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TMI Blog2015 (3) TMI 527X X X X Extracts X X X X X X X X Extracts X X X X ..... 07, the department has raised the following grounds:- 1. That, the learned CIT(Appeals) has erred in deleting the disallowance of Rs. 5,27,971/- for belated deposit of employees' contribution to P.F. 2. In the facts and circumstances of the case, the learned CIT (Appeals) has erred in law in deleting the disallowance of Rs. 1,99,20,614/- towards cess payable by the assessee company on cultivation of green tea leaves." 5. The first issue is relating to belated deposit of employees' contribution to P.F. 6. The facts of the case in brief are that the AO had made the addition of Rs. 5,27,971/- on account of late deposit towards employees' contribution to Provident Fund by invoking the provisions of section 36(1)(va) r.w.s 2(24)(x) of the I.T Act 1961(hereinafter referred to as 'Áct'). The submissions of the assessee before the AO was that due to frequent Bandhs leading to disruption of normal life in the state of Assam, the payment of the PF and other statutory dues got delayed. But the AO did not find merit in the submissions of the assessee and made the impugned addition. 7. Being aggrieved, the assessee carried the matter to the ld.CIT(A), who deleted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inance Act, 2003, will operate retrospectively with effect from April 1, 1988 (when the first proviso stood inserted). Lastly, we may point out the hardship and the invidious discrimination which would be caused to the assessee(s) if the contention of the Department is to be accepted that the Finance Act, 2003, to the above extent, operated prospectively. Take an example-in the present case, the respondents have deposited the contributions with the R.P.F.C after March, 31(end of the accounting year) but before filing of the returns under the Income-tax Act and the date of payment falls after the due date under the Employees' Provident Fund Act, they will be denied deduction for all times. In view of the second proviso, which stood on the statute book at the relevant time, each of such assessee(s) would not be entitled to deduction under section 43B of the Act for all times. They would lose the benefit of deduction even in the year of account in which they pay the contributions to the welfare funds, whereas a defaulter, who fails to pay the contribution to the welfare fund right up to April 1, 2004 and who pays the contribution after April 1, 2004, would get the benefit of deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the jurisdictional High Court in the case of CIT vs. AFT Industries Ltd 141 Taxman 433, 270 ITR 169(Cal). Accordingly, the disallowance of Rs. 1,99,20,614/- made by the AO towards cess on green leaf for the purpose of computation of composite business income is deleted." Now, the department is in appeal. 15. The ld.DR has reiterated the observations made by the AO in the assessment order dated 26/12/2008 and strongly supported the said order. 16. The ld. Counsel for the assessee in his rival submission has strongly supported the impugned order passed by the ld.CIT(A). 17. We have considered the rival submissions of both the parties and carefully gone through the material available on record. It is noticed that a similar issue has been adjudicated by the Hon'ble Jurisdictional Calcutta High Court in the case of CIT Vs. AFT Industries Ltd reported in 270 ITR 167 (Cal), wherein it has been held as under:- "Ïn respect of computation of income of tea grown and manufactured, a fiction has been created under which both the agricultural component and the business component of the income would be assessed together for the purpose of computing the income under the Act and only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtered Accountants of India and since the assessee has been following mercantile system, it has to make provision as per law and as per the rate prevalent on the last date of accounting year. 23. The ld.CIT(A) did not find merit in the above submission of the assessee and confirmed the impugned disallowance by observing as under:- "5.1 "I have carefully considered the submission of the L.d A.r. Only those expenditure are allowable in the previous year, which has accrued or paid by the assessee. In the case under consideration neither the repayment has been made nor the liability for the same has accrued. Hence, the notional loss in the loan amount due to fluctuation of foreign exchange claimed by the assessee is not an allowable expenditure. Considering above the disallowance of Rs. 28,53,019/- is confirmed and the ground taken by the appellant is dismissed. Now, the assessee is in C.O 24. The ld. Counsel for the assessee has reiterated the submissions made before the authorities below. He further submitted that the foreign exchange loan was allowable as the assessee has maintained the books of account on mercantile system of accounting. Therefore, as per AS-II, the impugned lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the cost of asset had been either paid fully or in part prior to the fluctuation in the rate of foreign exchange, the cost of the asset would correspondingly be permitted to be reworked for purpose of repayment or depreciation or investment allowance, as the case may be, with reference to the rate prevailing on the last date of the financial year in which the fluctuation occurs." 27. However, in the present case it is clear as to whether the term loan was capital in nature related to the purchase of assets or it was revenue in nature. We, therefore, restore this issue to the file of the AO, who will decide the same afresh in accordance with law after considering the ratio laid down by the Hon'ble Delhi High Court in the aforesaid case(referred to supra). 28. Next issue relates to the disallowance of Rs. 25,999/- made by the AO u/s. 40A(3) of the Act. 29. The facts relating to the issue in brief are that the AO made the impugned disallowance by observing that Appendix-VI of the Tax Audit Report dt. 31/07/2006 revealed that the assessee had incurred cash expenses aggregating to Rs. 1,29,993/- in excess of Rs. 20,000/- on each occasion and the auditor indicated that Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a single bill. Considering above and the fact that cash payments exceeding the prescribed limit was made in contravention of the provision of section 40A(3) of the I.T Act 1961, the disallowance of Rs. 25,999/- made by the AO is confirmed. Now, the assessee has filed the Cross Objection. 32. The ld. Counsel of the assessee has reiterated the submissions made before the authorities below and further submitted that most of the payments were in the nature of reimbursement made on account of cost of medicines supplied to ailing labour and staff and also on account of cost of gas cylinder. However, he requested that the issue may be sent back to the AO for verification and re-examination. 33. The ld.DR in his rival submission supported the orders of the authorities below. 34. After considering the submissions of both the parties and the material available on record it is not clear as to whether the AO has considered the payment of individual item or total items while making the disallowance u/s. 40A(3) of the Act. We, therefore, deem it appropriate to set aside this issue back to the file of the AO to be adjudicated afresh in accordance with law after providing reasonable opportunit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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