Doosan Power Systems India P.Ltd. Vs DCIT (ITAT Chennai)
We find that issue of belated payment of employees contribution to PF & ESI is allowable expenditure u/s.43B of the Act or not is no longer res integra. The Hon’ble Supreme Court in the case of M/s.Vinay Cements Ltd. (supra) and also in the case of CIT V. Alom Extrusions Ltd. reported in 319 ITR 306 has considered identical issue and held that employees contribution to PF & ESI is deductible, even if such payment is remitted beyond due date specified under respective Acts, but made on or before due date of furnishing return of income filed u/s.139(1) of the Act. The Hon’ble Madras High Court in the case of CIT Vs .M/s.Industrial Security & Intelligence India Pvt. Ltd., (supra) has considered an identical issue and held that belated payment of employees contribution to PF & ESI is deductible, if such payment is made on or before due date of filing return of income u/s.139(1) of the Act.
In this view of the matter and by respectfully following the decision of Hon’ble Supreme Court in the cases discussed herein above, we are of the considered view that Assessing Officer as well as DRP were erred in confirming disallowances towards employees contribution to PF & ESI. Hence, we direct the Assessing Officer to delete addition made towards disallowance of employees contribution to PF & ESI.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal filed by the assessee is directed against
final assessment order passed by the Assessing Officer u/s.143(3) r.w.s.144C (13) of the Act in pursuant to the directions of DRP-2, Bengaluru dated 27.12.2017 issued under section 144C(5) of the Act and pertains to assessment year 2011-12.
2. The assessee has raised following grounds of appeal:-
“1. The Learned Assistant Commissioner of Income Tax (OSD), Corporate Range – I, Chennai erred on the facts and in law in passing the impugned assessment order pursuant to the directions of the Hon’ble Income-lax Appellate Tribunal and Hon’ble Dispute Resolution Panel confirming the adjustment of INR 31,864,765 and computing he total income of the Appellant for Assessment Year 2011-12 al INR 29,88,63,333 as against the returned income of INR 266,998,568.
Grounds in relation to Transfer Pricing — Technical Support Services Segment
2. The AO inadvertently erred on the facts and in law, in computing the adjustment of INR 17,417,268 in relation to the international transaction of provision of engineering design, drawing and consultancy services in the impugned assessment order passed pursuant to the directions of the Dispute Resolution Panel dated 27 December 2017. Without apprcciating he fact that the said adjustment was deleted by the Ld. Transfer Pricing Officer (ld. TPO)”.
3. The Ld. Assessing Officer and TPO, and Hon’ble DRP erred on the facts and in law in passing the assessment order pursuant to the directions of the DRP making alt adjustment of INR 4,241,096 by considering. The outstanding receivables from AEs as a separate ‘international transaction” and accordingly determining the arms length price of the impugned international transaction.
4. The Ld. AO, Ld TPO and Hon’ble DRP erred on facts and in law in erroneously re-characterizing the outstanding receivables from AE of the Appellant as unsecured loan and computing notional ,nlcresl on alleged delays in realization of payment from the AEs against the invoices raised for provision of engineering design, drawing and consultancy services.
5. The id. AO, Ld. IPO and Hon’ble DRP, without prejudice, erred on fads and in law in arbitrarily applying interest II the rate of 12.625 percent being the average Prime Lending Rate (PLR) of Bank of India for FY 2010-11 of the outstanding receivables from the AEs without appreciating lie fact that the transactions giving rise to the receivables were denominated in foreign currency and therefore, an international LIBOR based rate should be considered for the purpose of imputing interest.
6. The Ld. AO, Ld TPO and the Hon’ble DRP. erred on fads and in law in ignoring the fact that the margin earned by the Appellant from the international transactions is higher than the arm’s length margin earned by the comparable companies and it already subsumed / factored-in the impact of return on outstanding receivables.
Grounds in relation in Corporate Tax Adjustment:
7. The Ld AO and Hon’ble DRP erred on the facts and in law in disallowing employees contribution to Provident Fund (PF”) amounting to INR 5,768,966.
7.1 The ld. AO and Hon’ble DRP erred in disallowing INR 876S,966 under section 36(l)(va) of the Income-tax Act (the Act”) on account of delayed remittance of the employee’s contribution to PF
7.2 The Ld. AO and Honble DRP failed to appreciate that the Appellant had made the requisite remittance before the due date of filing of Return of Income for AY 2011-12 i.e., 30 November 2011.
7.3 The Ld. AO failed to appreciate die existing jurisprudence which had held that employees contribution to Pr are also covered under Section 438 of the Act and that the delayed employee’s contribution to be allowed as deduction in the computation of taxable income for the year under consideration if they are paid before the due date of Filing the RoI.
7.4 Further, the Ld. AO and Hon’ble DRP failed to appreciate the rulings of the Hon’ble Supreme Court (SC’) in the case of CIT v. Alom Extrusion Ltd 319 IR 306, CIT VS. Vinay Cements Ltd 213 CTR 268 (SC) and other judgments wherein it was held that employees contribution to PF Employee’s State Insurance can be claimed as all allowable deduction under section 36(1)(va) read with section 43B of the Act if the said payments are made on or before the due date for filing the RoI for the subject assessment year .
8. The Id. AO and Hon’ble DRP erred on facts and in law by not giving the credit for Tax Deducted at Source (TDS”) and Advance tax.
8.1 The ld. AO and Hon’ble DRP erred it not giving credit for TDS amounting to INR 21,616,883 and advance tax amounting to INR 1,190,000.
9. On the facts and in the circumstances of the case the AO erred in levying interest under section 234B and 234C of the Act.”
3. The case has been selected for scrutiny and during the course of assessment proceedings, a reference u/s. 92CA(1) of the Act was made to Transfer Pricing Officer to determine ALP of international transactions with its AEs. During transfer pricing assessment proceedings, the TPO made upward adjustment of `1,75,55,986/- to the EDS segment and `42,41,096/- as interest on AE receivables. Based on the TPO order dated 29.01.2015, Assessing Officer has passed draft assessment order u/s. 143(3) r.w.s 92CA of the Act on 30.03.2015 and proposed following transfer pricing adjustments. The Assessing Officer has also proposed additions towards corporate tax issues like disallowance u/s.14A of the Act, disallowance u/s. 36(1)(va) and disallowance u/s.40(a)(ia) of the Act. The details of adjustments proposed by the Assessing Officer in draft assessment order is as follows:-
