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TMI Blog2019 (9) TMI 992X X X X Extracts X X X X X X X X Extracts X X X X ..... he PF and ESI amounts were deposited before the due date of the filing of the return of income under section 139 of the Act. The Hon'ble Calcutta High Court in the case of M/s Vijay Shree Ltd [ 2011 (9) TMI 30 - CALCUTTA HIGH COURT] has held that any sum deposited in the government account for PF and ESI before the due date of the filing of the return is to be allowed as expenditure u/s 36(1)(va) read with section 2(24)(x) - we are of the view that there is no infirmity in the order passed by the ld CIT(A). The conclusions arrived at by the CIT(A) are, therefore, correct and admit no interference by us. We, approve and confirm the order of the CIT(A). Addition u/s. 36(1)(iii) on account of interest expenses as the borrowed fund was utilized for share application money - HELD THAT:- Investments were made from interest free funds and no part of the loan funds were diverted for making investments and as such disallowance of interest expense is unjustified in law. We also note that the company being a NBFC company is engaged in the business of taking and granting loans and advances, trading and investment in shares and securities. Further, merely because no revenue was gene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the details were submitted before the AO. The Assessing Officer has not invoked section 145(3) and he has not rejected the books of account. The Assessing Officer has made a guess work and disallowed 50% salary which we do not accept. We note that assessing officer can not make an assessment based of pure guess, surmise and conjecture, for that we rely on the judgment of the Hon`ble Supreme Court in the case of Dhakeswari Cotton Mills Ltd. Vs. Commissioner of Income Tax [ 1954 (10) TMI 12 - SUPREME COURT] - adhoc disallowance is without any basis. - Decided against revenue - ITA No. 1799/Kol/2017 - - - Dated:- 27-2-2019 - Shri A. T. Varkey, J.M. Dr.A.L.Saini, A.M. Assessee/department by : Shri Radhey Shyam, CIT, ld.DR Respondent/assessee by : Shri S.K. Tulsiyan, Sr. Advocate, ld.AR ORDER The captioned appeal filed by the Revenue, pertaining to assessment year 2012-13, is directed against the order passed by the Commissioner of Income-tax (Appeals)-21, Kolkata in Appeal No. 47/DCIT,CC-3(2)/CIT(A)-21/2015-16, dated 02-05-2017, which in turn arises out of an assessment order passed by the Assessing Officer under section 143(3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) for Employee's contribution and under section 43B for Employer's contribution. 6. The Ld. CIT(Appeals)-21/Kolkata erred in law and on facts in not appreciating that the amount received towards contribution to the employee was money belonging to the employee and the assessee was not entitled to utilize the said fund and therefore, it is separately governed by the provisions of section 36(1)(va) read with section 2(24)(x). 7. The Ld. CIT(Appeals)-21/Kolkata erred in law in deleting the addition of ₹ 4,60,032/- without considering CBDT's circular no. 22/2015 on the issue of allowability of employees contribution to PF. 8 The Ld. CIT (Appeals)-21/Kolkata erred in law as well as on facts in deleting the disallowance of ₹ 3,59,52,944/- u/s. 36 (1) (iii) of the IT Act, 1961 made on account of interest expenses as the borrowed fund was utilized for share- application money. 9 The Ld. CIT(Appeals)-21/Kolkata erred in law as well as on facts in deleting the disallowance of ₹ 30,68,635/- made on account of sale promotion expenses without considering the recent order of the A.O. 10 The Ld. CIT(Appeals)-21/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- B= the average value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assesse, on the first day and the last day of the previous year i.e (₹ 45401788 + ₹ 8944435)= ₹ 2,17,73,112/- C= the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year (₹ 796451027 + ₹ 552655595) / 2 = ₹ 67,45,53,311/- 3. An amount equal to % the average value of investment, income from which does not or shall not part form of the total income, as appearing in the balance sheet of the assesse, on the first day and the last day of previous year i.e. % of ₹ 2,71,73,112/- = 1,35,866/- 4. Total disallowance u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with rule 8D and ld CIT(A) having examined the calculation of assessee, restricted the disallowance to the tune of ₹ 4,831/-. Therefore, the disallowance, if any, should be restricted to ₹ 4,831/- only. 9. We have heard both the parties and perused the material available on record. We note that only the expenditure incurred in relation to exempt income can be disallowed u/s. 14A. In the present case, we find that the assessee received dividend income only from HDFCCM Treasury Advantage Plan to the tune of ₹ 5229/- only. We note that Coordinate Bench of ITAT, Kolkata in the case of REI Agro Ltd. Vs. DCIT 144 ITD 141 (Kol-Trib) has held that it is only the investments which yields dividend during the previous year that has to be considered while adopting the average value of investments for the purpose of Rule 8D(2)(ii) (iii) of the Rules. The aforesaid view of the Tribunal has since been affirmed as correct by the Hon ble Calcutta High Court in G.A.No.3581 of 2013 in the appeal against the order of the Tribunal in the case of REI Agro Ltd. (supra). We note that assessee company has its own funds which is more than investments made by it, therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reto read with section 2(24)(x) of the Act for Employee's contribution and Employer's contribution comes under the provisions of section 43B of the Act. The ld DR also pointed out that the amount received towards contribution to the employee was money belonging to the employee and the assessee was not entitled to utilize the said fund and therefore, it is separately governed by the provisions of section 36(1)(va) read with section 2(24)(x) of the Act, hence addition made by the assessing officer should be sustained. 