DCIT Vs Kesoram Industries Ltd. (ITAT Kolkata)
The grievance raised by the assessee in their appeal in ITA No. 1650/Kol/2019 is against the disallowance u/s 14A of the Act read with Rule 8D(2)(iii) of the IT Rules. After considering the rival submissions and perusing the relevant material on record, we find that the issued involved in this appeal is identical to that of Ground Nos. 1 to 3 of the appeal of the assessee in AY 2014-15. We therefore follow our conclusions drawn on this issue in AY 2014-15 and accordingly uphold the Ld. CIT(A)’s order directing the AO to consider only the opening and closing value of those investments which actually yielded dividend income to the assessee during the relevant year for the purposes of computing the disallowance under section 14A of the Act read with Rule 8D(2)(iii). In case the re-worked disallowance is lower than the sum of Rs.1,06,159/- voluntarily disallowed by the assessee u/s 14A of the Act, then the AO shall restrict the disallowance to Rs.1,06,159/-. The appeal of the assessee is allowed for statistical purpose, as directed supra.
Deduction allowed in respect of employee’s contribution to PF & ESI which had been remitted on or before the due date for filing the return of income u/s. 139(1) of the Act
It is noted that although there was a delay in some payments of employees’ contribution to PF& ESI aggregating to Rs.67,16,882/-within the time limits as prescribed by the respective Acts but the alleged sums were duly deposited with the respective authorities before the due date of filing of return of income for the A.Y 2012-13 prescribed u/s. 139(1) of the Act. We note that, the Hon’ble Calcutta High Court has taken consistent view that employee’s contribution to PF/ESI paid on or before the due date of filing of return of income u/s. 139(1) of the Act should be allowed as deduction. In this regard, we gainfully refer to the decisions of Hon’ble Calcutta High Court in the case of M/s. Akzo Nobel India Ltd. Vs. CIT in ITA No. 110 of 2011 dated 14.06.2016 and in the case of CIT Vs. Vijayshree Ltd.(2014) 43 taxmann.com 396 (Cal).
Respectfully following the aforesaid decision of the Hon’ble Calcutta High Court and this Tribunal, we are of the view that the Ld. CIT(A) has rightly allowed the deduction in respect of employee’s contribution to PF & ESI which had been admittedly remitted on or before the due date for filing the return of income u/s. 139(1) of the Act. We therefore do not find any infirmity in the order of the Ld. CIT(A) and, we confirm the same and dismiss this ground of appeal of revenue.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
These five appeals, two by the assessee and three by the Revenue relate to Assessment Years – 2012-13, 2014-15 & 2015-16. Since the issues involved are common, all the appeals were heard together. Both the parties also argued them together raising similar arguments on these issues. Accordingly, for the sake of brevity, we dispose all the appeals by this consolidated order.
2. First, we take up the appeal for AY 2012-13 in ITA No.1777/Kol/2019 arising out of the order of the Ld. CIT(A) -7, Kolkata [herein after referred to as‘Ld. CIT(A)’] dated 29.03.2019 passed against the assessment order passed under section 143(3) passed by the A.O. dated 20.03.2015.
3. Ground No. 1 of the appeal of the Revenue is directed against the Ld. CIT(A)’s action of deleting the addition of Rs.67,16,882/- made by the AO on account of delayed deposit of employees contribution to PF and ESI u/s 36(1)(va) read with Section 2(24)(x) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) despite the assessee contributing/depositing the same before the due date of filing of return of income u/s 139(1) of the Act.
4. We have heard both the parties and perused the material available before us. It is noted that although there was a delay in some payments of employees’ contribution to PF& ESI aggregating to Rs.67,16,882/-within the time limits as prescribed by the respective Acts but the alleged sums were duly deposited with the respective authorities before the due date of filing of return of income for the A.Y 2012-13 prescribed u/s. 139(1) of the Act. We note that, the Hon’ble Calcutta High Court has taken consistent view that employee’s contribution to PF/ESI paid on or before the due date of filing of return of income u/s. 139(1) of the Act should be allowed as deduction. In this regard, we gainfully refer to the decisions of Hon’ble Calcutta High Court in the case of M/s. Akzo Nobel India Ltd. Vs. CIT in ITA No. 110 of 2011 dated 14.06.2016 and in the case of CIT Vs. Vijayshree Ltd.(2014) 43 taxmann.com 396 (Cal). In the order in the case of Vijayshree Ltd. (supra) the Hon’ble Calcutta High Court held as follows:
“The only issue involved in this appeal is as to whether the deletion of the addition by the Assessing Officer on account of Employees ‘Contribution to ESI and PF by invoking the provision of Section 36(1 )(va) read with Section 2(24 )(x) of the Act was correct or not. It appears that the Tribunal below, in View of the decision of the Supreme Court in the case of Commissioner of Income Tax vs. Alom Extrusion Ltd., reported in 2009 Vol.390 ITR 306, held that the deletion was Justified.
