Case Law Details
1. During the course of assessment proceedings and on perusing the “office and administration expenses” account, Assessing Officer noticed that assessee had debited Rs. 20,78,557/- on account of “provident fund contractors”. Assessing Officer on further verification noticed that the aforesaid amount comprised of Rs. 9,73,953/- being employees contribution to provident fund and Rs. 11,04,624/- being the employers contribution in respect of laborers employed through sub contractors. Assessee was asked to justify it claim to which assessee interalia submitted that the assessee is engaged in the business of industrial construction and that the assessee gets its job work done through various subcontractors. As per the agreement entered into by the Assessee with its various clients, the assessee is liable for provident fund expenditure. It was further submitted that many of the sub contractors do not have Provident Fund registration and hence the assessee has paid their provident fund contribution and therefore the same is claimed as an expenditure. The submissions of the Assessee was not found acceptable to the Assessing Officer in view of the fact that in respect of assessee’s own employees, Assessee had contributed only employers contribution and had deducted the portion of employees contribution from their wages/ salaries but in respect of employees of the sub contractors which were engaged by the assessee, no such deduction was made from the wages/ salaries of the concerned employees. He was therefore of the view that the amount of Rs. 9,73,953/- (being the employees contribution of sub contractors) cannot be considered to be contractual obligation of the assessee and the same, according to the Assessing Officer, was therefore not allowable. He, accordingly, disallowed the claim of expenditure of Rs. 9,73,953/-. Aggrieved by the order of Assessing Officer, Assessee carried the matter before Ld CIT(A) who apart from upholding the order of Assessing Officer also enhanced the dis allowance by directing the Assessing Officer to disallow the employer’s contribution pertaining to contractors (Rs. 11,04,124/-). The relevant observation to ld. CIT (A) is as under:
“7. I have carefully considered the facts of the case as well as of the appellant. The main contention of the appellant is that as per terms of agreement the appellant was responsible for provident fund payments in respect of work done for the respective companies and since sub contractors were not having PF registration the onus fell upon the appellant to discharge this liability. The argument of the appellant is difficult to be accepted as nothing prevented the appellant to debit the account of sub-contractors on account of such payments in case these sub-contractors were not having PF registration members. I also find that observation of the Assessing Officer is quite correct regarding non contractual nature of such payment as it was basically duty of the subcontractors to collect the same from respective employees and make the payment either directly or through the appellant but never the less the same cannot be claimed expenditure of the appellant company.
8. The appellant’s reliance on the decision of Hon’ble Bombay High Court’s order in the case of CIT Vs. Sales Magnesite Pvt. Ltd. 214 ITR 1, for allow ability of the same on the grounds of commercial expediency is also misplaced as the appellant has not been able to prove that the payment was made out of commercial expediency. Therefore, I do not find any merit in the submissions of the appellant and dis allowance of Rs. 9,73,953/- being employees contribution of contractors is upheld.
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