14. On the other hand, Shri S.K. Tulsiyan, ld counsel for the assessee begins by pointing out that during the relevant assessment year the assessee had claimed deduction of Rs. l,11,321/- paid as Employee's contribution to Provident Fund and ₹ 3,48,711/- paid as Employees Contribution to ESI. These payments towards PF and ESI were made by assessee company before the due date of filing the return under section 139 of the Income Tax Act, therefore assessee is entitled to claim the deduction. The ld Counsel also relied on the judgment of Hon`ble Calcutta High Court in the case of Assistant Commissioner of Income-tax Vs. M/s.Vijay Shree Ltd, ITA N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the addition by the AO on account of employees' contribution to ESI and PF by invoking the provision of s. 36(1)(va) read with s. 2(24)(x) of the Act was correct or not. In CIT vs. Alom Extrusion Ltd 390 ITR 306 the Supreme Court has held that the amendment to the second proviso to s. 43(B) as introduced by Finance Act, 2003, was curative in nature and is required to be applied retrospectively with effect from 1st April, 1988. Such being the position, the deletion of the amount paid by the Employees' Contribution beyond due date was deductible by invoking the aforesaid amended provisions of s. 43(B) of the Act. We, therefore, find that no substantial question of law is involved in this appeal and consequently, we dismiss this appeal . 16. We note the AO has made this addition on the ground that late deposits were made in the government account. However, after perusal of paper book submitted by the assessee, ( vide pb 1 to 20), we find that though deposits were made slightly late but all the PF and ESI amounts were deposited before the due date of the filing of the return of income under section 139 of the Act. The Hon'ble Calcutta High Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 4.62 crores are made, these advances have been given to associates/sister concern of the assessee company in the normal course of business out of the fund sourced from internal accruals like credit balance in sundry creditors viz BMA Wealth Creators Ltd. The assessee has taken interest bearing loan to the tune of ₹ 42.32 crores out of which ₹ 18.05 cores have been utilized on interest bearing advances and the rest of ₹ 24.29 crores have been used for business purpose in the form of dealing in shares and securities (including share application money, forming part of trade in shares and securities. The assessee company is a non-banking finance company, registered with the RBI and is engaged in the business of purchase and sale of shares. To substantiate this the assessee company submitted the object clause of Memorandum of Association of the company, which reads as under: To carry on the business of investment financial company and to invest in and acquire and hold and otherwise deal in shares, stock, debentures-stocks, bonds, obligations, and securities issued or guaranteed by any company constituted or carrying on business in India or elsewh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... negligible in comparison to commission income and income from other sources. The borrowed fund has been utilized for making payment in share application. Utilisation of borrowed fund in share application did not form part of stock-intrade. The assessee company s main source of income is commission and other sources income, therefore, the application of borrowed fund in share application is purely in the nature of investment. Thus, the borrowed fund utilized for payment towards share application money cannot be said to be applied for the purpose of business. Moreover, the nexus between the expenditure on account of interest and the purpose of business is not established. Therefore, the expense incurred towards payment of interest is for non-business purpose only. The AO noted that however, since a part of the borrowed fund admittedly have been utilized on interest bearing advance and earned interest income to the tune of ₹ 1,72,05,088/- the difference of income and expenditure on account of interest i.e. ₹ 3,59,52,944/- (₹ 5,31,58,032 1,72,05,088) should be disallowed. Accordingly, AO disallowed ₹ 3,59,52,944/-. 21. Aggrieved by the stand so taken b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 30,71,74,000/- were not made out of interest bearing loan funds to warrant the disallowance of interest expenses. Therefore, the order passed by the ld CIT(A) on this issue should be sustained. 