Being dissatisfied, the Revenue has come up with the present appeal.
After hearing Mr. Sinha, learned advocate, appearing on behalf of the appellant and after going through the decision of the Supreme Court in the case of Commissioner of Income Tax vs. Alom Extrusion Ltd., we find that the Supreme Court in the aforesaid case has held that the amendment to the second proviso to the Sec. 43(B) of the Income Tax Act, as introduced by Finance Act, 2003, was curative in nature and is required to be applied retrospectively with effect from 1 st April, 1988.
Such being the position, the deletion of the amount paid by the Employees’ Contribution beyond due date was deductible by invoking the aforesaid amended provisions of Section 43(B) of the Act.
We, therefore, find that no substantial question of law is involved in this appeal and consequently, we dismiss this appeal.”
5. Further, this Tribunal in the case of Harendra Nath Biswas in ITA No. 186/Kol/2021 by order dated 16-07-2021 has dealt with this issue by holding as follows:-
“4. We have heard both the parties and perused the record. First of all we do not countenance this action of the Ld. CIT(A) for the simple reason that the Explanation 5 was inserted by the Finance Act, 2021, with effect from 01.04.2021 and relevant assessment year before us is AY 2019-20. Therefore the law laid down by the Jurisdictional Hon’ble High Court will apply and since this Explanation-5 has not been made retrospectively. So we are inclined to follow the same and we reproduce the order of Hon’ble Calcutta High Court in the case of Vijayshree Ltd. supra wherein the Hon’ble Calcutta High Court has taken note of the Hon’ble Supreme Court decision in CIT vs. Alom Extrusion Ltd. reported in 390 ITR 306. The Hon’ble Calcutta High Court’s decision in Vijayshree Ltd. supra is reproduced as under:
…………
In the light of the aforesaid discussion we do not accept the Ld. CIT(A)’s stand denying the claim of assessee since assessee delayed the employees contribution of EPF & ESI fund and as per the binding decision of the Hon’ble High Court in Vijayshree Ltd. (supra) u/s 36(1)(va) of the Act since assessee had deposited the employees contribution before filing of Return of Income. Therefore, the assessee succeeds and we allow the appeal of the assessee”.
6. Respectfully following the aforesaid decision of the Hon’ble Calcutta High Court and this Tribunal, we are of the view that the Ld. CIT(A) has rightly allowed the deduction in respect of employee’s contribution to PF & ESI which had been admittedly remitted on or before the due date for filing the return of income u/s. 139(1) of the Act. We therefore do not find any infirmity in the order of the Ld. CIT(A) and, we confirm the same and dismiss this ground of appeal of revenue.
7. Ground No. 2 of the appeal of the Revenue is directed against the Ld. CIT(A)’s action of deleting the disallowance of Rs.3,13,86,883/- made by the AO out of the discount & brokerage debited to the Profit & Loss Account. Briefly stated, the facts of the case are that, the assessee is engaged in the business of manufacture & sale of cement, rayon, fire bricks, cast iron pipes, tyres, tubes and various forms of chemicals. The assessee as a part of normal business policy allowed discounts to its dealers viz., (a) upfront/trade discounts which were allowed at the time of placement of order/invoicing and netted off against the sales, and (b) conditional / post sales discounts, such as (i) prompt payment (cash) discount, (ii) turnover discount, (iii) slab discounts etc.; which were allowed to the dealers based on several qualifying parameters and/or fulfillment of certain conditions (which arises after the sale transactions). These discounts were recognized by separately debiting them to the Profit & Loss Account under the head ‘Discount & Brokerage’. According to AO however, since the assessee allowed trade discounts at the time of sale, no further discounts could have been given or allowed by the company to the customers post the completion of sales. The AO was of the view the primary commitment of the assessee stood fulfilled once the sale was complete and therefore there was no necessity to give further discounts after the sales. The AO accordingly disallowed the discount of Rs.3,13,86,883/- given by the assessee to its customers post the completion of sales. Aggrieved by this action of the AO, the assessee preferred appeal before the Ld. CIT(A) who deleted the impugned disallowance.
