ITO Vs Millenium Writing Products Pvt Ltd. (ITAT Kolkata)
Deduction u/s. 80IB of the Act is available
to an assessee whose gross total incomeincludes 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 paymentson 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
delayedpayment 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 dateof 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 contractpayments 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 theIncome 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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