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TMI Blog2017 (8) TMI 1427X X X X Extracts X X X X X X X X Extracts X X X X ..... xempt dividend income at . 54,501/-. The AO observed an average investment of ₹ 32.27 lacs in shares and units, besides inflow and outflow of funds, so that expenditure on its management would have been incurred, i.e., besides a proportionate interest expenditure, incurred at a total ₹ 1.72 lacs. As no explanation for not effecting any suo motu disallowance u/s. 14A was forthcoming from the assessee, he, applying r. 8D, disallowed ₹ 26,112/-, including ₹ 9,976/- u/r. 8D(2)(ii) qua indirect interest expenditure, and the balance qua indirect, administrative expenditure. The same stands confirmed in first appeal on the same basis. No improvement in its case having been made before us, we confirm the same. We decide accordingly. - ITA No.3316/Mds/2016 - - - Dated:- 31-8-2017 - SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER For the Appellant : Shri S.Sriraman, Advocate For the Respondent : Shri Ashish Tripathi, Jt. CIT Per Sanjay Arora, AM: This is an Appeal by the Assessee directing against the Order by the Commissioner of Income Tax (Appeals)-1, Coimbatore ( CIT(A) for short) dated 27.10.2016, dismissing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncerned employee by the due date as provided under the relevant statute: Other deductions. 36 . (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- (i) to (v) . (va) any sum received by the assessee from any of his employees to which the provisions of sub-clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee s account in the relevant fund or funds on or before the due date. Explanation.-For the purposes of this clause, due date means the date by which the assessee is required as an employer to credit an employee s contribution to the employee s account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise; [emphasis, supplied] Section 43B of the Act, in its relevant part, reads as under: Certain deductions to be only on actual payment. 43B . Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mployer, again, by the due date specified there-under. Consequence for non-payment or delayed payment of his contribution by an employer would attract the penal provisions under the relevant statutes. The employer s contribution, to be paid at a defined rate of the employee s salary, forms part of the employee cost, and thus deductible u/s. 37(1) of the Act. The said provision, under which it is thus deductible, reading as under, as shall be noted, does not contain any prescription as to payment: General. 37 . (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head Profits and gains of business or profession . However, being otherwise allowable under the Act, i.e., u/s. 37(1), per s. 43B(b) (read with proviso thereto), the condition of payment by the due date of the filing the return of income by the assessee-employer is superimposed for its allowance. A breach of this condition would postpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 36(1)(va) of the Act. So far as section 43B(b) is concerned, it takes care of only the contribution payable by the employer or the assessee to the respective funds. Therefore, sections 36(1)(va) and 43B(b) operate in different fields, i.e., the former takes care of the employees contribution and the latter the employer's contribution. The assessee is entitled to get the benefit of deduction under section 43B(b) as provided under the proviso thereto only with regard to the portion of the amount paid by the employer to the contributory fund. The Hon ble Court referred to and drew from its earlier decision in CIT v. South India Corporation Ltd. [2000] 242 ITR 114 (Ker), extracting there from, to point out the clear distinction between s. 36(1)(va) and s. 43B. Accordingly, it allowed the Revenue s appeal, holding that inasmuch as the assessee had admittedly not paid the remittance of the employees contribution to the provident fund and ESI within the dates prescribed under the respective Acts, the assessee was not entitled to deduction under section 43B of the amounts deducted thereunder for and on behalf of the employees. That section 36(1)(va) does not yield to s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2003 (w.e.f. April 1, 2004), held as applicable retrospectively w.e.f. 01.04.1998 in CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306 (SC), put forth before it with reference to the said decision, the Hon ble Court, examining relevant provisions, held likewise, explaining that the amendment to s. 43B had no impact as far as s. 36(1)(va) and, thus, the deduction qua the employee s contribution, is concerned. In its words: Section 43B is with respect to certain deductions only on actual payment. The deletion of the second proviso to section 43B and the amendment in the first proviso to section 43B by the Finance Act, 2003, is required to be confined to section 43B alone and the deletion of the second proviso to section 43B by the amendment pursuant to the Finance Act, 2003, cannot be made applicable with respect to section 36(1)(va) of the Act. Therefore, with respect to any sum with respect to the employees contribution as mentioned in section 36(1)(va) of the Act, the assessee shall be entitled to the deduction of such sum towards the employees contribution if it is deposited in the accounts of the concerned employees and in the concerned fund such as provident fund, employee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to, contribution by the assessee as an employer to any fund covered by s. 43B(b) shall be allowed where the same is paid by the due date of filing the return of income u/s. 139(1), as applicable in its case. The deduction in respect of the employee s contribution, it is further clarified, shall continue to be governed by s. 36(1)(va). That is, both the Revenue and the Hon ble High Courts of Gujarat and Kerala have explained the decision in Alom Extrusions Ltd. (supra) as in no way impacting the allowability of the employer s contribution; s. 36(1)(va) having not witnessed any amendment thereto. Years earlier, the Hon ble Patna High Court in Jamshedpur Motor Accessories v. Union of India [1991] 189 ITR 70 (Pat) also had, likewise, clarified that with regard to provident fund, family pension, etc., the assessee was entitled to claim deduction if the same was paid on or before the due date as defined in Explanation below s. 36 (1)(va) of the Act. The decision by the special bench of the Tribunal in Jt. CIT v. ITC Ltd. [2008] 112 ITD 57 (Kol)(SB) is to the same effect (also refer ITO v. LKP Securities Ltd. [2013] 36 CCH 93 (Mum)). Next, we may discuss the assessee s reliance on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs Ltd. (supra), which, as afore-noted, explains that s. 36(1)(va) does not yield to s. 43B despite the latter being a non obstante provision. The omission of the second proviso since, as we have seen, effectively delinks s. 43B and s. 36(1)(va), providing a uniform basis for deduction of all sums specified in s. 43B, i.e., w.e.f. 01/4/2004 (or AY 2004-05 onwards). How could then, one may ask, that deduction qua an employee s contribution, regulated solely by s. 36(1)(va), be guided by s. 43B, which makes no reference to the latter provision, when even the employer s contribution, which definitely is, was covered by s. 36(1)(va) prior to the omission of the second proviso to s. 43B? Even if the omission is retrospective, it would only imply that the employer s contribution would stand to be covered by s. 43B, and only for that reason, i.e., the omission of the second proviso thereto. It shall neither detract from the reading of the second proviso prior to its omission, nor in any manner extend the application of s. 43B to the employee s contribution. From our standpoint, s. 36(1)(va) never yielded to s. 43B, i.e., both prior to or subsequent to the said omission, even if retrospec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and distinct from the employee s contribution and, accordingly, not covered by s. 43B. We have already shown a difference in the nature of the two sums as well as the clear manner of the different descriptions adopted by law to identify them. There is no mandate in law for disregarding the same; rather, stands explained per different decisions, several of which stand cited supra. We decide accordingly. 5. The only other issue arising per the instant appeal is in respect of disallowance u/s. 14A; the assessee having earned tax exempt dividend income at ₹ 54,501/-. The AO observed an average investment of ₹ 32.27 lacs in shares and units, besides inflow and outflow of funds, so that expenditure on its management would have been incurred, i.e., besides a proportionate interest expenditure, incurred at a total ₹ 1.72 lacs. As no explanation for not effecting any suo motu disallowance u/s. 14A was forthcoming from the assessee, he, applying r. 8D, disallowed ₹ 26,112/-, including ₹ 9,976/- u/r. 8D(2)(ii) qua indirect interest expenditure, and the balance qua indirect, administrative expenditure. The same stands confirmed in first appeal on the same basis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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