8. Being aggrieved by the Ld. CIT(A)’s order, the Revenue is now in appeal before us.
9. We have heard both the parties and perused the records. We note that the issue in dispute before us, is squarely covered by the decision of this Tribunal in assessee’s own case in ITA No. 1781/Kol/2017 dated 30.11.2018, wherein on identical facts and circumstances, it was held as under:
2. The Revenue’s sole substantive ground pleaded in the instant appeal seeks to revive the Assessing Officer’s action disallowing / adding this taxpayer’s discount and brokerage claim of Rs.21,83,16,311/- during the course of assessment as reversed in lower appellate proceedings as follows:-
“Decision: In this case the AO has made the addition on the ground that discounts offered by the assessee have been netted from the sales so there cannot be an admissible claim for additional discount. It is the contention of the AO that once the discount has been deducted from the gross sales the assessee cannot claim further ITA No.1781/Kol/2017 A.Y. 2008-09 DCIT, Cir-5(1), Kol. Vs. M/s Kesoram Industries Ltd. Page 2 discount under the accounting head “Brokerage and Discount”. Accordingly, the order post sales discount claimed by the assessee was treated by the AO as a double claim and disallowed. Accordingly, disallowance of Rs.21,83,16,311/- was made by the AO.
I have gone through the submissions of the assessee and the findings of the AO carefully. It has been submitted that the assessee offers upfront discount at the time of the sales which is called trade discount. The sales are reported net of trade discount. The other discounts offered by the assessee which are mostly the post-sale are:
(a) Turn over discount (b) prompt payment discount
(c) Quantity discount; (d) slab discount
(e) discount on sale of disposal of second tubes;
It has also been submitted that assessment orders for assessment year 2005 to 2007-08 were passed u/s. 143(3). In all the earlier years same accounting policy regarding the discounts offered by the assessee was followed i.e. trade discounts were netted off again sales and the other post-sale discounts were shown separately and independently in the profit and loss account. In these years the AO has accepted the method of accounting followed by the assessee with respect to treatment of post- sale discount. In this case it has been argued that the AO has not rejected the books of account u/s.145(3). There is no change of facts as far as accounting treatment of discount is concerned. Accordingly, reliance was placed on the decision of the Apex Court in the case of RadhasoamiSatsang vs. CIT (193 ITR 321), wherein it observed s follows:
‘Where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and the parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year.’ It was also submitted that on same set of facts that the order passed u/s.263 by the CIT in A.Yr. 2011-12 has been set aside by the Hon’ble ITAT.
Trade discount is offered upfront on sales. I have gone through the sample bill submitted by the A/R of the assessee, in the case of Eastern Tyre Corporation,, wherein the invoice amount is Rs.416680/- on which trade discount is R.140/-and therefore the net product value billeedis Rs.41540/-. Thereafter, VAT of 12.5% has been levied and the net invoice value is Rs.46733/-. The other discounts are not netted off against sales and are debited separately in the P/L Account. Like prompt payment discount of 0.5% is offered by the assessee to its customer if the payment is realized within 30-32 days. Turnover discou9ntof 1.5% is offered if the dealer of the assessee exceed the net billing limit by 3-4 times. Moreover, on identical facts the claim of the assessee in the A.Yr. 2005-06 to 2007-08 in scrutiny assessments passed under section 143(3). The AO has not brought any new material facts on record which would necessitate a change in the stand taken as regard the accounting method with respect to treatment of post-sale discounts earlier accepted by the department. This accounting method has been continuously followed by the assessee and accepted by the department in scrutiny assessments. Respectfully following the decision of the Apex Court in RadhasoamiSatsang (supra) I am of the opinion that the AO has taken an entirely contrary stand in this year on the treatment of post-sale discounts which is not supported by any change in material facts which is not correct. Accordingly, the disallowance is hereby deleted.”
3. Learned CIT-DR vehemently contends that CIT(A) has erred in law as well as on facts in deleting the impugned discount and brokerage disallowance. We invited his attention to the fact that this tribunal has already reversed the CIT’s action in assessment year 2011-12 seeking to disallow the very claim in sec. 263 proceedings. Learned co-ordinate bench’s order to this effect in ITA No.1189/Kol/2016 decided on 04.11.2016. forms part ofserved before us. We are informed that Revenue’s appeal against the same is pending before hon’ble jurisdictional high court. There is no distinction on facts or law pointed out at either parties’ behest in these two assessment years qua the impugned identical issue. We therefore adopt judicial consistency in this facts and circumstances to affirm the CIT(A)’s findings under challenge deleting discount and brokerage disallowance of L121,83,16,311/-.