24. We have heard both the parties and perused the material available on record. We note that assessee company was availing stock broking services from BMA Wealth Creator Ltd, a sister concern of the assessee company. As such, the ledger of BMA Wealth Creator Ltd was grouped under the head Trade Payables in the books of the assessee. However, during the year, in the normal course of business, the assessee company had also received interest free advances from BMA Wealth Creator Ltd and part of these advances were repaid as and when funds were available with the assessee company. The assessee used to maintain two different ledgers namely BMA Wealth Ltd - Loan account and BMA Wealth Creator Ltd Creditors account. A copy of both the ledgers was submitted by the assessee during the appellate proceedings (vide 82-88 of the Paper Book). As at the end of the year, the amount of short term advances taken from BMA Wealth Creator Ltd stood at ₹ 31,00,67,000/- and the amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted above) as business expenditure and no any disallowance was made. (vide assessment order for A.Y. 2011-12-paper book page 77-80). It is a well settled legal position that factual matters which permeate through more than one assessment year, if the Revenue has accepted a particular's view or proposition in the past, it is not open for the Revenue to take a entirely contrary or different stand in a later year on the same issue, involving identical facts unless and until a cogent case is made out by the Assessing Officer on the basis of change in facts. For that we rely on the order of the Hon ble Supreme Court in RadhasoamiSatsang vs. CIT 193 ITR 321 (SC), wherein it was held as follows: We are aware of the fact that, strictly speaking, res judicata does not apply to income tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncludes its own funds in sufficient quantity, the presumption that its own funds were utilized for the advances is to be drawn. We note that the Ld. CIT(A) has not appreciated the fact that the assessee had its own interest free funds which were received by the assessee during the year as interest free advances from BMA Wealth Creator Ltd. We note that in case there are both interest bearing loans and interest free loans a presumption would arise that investments were made out of the interest-free funds available with the company, if the interest-free funds were sufficient to meet the investments. For that we also rely on the judgment of the Hon`ble Calcutta High Court in the case of Woolcumbers of India Ltd vs CIT (134 ITR 219)(Calcutta High Court), wherein it was held as follows: That, on the facts of the case, the profits were sufficient to meet the advance tax liability. The entire profits were deposited in the overdraft account. It should be presumed that in its essence and true character the taxes were paid out of the profits of the relevant year and not out of the overdraft account for the running of the business. Therefore, the interest amounting to ₹ 6,769 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he one available under s. 12(2).- CIT vs. Malayalam Plantations Ltd. (1964) 53ITR 140 (SC) relied on. We note that section 10(2)(iii) of the old Income Tax Act, 1922 is similar to section 36(1)(iii) of the Income Tax Act, 1961. In view of the above we confirm the order of ld CIT(A) in deleting the addition of ₹ 3,59,52,944/-. 27. Ground No. 9 raised by the Revenue relates to deletion of disallowance of ₹ 30,68,635/- made by AO on account of sale promotion expenses. 28. Brief facts qua the issue are that during the year under consideration the assesse incurred ₹ 61,18,696/- towards sales promotion expenses. In order to verify the genuineness of transactions regarding business/sales promotion expenses notices u/s. 133(6) of the Act, were issued by AO on test check basis to the following parties at the given address provided by the assesse:- 1). M/s. Mahalaxmi Info Services Gurunanakvihar, Bikashpuri Extension, New Delhi-110041. ₹ 18,20,155/- 2).Shri Amit Kumar 1706/850A Mohalla Preet nagar, Ludhiana, Punjab-141003 ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r para and is not being repeated for the sake of brevity. On the other hand, ld Counsel for the assessee relied on the submissions made before the authorities below. 31. We have heard both the parties and perused the material available on record, we note that during the year, the assessee had claimed sales promotion expenses to the tune of ₹ 61,18,696/-. In order to verify the genuineness of the expenses, show cause notice u/s 133(6) of the Act was issued on a test check basis by the learned AO to the following parties. 1) M/s Mahalaxmi Info Services - ₹ 18,20,155/- 2) Shri Amit Kumar - ₹ 8,32,343/- 3) Shri Rajiv Kumar- ₹ 4,16,137/- However, the above notices were returned unserved by the postal authority and accordingly AO made addition. We note that for marketing and selling the insurance products, the company has to perform various activities which include Lead Generation Activities, Direct Mailers Distributions, Road Shows and Customer Meets. However, ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deposited into the central government account. The assessee has shown the relevant payment vouchers to the AO. No cogent reason was given by the learned AO to support that the expenses are not genuine. The contention of the learned AO is based on sheer suspicions and conjectures without any material evidence on record. On the other hand, the assessee has duly submitted all the supporting vouchers in support of the sales promotion expenses incurred. In view of the above, we do not find any infirmity in the order of ld CIT(A). 