Commissioner Of Income-Tax-I, Chandigarh v. M/S Raja Forgings & Gears Ltd

Income-tax Appeal No.5 *** IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH Income-tax Appeal No. 5 of 2011Date of decision: 28.3.2011 Commissioner of Income-Tax-I, Chandigarh ...Appellant Versus M/s Raja Forgings & Gears Ltd. ...Respondent CORAM: HON'BLE MR.JUSTICE ADARSH KUMAR GOEL HON'BLE MR.JUSTICE AJAY KUMAR MITTAL Present: Ms. Urvashi Dhugga, Senior Standing Counsel for the appellant.**** AJAY KUMAR MITTAL, J. 1.This appeal has been preferred by the revenue underSection 260A of the Income Tax Act, 1961 (hereinafter referred to as“the Act”) against order dated 22.4.2010 passed by the Income TaxAppellate Tribunal, Chandigarh Bench 'A', Chandigarh in ITANo.272/CHD/2010, relating to the assessment year 2006-07,claiming the following substantial questions of law:- “i)Whether on the facts and circumstances of thecase, Hon'ble ITAT, Chandigarh has erred in setting asidethe decision of CIT(A), Chandigarh which upheld theaddition made by the AO on account of interest paid toMrs. Gargi Goel being expenditure pertaining to periodprior to the Asstt. Year under consideration i.e. AY 2006-07 under the provisions of section 40(a)(ia) when theprovisions of section 40(a)(ia) clearly provide that what is to be allowed in subsequent year is only what isdisallowed in the relevant year? ii)Whether on the facts and circumstances of thecase, the Hon'ble ITAT has erred in allowing the latepayments of employees contribution of ESI & PF beyondthe grace period to the respective funds, in violation ofprovisions of Section 36(1)(va) of the Income Tax Act,1961?” 3.The facts as narrated in the appeal necessary foradjudication of the present appeal may be noticed. The assesseehad filed return on 27.11.2006 declaring total income at nil. Thereturn was processed under Section 143(1) of the Act on 3.10.2007.However, the case of the assessee was selected for scrutiny and theassessment was framed under Section 143(3) of the Act on10.12.2008. The Assessing Officer made the disallowancesamounting to Rs.1,14,140/- on account of interest paid to Mrs. GargiGoel as the same pertained to the period prior to 31.3.2005 andRs.16,18,632/- on account of late payment of ESI/EPF. Theassessee filed appeal before the Commissioner of Income-Tax(Appeals) (for short “the CIT(A)”) which was partly allowed on9.12.2009 granting relief of Rs.4,33,117/- out of the totaldisallowance of Rs.16,18,632/-. Further appeal filed by the assesseewas, however, accepted by the Tribunal vide order dated 22.4.2010and the addition made by the assessing officer was deleted in toto. 4.We have heard learned counsel for the revenue who has challenged the findings recorded by the Tribunal deleting the additionmade by the assessing officer with regard to the interest paid to Smt.Gargi Goel for the period upto 31.3.2005 during the financial yearrelating to the assessment year 2006-2007.5.The Tribunal while deciding question No.1 in favour of theassessee observed that in terms of proviso to Section 40(a)(ia) ofthe Act, where the assessee in any subsequent years deducts tax atsource and pays before the due dates then such expenditure isadmissible as a deduction in the year in which such tax has beenpaid. It was further noticed that the assessee had deducted and paidtax at source on the interest expenditure relating to the period1.4.2004 to 31.3.2005 during the period ending 31.3.2006 and withinthe specified due dates and was thus entitled to deduction in terms ofSection 40(a)(ia) of the Act. The finding recorded by the Tribunalreads as under:- “7.Section 40 of the Act starts with a nonobstante clause. Under the provisions of section40(a)(ia) of the Act, it is provided that where anyinterest, commission or brokerage, rent, royalty,fees for professional or technical services, amountspayable to a contractor or sub contractor forcarrying out any work (including supply of labour forcarrying out any work), is payable to a resident andon which tax is deductible at source under chapterXVII B and where such tax has either not been deducted or after deduction not been paid beforethe due dates as specified in the said sub section,then no deduction shall be allowed in computing theincome chargeable under the heads profits & gainsof business or profession. The provisio to section40(a)(ia) of the Act, however, provides that wheretax has been deducted in any subsequent yearsand paid, then such expenditure is to be allowed asa deduction in the year in which such tax has beenpaid. The incidence of tax payments arerecognized in the proviso itself. 8.In the light of the above said provisions, nowwe shall address the issue raised before us. Theassessee had claimed interest expenditure relatingto the period 1.4.2004 to 31.3.2006 during theperiod ending 31.3.2006, in view of the provisions ofsection 40(a)(ia) of the Act, the interest payable bythe assessee to Smt.Gargi Goyal was eligible to taxdeduction at source. Admittedly, no tax wasdeducted on deposits on account of the interestrelatable to the period ending 31.3.2005 within thedue dates provided in section 40(a)(ia) of the Act atthe closing of the year ending 31.3.2005. However,such tax was deducted and paid during the periodending 31.3.2006. In view of the provisions of the Act, which mandated that where payment ofspecified items of expenditure are exigible todeduction to tax at source and where such tax hasnot been deducted, then the assessee is notentitled to the claim of deduction in respect of suchexpenditure on which TDS has not been deductedand paid within the previous year. The proviso tothe said sub section further mandates that in caseof payments of TDS in subsequent year's then theclaim of the assessee is to be allowed in the yearwhen the tax deducted has been paid in the accountof the treasury. In the facts of the present casebefore us, the assessee had deducted and paid thetax at source on the interest relatable to the period1.4.2004 to 31.3.2005 in the year ending 31.3.2006and within specified due dates, the assessee isentitled to the claim of expenditure in the year underconsideration in view of the provisions of section 40(a)(ia) of the Act, which expenditure is otherwiserelatable to the preceding year.” 6.No fault could be pointed out in the finding recorded bythe Tribunal regarding allowability of expenditure on account ofinterest paid to Smt. Gargi Goel for the period upto 31.3.2005.Question No.1, thus, as claimed, does not arise for consideration inthis appeal. *** 7.Adverting to question no.2, we find that the same iscovered by the judgment of Hon'ble Supreme Court inCommissioner of Income-Tax Vs.Alom Extrusions Ltd.[2009]319 ITR 306 (SC) against the revenue. 8.In view of the above, no substantial question of lawarises. Consequently, the appeal is dismissed. ( Ajay Kumar Mittal) Judge March 28, 2011Pka (Adarsh Kumar Goel) Judge