10. Since, the facts in the year under dispute are analogous to that in the earlier AY 2008-09, so following the order of this Tribunal (supra), we do not see any infirmity in the impugned order of the Ld. CIT(A), in this regard. Accordingly, Ground No. 2 of the Revenue is dismissed.
11. Now, we take up the appeals for AY 2014-15in ITA No.1197/Kol/2019 & 1778/Kol/2019 arising out of the order of the Ld. CIT(A) -22, Kolkata dated 28.02.2019 passed against the assessment order passed under section 143(3) passed by the A.O. dated 26.12.2017.
12. The sole grievance raised by the assessee in their appeal in ITA No.1197/Kol/2019 is against the disallowance u/s 14A of the Act read with Rule 8D(2)(iii) of Income Tax Rules,1962. Briefly stated, the assessee had filed the return of income declaring a loss of Rs.413,59,34,407/-. In the said return, sum of Rs.5,77,26,949/- received from dividend on the shares during the year under consideration was claimed to be exempt by the assessee-company u/s 10(34) of the Act. In relation thereto, the assessee had offered disallowance of Rs.1,06,441/-u/s 14A of the Act. Not being satisfied with the said disallowance offered by the assessee, the AO invoked Rule 8D of the Income Tax Rules [herein after referred to as Rules]and worked out the disallowance to be made u/s 14A of the Act at Rs.1,22,26,453/- which comprised of disallowance of interest of Rs.89,07,240/-under Rule 8D(2)(ii) and disallowance of administrative expenditure of Rs.33,18,000/- under Rule 8D(2)(iii). Being aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who deleted the interest disallowance of Rs.89,07,240/- made under Rule 8D(2)(ii) and restricted the computation of disallowance under Rule 8D(2)(iii) only with reference to those investments which actually yielded dividend income during the year. The relevant findings of the Ld. CIT(A) are as follows:
6. The Ld. AO has further disallowed 0.5% of the average investments amounting to Rs.33.18 lacs by invoking Rule 8D(2)(iii). It is noted that the Hon’ble ITAT, Kolkata in the appellant’s own case for AYs 2008-09 & 2009-10 through its lead order in ITA No. 1722/Kol/2012 has held that 0.5% of dividend bearing investments should be alone be considered i.e. investments from where dividends were actually received by the appellant for the purpose of Rule 8D(2)(ii). Respectfully following the aforesaid decision, the Ld. AO is directed to re-compute the disallowance under the third limb of Rule 8D(2)(iii) by considering the investments which actually yielded dividend income to the appellant for computing disallowance u/s 14A of the Act. In case the disallowance so worked out in the manner as set out in the foregoing to an amount lower than the sum of Rs.1,06,441/- voluntarily disallowed by the appellant u/s 14A in the return of income, then the Ld. AO shall restrict the disallowance u/s 14A to Rs.1,06,441/-.
13. Not being satisfied with the order of Ld. CIT(A), the assessee is now in appeal before us.
14. We have heard the arguments of both the sides and also perused the relevant material available on record. It is noted that the above findings were recorded by the Ld. CIT(A) following the order of this Tribunal dated 26.04.2010 passed in assessee’s own case in ITA Nos. 1722/Kol/2012for AYs. 2008-09 & 2009-10 wherein it was held as under:-
“10. Now coming to the disallowance of Rs. 19,17,487/- made under rule 8D(2)(iii), we find force in the alternate argument of learned AR that only dividend bearing investment of scrips are to be considered for making disallowance under section 14A of the Act. In this regard, reliance was placed by the learned AR on the decision of the Tribunal in the case REI Agro Ltd. reported in 143 ITD 141 Kolkata which we note is very well founded wherein it was held:
“(8.1) Thus, not all investments become the subject-matter of consideration when computing disallowance under section 14A read with rule 8D. The disallowance under section 14A read with rule 8D is to be in relation to the income which does not form part of the total income and this can be done only by taking into consideration the investment which has given rise to this income which does not form part of the total income. Under the circumstances, the computation of the disallowances under section 14A read with rule 8D(2)(iii), which is issue in the assessee’s appeal, is restored in the file of the A.O. for re-computation in line with the direction given above. No disallowance under section 14A read with rule 8D(2)(i) and (ii) can be made in this case.”
11. In view of the aforesaid findings and respectively following the decision of the Coordinate Bench of this Tribunal, we remand this issue to the file of A.O. with the direction to consider only the investment which yielded dividend income to the assessee for computing the disallowance under section 14A of the Act read with Rule 8D(2)(ii) of the Rules.
