIT(A) observed that since the assessee had collected sales tax from the parties on behalf of the government and not deposited it with the government, as per the scheme formulated by the Madhya Pradesh Government the same was treated as deferred loan to the assessee and subsequently partly waived on prepayment, which has resulted into gain of Rs.49,81,640/-. The CIT(A) was convinced that this amount is a trading receipt/business income and confirmed the findings of the Assessing Officer. The assessee is aggrieved by this finding of the CIT(A) and is before us.

3. The counsel for the assessee strongly submitted that the revenue authorities have failed to appreciate the facts in their right perspective. It is the say of the counsel that the Assessing Officer himself has admitted in the assessment order that the sales tax liability was converted into loan as per the state government scheme. The counsel further argued that as per the Board Circular dated 29.12.1993, such sales tax liability was allowed as deduction in the earlier years. The counsel further submitted that this issue is clearly covered by the decision of the Special Bench of the Tribunal in the case of Sulzer India Ltd. 19 ITR (TRIB) 268 (Mum). The DR strongly supported the findings of the Assessing Officer and relied upon the decision of jurisdictional High Court of Bombay in the case of Hindustan Foods Ltd 328 ITR 392. The DR also submitted that the Special Bench case referred by the counsel relates to the scheme of Maharashtra Government whereas in the instant case the scheme of Madhya Pradesh Government is under consideration. We directed the counsel to submit a comparative chart of both the schemes. A perusal of the comparative chart show that the scheme of Madhya Pradesh Government is in parimateria same with the scheme of Maharashtra Government.

4. We have considered the rival submissions and perused the orders of the lower authorities and the material evidences brought on record. It is not in dispute that the assessee has availed the deferral scheme of the Madhya Pradesh Government, which was introduced in the year 2005. By availing the benefits of the said scheme the loan amount in the first scheme was discharged at its present value and the balance in the loan account was transferred to the capital reserve. Thus, the assessee had paid a portion of sales tax liability in advance and got the benefit of waiver of a portion of the amount, which was nothing but the waiver of the loan. We find force in the contention of the learned counsel that this issue is squarely covered by the decision of the Special Bench of the Tribunal in the case of Sulzer India Ltd. (supra). The Tribunal has held as under:

“The assessee was liable to pay sales tax amounts collected from 1-11-1989 to 31-10-1996, payments of which were deferred under the scheme, and the amounts were payable after twelve years in six equal annual instalments commencing from 1-5-2003, which meant that the liability was payable in future. Later on, the State Government came out with a scheme by which it was provided that if some dealers opted, then they could pay the future liability at a discounted value or what one may call net present value immediately. Thus, in this situation, it could not be construed as remission of liability, because the State Government had not waived of any of the liability as given in the illustrations. Had the State Government accepted lesser amount after twelve years or reduced such instalments, then it could have been a case of remission or cessation. However, in the instant case the State Government had chosen to receive the money immediately which was receivable from 1-5-2003 to 1-5-2008. The amount of Rs.337.13 lakhs was actually paid to SICOM on 30-10-2002. Thus, it did not satisfy the condition of actual remission in praesenti. It was a simple case of collecting the amount at net present value which was due later on and even the formula for collecting the net present value was also given by the SICOM and the amounts had been paid as per that formula. Therefore, such payment of net present value of a future liability could not be classified as remission or cessation of the liability so as to attract the provisions of section 41(1)(a) [Para 108] ”

Considering facts in totality, in the light of the aforesaid decision of the Tribunal Special Bench, which has been rightly followed by the CIT(A), we do not find any reason to interfere with the findings of the CIT(A). For the reasons stated above, it was to be held that the deferred sales tax liability being the difference between the payment of net present value against the future liability credited by the assessee under the capital reserve account in its books of account was a capital receipt and could not be termed as remission/cessation of liability and, consequently, no benefit would arise to the assessee in terms of section 41(1)(a) [Para 109]

The appeal filed by the revenue is accordingly dismissed.”

On identical facts we have (the same combination) decided a similar issue in the case of M/s. Godrej & Boyce Mfg. Co. Ltd. in ITA No. 6867/Mum/2011 for AY 2005-06, in which we have followed the aforesaid decision of the Tribunal in the case of Sulzer India Ltd. Facts and issues being identical, respectfully following the decision of the Special Bench and our own decision [supra], we have no hesitation in reversing the findings of the CIT(A) and accordingly, ground no.1 with its sub grounds are allowed.

5. Before parting, the DR has relied upon the decision of Jurisdictional High Court of Bombay in the case of Hindustan Foods Ltd 328 ITR 392. However we find that in that case the assessee company unilaterally transferred the unclaimed amount of the debenture redemptions to its general reserve without complying with the mandatory conditions of sec.205C of the Company Act, 1956 wherein it is provided that such unclaimed amount has to be transferred to ‘Investor Education and Protection Fund’. Thus, the facts are clearly distinguishable and the reliance on the aforesaid judgment is misplaced.

6. Ground no.2 relates to the disallowance on account of delay in remittance of employees contribution to provident fund amounting to Rs.1,41,324/-. While scrutinizing the return of income, the Assessing Officer noticed that the assessee has deposited the employees contribution to provident fund beyond the 15thday of next month and thereby violated the provisions of section 2(24)(x) r.w.s. 36(1)(va) and added the amount of Rs.1,41,324/- to the income of the assessee. When the matter was agitated before the CIT(A), the CIT(A) declined to interfere with the findings of the Assessing Officer.

7. Before us the counsel for the assessee strongly submitted that the payments have been made within the grace period of five days, which is permissible under the Provident Fund Act. The counsel drew out attention to the chart, which is part of Form 3CD. A perusal of the assessment order shows that the Assessing Officer himself had admitted that the assessee had deposited the employees contribution to provident fund account within the grace period. As the amount has been deposited within the permissible grace period, we do not find any reason for the disallowance of Rs.1,41,324/-. We accordingly direct the Assessing Officer to allow the claim of the assessee to the tune of Rs.1,41,324/-. Ground no. 2 is accordingly allowed.

8. In the result, the appeal is allowed.

Order pronounced in the open court on 3rd July 2013.

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