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TMI Blog2020 (6) TMI 241X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, it cannot be treated as unsecured loan and there is no violation of Section 68 of the Act, 1961. Looking to the facts and circumstances of the case as well as considering the submission of the assessee, we direct the AO to delete the addition made on account of unexplained cash credit. Addition on account of leave Encashment and gratuity - amount paid to employees in lieu of leave i.e. payment made for working on weekly off days and paid holidays - Whether this is a wrong head being reflected in the Profit Loss Accounts as leave encashment instead of salary in lieu of leave? - HELD THAT:- It is a small organization and some of the employees have left out the organisation after spending sometimes. Generally the employees engaged in the organisation have kept their money pending with the organisation and when they go to their villages, they collect all the money on account of their dues from the organisation at a time. We found substance on the arguments advanced by the ld.AR that it was not a leave encashment as per Section 43B of the Act as envisaged. In the small organization upto some extent they do not follow the strict rule for leave etc. In respect of gratuity it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch the AO has imposed the penalty have been deleted by us, therefore, the levy of penalty on the above two additions has no legs to stand and accordingly, we delete the same. Order being pronounced after ninety (90) days of hearing - COVID-19 pandemic and lockdown - HELD THAT:- Taking note of the extraordinary situation in the light of the COVID-19 pandemic and lockdown, the period of lockdown days need to be excluded. See case of DCIT vs. JSW Limited [ 2020 (5) TMI 359 - ITAT MUMBAI ] - Shri C.M. Garg, JM And Shri L.P. Sahu, AM For the Assessee : Shri P.K.Sahoo, CA For the Revenue : Shri Subhendu Dutta, DR ORDER PER L.P.SAHU, AM: The assessee has filed the above two appeals, one is against the order passed by the CIT(A)-2, dated 27.10.2016 arising out of the order passed by the AO u/s.143(3) of the Act and another is against the order passed by the CIT(A)-2, Bhubaneswar, dated 14.04.2019 arising out of the order passed by the AO u/s.271(1)(c) of the Act. 2. First we shall take up the appeal of the assessee in ITA No.30/CTK/2017, wherein the assessee has raised the following grounds :- (1) The order of the learned commissioner of income tax (APPEALS)-2 Bhubaneswar confirming the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it fees Legal fees U/S 40 a(ia) amounting to ₹ 1,03,500/- and ₹ 70,000/- respectively made by the assessing officer in computing the business income of the appellant is contrary to law and the facts of the case. The Assessee has maintained Books of Accounts and is subject to Tax Audit U/S 44AB of the Income Tax Act, 1961. The Audit Fees and Legal expense has been paid subsequently by Account Payee cheques. (8) The appellant craves leave to add or amend an ground of appeal. 3. Further the assessee has taken additional grounds of appeal, which read as under :- 1. Regarding Clause-4, Page-5 of the assessment order, the learned Assessing Officer has disallowed ₹ 87,83,626/- towards leave encashment to employees erroneously. Similar nature of expenses to the tune of ₹ 37,41,317/- have been allowed by learned CIT appeals to the assessee for the A.Y. 2015-16 vide IT Appeal No.- 378/2017-18 dated 27.04.2018. The copy of the Assessment Order of Learned CIT(Appeals) is enclosed herewith vide Annexure-1. 2. Regarding Employees contribution to Provident Fund of ₹ 18,29,501/- Clause-6, Page-7 8 of the assessment order, itmay be seen that the contribution amount was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee sought documents many times but the desired information were not furnished. The AO noticed that the assessee could not furnish the identity card in respect of the 21 employees and he also noticed that these were low paid employees as mentioned in the show cause notice then how they can lend the money to his employee and the loans were received from cash and the assessee also could not produce the documents like PAN, IT returns etc. in support of the loans taken from his employee. Accordingly, the AO added the total loan amount of ₹ 10,02,312/- to the total income of the assessee. 5. Further on perusal of the profit and loss account it was noticed by the AO that the assessee has debited in his profit and loss account ₹ 87,83,626/- towards leave encashment paid to employees. On perusal of the books of accounts, the AO noticed that the entire leave encashment debited into profit and loss account was shown as provision in the liability side of the balance sheet as on 31.03.2012. the details were asked to the assessee like credit of leave, procedure for computation of leave encashment and evidence in regard to leave encashment after 31.03.2012. It was also notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the Income Tax Appellate Tribunal. 11. Ld. AR reiterated the submissions made before the lower authorities and in respect of ground No.1, submitted that the assessee has taken loan from his employees towards cash which was below ₹ 20,000/-. The assessee complied the requirements of the AO and all these were not genuine persons but these are employees. The employees identity cards were produced before the AO and the nominal amount collected from each employees was treated as a security money, therefore, it cannot be treated as unsecured loan and there is no violation of Section 68 of the Act, 1961. 