12. We further direct that after re-working the gross disallowance of Rule 8D in terms of the discussion and direction given above, the A.O. shall reduce the sum of Rs. 10,00,000/- already suo-moto disallowed by the assessee under section 14A and the net sum so computed alone shall be added back to the total income. However, in case the revised disallowance under section 14A work out at a sum lower than the amount of Rs.10,00,000/- suo-moto disallowed by the assessee, then the A.O. shall restrict the disallowance under section 14A to Rs.10,00,000/-. Therefore, grounds raised by assessee’s appeal are partly allowed for statistical purposes.”
15. Since the facts and circumstances involved in the relevant year are similar to that of AYs 2008-09 & 2009-10, we do not find any infirmity in the order of the Ld. CIT(A) on this issue and therefore uphold the same. This ground of appeal of the assessee is accordingly dismissed, so the assessee’s appeal stands dismissed.
16. Now we take up the Revenue’s appeal in ITA No. 1778/Kol/2019. Ground Nos. 1 to 3 of the appeal relate to the transfer pricing adjustment made by the TPO to the claim of deduction u/s 80-IA of the Act. Briefly stated, the facts of the case are that, the assessee is a multi-product and multi-locational company which is engaged in the production of automobile tyres and cement and other various products. The assessee had set up four power plants [herein after referred to as ‘CPP’ or ‘eligible unit’] viz., three CPPs for its cement unit at Vasavdatta, in the State of Karnataka and one CPP for its rayon unit at Hooghly, West Bengal. The total electricity generated by the three CPPs at Vasavdatta was 22,51,61,246 units, out of which 17,57,55,635 units were captively consumed by the cement unit [herein after referred to as ‘non-eligible unit’] and the remaining 4,94,05,611 units were sold to external unrelated parties i.e. IEX and GEPL. The electricity generated by the CPP at Hooghly was entirely transferred and consumed by the rayon unit [herein after referred to as ‘non-eligible unit’]. All these CPPs qualified as eligible unit engaged in the business of generation of power u/s 80-IA(4)(iv) of the Act and for that reason the assessee prepared stand-alone accounts of these eligible units to quantify the profits eligible for deduction u/s 80-IA of the Act. As the power generated by the CPPs were captively consumed by the non-eligible units, such intra-unit transfer of power qualified as reportable specified domestic transaction u/s 80-IA(8) read with Section 92BA(iii) of the Act. Accordingly, such intra-unit transfer of power was reported by the transfer pricing auditor in Form 3CEB for AY 2014-15 and it was benchmarked by applying the Comparable Uncontrolled Price Method [herein after referred to as ‘CUP Method’]. For benchmarking the transfer rate of power, the non-eligible units was considered as the ‘tested party’ as it regularly procured power both from the CPP as well as independent State Electricity Boards [herein after referred to as ‘SEB’]. Hence, the landed rate at which the non-eligible unit purchased power from the SEBs was taken as the ALP rate to benchmark the transfer price of power supplied by the CPPs to the non-eligible units. Having regard to the aforesaid transfer rates, the stand alone profits of the three CPPs at Vasavdatta were computed at Rs.6,50,877/-, Rs.4,25,02,613/- and Rs.3,08,98,008/- and the profit of the CPP at Hooghly was determined at Rs.8,37,15,597/-, which was eligible for deduction u/s 80-IA of the Act. However, as the assessee had returned loss of Rs.413,59,34,407/-, it was neither entitled to nor did it claim any deduction u/s 80-IA of the Act in the return of income filed for AY 2014-15.
17. In the course of assessment, the AO referred the case of the assessee to the Transfer Pricing Officer [herein after referred to as ‘TPO’] u/s 92CA(2) of the Act to examine the above referred specified domestic transactions u/s 80-IA(8) of the Act involving intra-unit transfer of power between eligible units and non-eligible units. According to the TPO, although CUP Method was the Most Appropriate Method in the given facts of the present case, but the assessee’s benchmarking analysis was in contravention to the principles of CUP Method. The TPO held that the ALP should have been arrived at by following the order of the Hon’ble Calcutta High Court in the case of CIT vs ITC Ltd. (64 taxmann.com 214). The TPO observed that there were similar power generating companies which were supplying power to distribution companies at the notified tariff issued by the State Electricity Regulatory Commission. According to him, these power generation companies were comparable to the CPPs and therefore the notified Tariff Order was a reliable external CUP for determination of ALP. The TPO accordingly re-computed the transfer price of power supplied by these eligible units to the non-eligible units located at Vasavdatta and Hooghly at Rs.3.75 per unit and Rs.3.23 per unit respectively. The transfer pricing adjustment made to the sale value of power of the eligible units was thus computed by the TPO in the following manner:
