Punjab & Haryana H.C : Where assessee deposited employer and employee’s contribution to ESI and Provident Fund prior to filing of return under section 139(1), it was entitled to deduction of amount so deposited and, thus, impugned disallowance made by assessing authority under section 43B in such a case was to be deleted

High Court Of Punjab And Haryana

CIT, Faridabad Vs. Mark Auto Industries Ltd.

Assessment Year : 2003-04

Section : 43B, 40(a)(i), 32

Ajay Kumar Mittal And G.S. Sandhawalia, JJ.

IT Appeal No. 57 Of 2009

October 8, 2012

JUDGMENT

Ajay Kumar Mittal, J. – This appeal has been preferred by the revenue under Section 260A of the Income-tax Act, 1961 (in short “the Act”) against the order dated 8-8-2008 passed by the Income-tax Appellate Tribunal, Delhi Bench “C”, Delhi (hereinafter referred to as “the Tribunal”) in ITA No. 4768/DEL/2007, for the assessment year 2003-04, claiming the following substantial questions of law:—

“(i) Whether, on the facts and in the circumstances of the case, the Ld. ITAT was right in law in upholding the order of the Ld. CIT(A) in deleting the addition of Rs.5,24,929/- on account of late payment of PF made by the Assessing Officer u/s 2(24)(x) read with section 36(1)(va) of the Income-tax Act, 1961 without appreciating the fact that the payments were made beyond the due date?

(ii) Whether on the facts and in the circumstances of the case Ld. ITAT is right in law in upholding the order of Ld. CIT(A), that the provision of Section 40(a)(i) of Income Tax Act, 1961 are not applicable to payments of Technical know-how, simply because only part of it is written off by the assessee, each year by way of depreciation u/s 32 of Income Tax Act, 1961?

(iii) Whether on the facts and in the circumstances of the case Ld. ITAT is right in law in upholding the order of Ld. CIT(A) ignoring the legal position that section 40 of Income Tax Act, 1961 provides for non-deduction of all amounts allowable u/ss 30 to 38 and section 35AB also falls within these sections?”

2. Put shortly, the facts necessary for adjudication of the present appeal as narrated therein are that the assessee filed its return for the assessment year 2003-04 on 27.11.2003 declaring a loss of Rs. 7,90,68,960/-. The assessment was completed vide order dated 28.3.2006 at a loss of Rs. 7,78,55,860/-. Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [in short “the CIT(A)”]. The CIT(A) vide order dated 19.9.2007 allowed the appeal and observed with regard to addition of Rs. 5,24,929/- under Section 43B of the Act that the Assessing Officer should verify the details and allow the deduction in case the payments had been made within grace period allowed under the statute and deleted the addition of Rs. 6,88,175/-on account of technical know how that the provisions of Section 40(a)(i) were not attracted to capitalized expenditure on technical know how. Being dissatisfied with the order of the CIT(A), the revenue filed an appeal before the Tribunal. The Tribunal vide order dated 8.8.2008 dismissed the appeal. Hence, the present appeal by the revenue.

3. We have heard learned counsel for the revenue.

4. Regarding question (i), learned counsel for the appellant could not dispute that the issue raised herein finally stands settled by the Apex Court judgment in CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306/185 Taxman 416 and this Court in Income-tax Appeal No. 663 of 2005 The CIT v. Rai Agro Industries Ltd. [2011] 334 ITR 122/[2012] 207 Taxman 10 (Mag.)/20 taxmann.com 194 (Punj. & Har.), wherein it has been held that Second Proviso to Section 43B of the Act omitted by Finance Act, 2003 with effect from 1-4-2004 was clarificatory in nature and was to operate retrospectively. Once that is so, in the present case, the respondent-assessee was entitled to deduction in respect of employer and employee’s contribution to ESI and Provident Fund as the same had been deposited prior to the filing of the return under Section 139 (1) of the Act. Thus, question (i) stands answered against the revenue and in favour of the assessee.

5. Adverting to questions (ii) and (iii), the issue which arises for consideration is whether the assessee could be disallowed claim for depreciation under Section 40(a)(i) of the Act on the ground that the payments made for technical know-how which had been capitalized, no tax deduction at source has been made thereon. The Tribunal while accepting the plea of the assessee, in para 3, had noticed as under:—

“3. Ground No.4 is against deletion of an addition of Rs. 6,88,175/- made by the AO on account of deduction of depreciation on technical know-how as the assessee failed to deduct tax in accordance with the provision contained in section 40(a)(i). The finding of the learned CIT(A) was that the assessee had incurred expenditure by way of technical know-how, which was capitalized amount as made in the return of income. Since the assessee had not claimed deduction for the amount paid, the provisions contained in section 40(a) (i) were not attracted. The learned DR could not find any fault with this direction of the CIT(A) also although she referred to page 4 of the assessment order, where it was mentioned that the tax deducted in respect of the payment was made over to the Government in the subsequent year and, therefore, depreciation could not be deducted on the capital expenditure incurred by the assessee. In reply, the learned counsel pointed out that the expenditure by way of technical know-how was capitalized and it was not claimed as revenue expenditure. Therefore, there was also no reason to disallow depreciation on such capitalized amount as the aforesaid provision does not deal with deduction of depreciation. Having considered arguments from both the sides, we are of the view that there is no error in the order of the learned CIT(A) which requires correction from us. Thus, this ground is also dismissed.”

6. Learned counsel for the revenue was unable to substantiate that in the absence of any requirement of law for making deduction of tax out of the expenditure on technical know-how which was capitalized and no amount was claimed as revenue expenditure, the deduction could be disallowed under Section 40(a)(i) of the Act. Accordingly, no infirmity could be found in the order passed by the Tribunal which may warrant interference by this Court. Thus, both the questions are answered against the revenue and in favour of the assessee.

7. Consequently, the appeal is dismissed.

[Citation : 358 ITR 43]

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