32. We note that the AO has nowhere denied that expenditure under the head sales promotion is not to be accepted. AO's only objection is that expenditure under this head could not be verified u/s 133(6) of the Act. We note that Assessing Officer has not pointed out any specific defects in the books of accounts of the assessee. Moreover, the books of accounts have been duly audited, the details were submitted before the Assessing Officer. The Assessing Officer has not invoked section 145(3) of the Act and he has not rejected the books of account of the assessee. Under the circumstances, adhoc disallowance is without any basis. We note that the AO h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the policy is issued to the customer. The requirement of human resources in this type of business is very high as the entire business depends upon the marketing skills, efficiency and capability of human resource only. Hence, it is quite obvious that the salary component would be high. Income from insurance business has been increased significantly during the year. The Company has received ₹ 6.73 crores as insurance commission and ₹ 3.03 crores as income from assisting in marketing of the products by the company and the same has been shown as other income. Salary paid during the year under review amounting to ₹ 7.82 crores is much lower as compared to income generated of ₹ 9.76 crores from this vertical. As discussed above, sale of insurance product is carried out with the help of personal net work and direct relationship with the customer. The employee has to move all around to procure the business hence there is no need of dedicated office. However, wherever this is needed company uses rent free office space of sister concern. 36. However, on perusal of the list of employees, the assessing officer noted that the name of particular employ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statement of ESI contribution for the month of March, 2012 it appears that only 531 nos. of employees have contributed to ESI. Had the assessee company engaged 1221 number of employees on regular pay roll, then PF contribution should have been from the similar number of employees, which is a statutory liability. In the present case it has not happened so. 37. In this regard, the assessee submitted before the AO that there are many cases in the statement of salary where salary component are not for the full month and those are actually outside the purview ESI PF. It further submitted that there are employees who have been recruited as trainees and have been paid stipend and the payment of the same has been clubbed with salary. However, the AO rejected the contention of the assessee and held that the assessee failed to substantiate satisfactorily with supporting documents, the expenditure incurred towards employee benefit of ₹ 7.82 crores which appears to be excessive in comparison to the volume of business it had. Thus, it is an indicative that all the employees are not on regular pay roll and the assessee company claimed a bogus expenditure to some exten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Employer contribution Employee provident fund 12% 3.67% So far the Employee Provident Fund (EPF) is concerned, the Employee's contribution is matched by Employer's contribution (till 12%). The employer contribution is exempt from tax and employee's contribution is taxable but eligible for deduction under section 80C of Income tax Act. The EPF amount earns interest as declared by Government. We note that the ESI Corporation has approved to enhance wage ceiling from ₹ 10,000/- per month to ₹ 15,000/- per month w.e.f 01.05.2010. Therefore, for FY 2011-12 limit is ₹ 15,000/- p.m. The ESI Act covers workers in the organized sector only. However, workers in the organized sector to which the ESI Act does not apply remain outside the social security umbrella due to the following reasons:- (i) Employees of Central and State Govts. who are provided social protection under the rules of the respective Governments; (ii) Workers of factories/establishments employing less than 10 persons. (iii) Workers of factories/e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the investment/purchase of insurance product. Employee has to keep one to one relation with the customer till the form gets signed along with cheque and ensure that the policy is issued to the customer. The requirement of human resources in this type of business is very high as the entire business depends upon the marketing skills, efficiency and capability of human resource only. Hence, it is quite obvious that the salary component would be high in this type of business. We note that assessee`s income from insurance business has increased significantly during the year. In the current year, there was a steep rise of 88% in the income from insurance business as against the income in the immediately preceding year. The assessee company has earned ₹ 6.73 crores as insurance commission and ₹ 3.03 crores as income from marketing and distribution of the insurance products. Therefore, Salary paid during the year under review of ₹ 7.82 crores is much lower as compared to income generated at ₹ 9.76 crores. We note that sale of insurance products is carried out with the help of personal network and direct relationship with the customer. The employee has to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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