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TMI Blog2017 (6) TMI 783X X X X Extracts X X X X X X X X Extracts X X X X ..... now in appeal before us and has raised the following grounds: "1] The learned CIT(A) erred in confirming the disallowance of Rs. 9,73,953/- on account of payment made by the assessee company o account of contribution to provident fund on behalf of the employees of the sub - contractors of the assessee company on the ground that the expenditure was not incurred wholly and exclusively for the purpose of business of the assessee company. 2] The learned CIT(A) erred I making an enhancement of Rs. 11,04,624/- by disallowing the payment made by the assessee company towards contribution to provident fund on behalf of the sub - contractors employed by the assessee company on the ground that the expenditure was not incurred wholly and exclusively for the purposes of business of the assessee company. 3] The learned CIT(A) erred in holding that - a. The assessee had no contractual obligation to pay the provident fund contribution on account of the subcontractors and their employees and hence, the same could not be allowed as a deduction while computing the business income of the assessee. b. The assessee had failed to prove that the above payments towards provident fund were made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent 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 labourers 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 we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to sub-contractors amounting to Rs. 9,73,953/-, no such disallowance was made on account of employeers contribution pertaining to contractors amounting to Rs. 11,04,624/- even though both the amounts stood on the same footing. Accordingly, during the course of hearing on 04.07.2014, Shri Nikhil Pathak, Advocate and learned counsel of the appellant was informed that notice u/s. 251(2) of Income-tax Act is required to be issued in this case. The case was adjourned to 22.07.2014. Simultaneously, notice u/s.251(2) of Income-tax Act was issued on 04.07.2014 itself which reads as under: 11. I have carefully considered the facts of the case as well as reply of the appellant. In this case, it is seen that the reply of the appellant is on similar lines as in the case of employees' contribution. Since, both the amounts i.e. employees contribution and employer's contribution stand on the same footing, the Assessing Officer is directed to further disallow amount of Rs. 11,04,624/- being employers contribution, which is neither a contractual liability of the appellant nor commercial expenditure of the appellant as held in the case of employees' contribution in the above paras. Thus, groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by it, Assessee employs the labourers supplied by sub contractors. Assessee has placed in the paper book the copy of the conditions of contract it had entered into with Kansai Nerolac Paints Ltd for its proposed paint manufacturing facility. As per the conditions of contract, responsibility has been cast upon the contractor (i.e. Assessee) by Kansai Nerolac Paints Ltd to comply with the requirements of Employees Provident Fund Act. The relevant clause of the agreement reads as under: "7.4 EMPLOYEES PROVIDENT FUND ACT, 1952 AND SCHEME: 7.4.1 CONTRACTOR agrees to cover all the employees engaged by him or through sub contractors under the employees provident fund scheme and shall submit necessary records to the OWNER in proof of compliance. 7.4.2 CONTRACTOR further agrees to defend, indemnify and hold the OWNER harmless from any liability of penalty which may be imposed by the Central, State or Local authority by reason of any asserted violation by CONTRACTOR or his subcontractor of the provisions of the Employees Provident Fund Act and the Scheme thereunder." 8. The perusal of the aforesaid clause shows that it was the duty of the Assessee to cover all the employees (includin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r's contribution so deducted together with an equal amount of contribution (in this Scheme referred to as the employer's contribution) and also administrative charges. (3) It shall be the responsibility of the principal employer to pay both the contribution payable by himself in respect of the employees directly employed by him and also in respect of the employees employed by or through a contractor and also administrative charges." 10. The perusal of the aforesaid sections of the Employees Provident Fund & Miscellaneous Provisions Act 1952 and Employees Provident Fund Scheme 1952 together with the clauses of the agreement that the Assessee had entered into with his clients shows that Assessee is responsible for the deduction of provident fund dues of the employees including those employed through subcontractor and its deposit with the appropriate authorities. In the present case, the rendering of services by the labours of sub-contractors for the purpose of business of the Assessee has not been doubted by Revenue. Further, statutorily the Assessee could have recovered the Provident Fund dues from the subcontractors but when the Assessee is not in a position to recover the amou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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