12. Further, he submitted in respect of leave encashment that it is a compulsory requirement to give holiday to the employees if they are working continuously i.e. whole week, then get one day leave but due to shortage of security and their willingness for doing works on the holiday, they are entitled for leave encashment payments if they have done duties on the holiday and/or it was also provision made, however, employees have not availed the same. It is a small organization and some of the employees have left out the organisation after spending sometimes. Generally the empl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been paid. Further in respect of employees contribution to PF ESI, he stated that the Act is very clear, first it is considered as an income u/s.2(24)(x) and thereafter if it is paid in due date to the provident fund then he is entitled to deduct tax as per Section 36(1)(va) of the Act. Regarding employees contribution the assessee has not furnished any details or evidence either before the AO or before the CIT(A). In respect of ESI payment, the assessee could not furnish any details, therefore, both the authorities have rightly disallowed the above payments. In this regard, ld. DR has relied on the decision of Hon ble Delhi High Court in the case of Bharat Hotels Ltd. [2019] 410 ITR 417 (Delhi). It was also submitted by the ld. DR that the case laws relied on by the ld. AR of the assessee is not applicable in the present case. He further submitted that in respect of addition for violation of TDS provision, there is no force in the arguments of the ld. AR of the assessee that the amended provision is applicable w.e.f.01.04.2015, which is not retrospective in nature. Therefore, the authorities below have rightly disallowed the claim of the assessee as per Section 40(a)(ia) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, employees have not availed the same. It is a small organization and some of the employees have left out the organisation after spending sometimes. Generally the employees engaged in the organisation have kept their money pending with the organisation and when they go to their villages, they collect all the money on account of their dues from the organisation at a time. We found substance on the arguments advanced by the ld.AR that it was not a leave encashment as per Section 43B of the Act as envisaged. In the small organization upto some extent they do not follow the strict rule for leave etc. In respect of gratuity amounting to ₹ 6,77,823/- actually, it was the submission of ld. AR before us that it is in the nature of compensation paid to employees after leaving to the institution for some period and there is no complaint against the employees and these employees worked for goodwill of the assessee company, therefore, they are paid a lumpsum amount as a gratuity but due to mistake of the accountant the wrong nomenclature has been given in the books of accounts which has subsequently been paid to the employees. Considering the above, we allow both the grounds of appeal o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have heard the rival submissions, perused the orders of lower authorities and materials available on record. We find that the assessee has paid ₹ 3,78,000/- to Smt. Sunanda Nayak towards house rent by cheque. If the recipient of the amount Smt. Sunanda Nayak has disclosed has disclosed the amount received from the assessee in her return of income and paid due tax thereon, in view of the decision of Hon'ble Delhi High Court in the case of CIT vs. Ansal Land Mark Township (P) Ltd., 377 ITR 635 (Del), then, no disallowance in the hands of the assessee is called for. Therefore, we set aside the orders of lower authorities and restore this issue back to the file of the Assessing Officer to verify whether the recipient Smt. Sunanda Nayak has disclosed the amount received from the assessee in her return of income or not. If he finds that the recipient has disclosed the amount in her return of income, then no disallowance should be made. With these directions, the issue is restored back to the file of the Assessing Officer to re-adjudicate the issue. Hence, this ground is allowed for statistical purposes. Accordingly, the issue in the present appeal is similar to the issue decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the above proviso inserted in the Act to be a curative one having retrospective effect and the assessee is entitled the benefit of 30% disallowance as against 100% disallowance made by the AO and confirmed by the CIT(A). In this regard, he placed reliance on the decision rendered by the Gauhati Bench of the Tribunal in case of Tripura State Electricity Corporation Ltd. (supra), wherein it is held as under :- 6. Mr. Goenka vehemently submits during the course of hearing that both the lower authorities have erred in disallowing assessee's impugned expenditure claim(s) on account of non-deduction of TDS. His case is that the assessee had not availed any technical services from its payees. The fact remains that this taxpayer has not tendered any details of the actual nature of expenditure. We therefore find no reason to disagree with the lower authorities' conclusion quoting assessee's failure in filing the relevant details. Coupled with this, the fact also remains that the legislature has itself amended Section 40(a)(ia) vide the Finance Act, 2014 w.e.f. 01.04.2015 restricting a disallowance made u/s 40(a)(ia) from 100% to 30% only. This tribunal's order in ITA N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re facts are identical. In this view of the matter and following the above decisions of Jaipur Bench, we set aside and modify the orders of the authorities below and direct the Assessing Officer to restrict the addition to 30% of the total addition made on account of deduction of TDS u/s 40(a)(ia) of the Act. 8. From the above observations of the different benches of the Tribunal, we find that the 100% disallowance made u/s.40(a)(ia) of the Act has been directed to be restricted to the extent of 30% only giving retrospective effect. Ld. DR before us submitted that there is no mention in the amendment that the same shall be applied retrospectively, however, in our considered opinion, if a statute is curative of the previous law, retrospective operation is generally intended. The Hon ble Supreme Court in the case of CIT vs. Calcutta Export Company, [2018] 93 taxmann.com 51 (SC), while deciding the issue as to whether amendment made by Finance Act, 2010, to provisions of section 40(a)(ia) is curative in nature and it should be given retrospective operation from date of insertion of said provision i.e. with effect from assessment year 2005-06, has held as under :- The purpose for bring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easonable interpretation, requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the section as a whole. 11. This view has been accepted by a number of High Courts. In the case of CIT v. Chandulal Venichand [1994] 209 ITR 7/ 73 Taxman 349 , the Gujarat High Court has held that the first proviso to section 43B is retrospective and sales-tax for the last quarter paid before the filing of the return for the assessment year is deductible. This decision deals with the assessment year 1984-85. The Calcutta High Court in the case of CIT v. Sri Jagannath Steel Corpn. [1991] 191 ITR 676 , has taken a similar view holding that the statutory liability for sales-tax actually discharged after the expiry of the accounting year in compliance with the relevant statute is entitled to deduction under section 43B. The High Court has held the amendment to be clarificatory and, therefore, retrospective. The Gujarat High Court in the above case held the amendment to be curative and explanatory and hence retrospective. The Patna High Court has also held the amendment inserting the first proviso to be explanatory in the case of Jamshedpur Motor Accessories ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, on both the counts penalty imposed by the AO u/s.271(1)(c) of the Act and confirmed by the CIT(A) cannot be held as sustainable. 23. On the other hand, ld. DR relied on the orders of lower authorities and submitted that the assessee has not declared the income received from consultancy fees and income from other sources in her return of income furnished before the date of search which means the assessee has concealed his income and, therefore, attracts penalty u/s.271(1)(c) of the Act. 24. After considering the rival submissions of both the parties and perusing the entire material available on record as well as orders of lower authorities, we found that the penalties have levied by the AO on the addition made on account of leave encashment paid to the employees and addition made u/s.68 of the Act, which we have deleted the same while deciding the quantum appeal of the assessee. When the quantum addition upon which the AO has imposed the penalty have been deleted by us, therefore, the levy of penalty on the above two additions has no legs to stand and accordingly, we delete the same. 25. Thus, we allow the appeal of the assessee in ITA No.230/CTK/2019. 26. Now, a procedural issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a result of these directions, the expression ordinarily has been inserted in the requirement to pronounce the order within a period of 90days. The question then arises whether the passing of this order, beyond ninety days, was necessitated by any extraordinary circumstances. 27. We also find that the aforesaid issue has been answered by a coordinate Bench of the Tribunal viz; ITAT, Mumbai F Bench in DCIT, Central Circle-3(2), Mumbai vs JSW Limited ors (ITA No.6264/Mum/18 dated 14.5.2020, wherein, it was observed as under: 9. Let us in this light revert to the prevailing situation in the country. On 24th March,2020, Hon ble Prime Minister of India took the bold step of imposing a nationwide lockdown, for 21 days, to prevent the spread of Covid 19 epidemic, and this lockdown was extended from time to time. As a matter of fact, even before this formal nationwide lockdown, the functioning of the Income Tax Appellate Tribunal at Mumbai was severely restricted on account of lockdown by the Maharashtra Government, and on account of strict enforcement of health advisories with a view of checking spread of Covid 19. The epidemic situation in Mumbai being grave, there was not much of a r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ire country was in lockdown, we should compute the period of 90 days by excluding at least the period during which the lockdown was in force. We must factor ground realities in mind while interpreting the time limit for the pronouncement of the order. Law is not brooding omnipotence in the sky. It is a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism, and that is how the law is required to interpreted. The interpretation so assigned by us is not only inconsonance with the letter and spirit of rule 34(5) but is also a pragmatic approach at a time when a disaster, notified under the Disaster Management Act 2005, is causing unprecedented disruption in the functioning of our justice delivery system. Undoubtedly, in the case of Otters Club Vs DIT [(2017) 392 ITR 244 (Bom)], Hon ble Bombay High Court did not approve an order being passed by the Tribunal beyond a period of 90 days, but then in the present situation Hon ble Bombay High Court itself has, vide judgment dated 15th April2020, held that directed while calculating the time for disposal of matters made time-bound by this Court, the period for which the order dated 26th March 2020 cont ..... X X X X Extracts X X X X X X X X Extracts X X X X
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