1. Assessment years involved are 1990-91 to 1997-98. In this bunch of sixteen appeals eight appeals filed by the assessee and eight appeals filed by the Department, the assessee is one and all the eight assessment years relating to all the appeals are same. Since cross appeals have been filed both by the assessee and by the Department and identical issues are involved, it has been deemed proper to pass one common consolidated order for the sake of convenience.
2. The learned Authorised Representatives of the assessee have filed some paper books in order to facilitate the Bench to be acquainted with the facts and the legal points involved in all the appeals which are narrated as under : (a) Page 1 relates to the details of expenses disallowed by the AO and confirmed by the learned CIT(A) against which the assessee is in appeal before the Tribunal. From the same it transpires that for the asst. yrs. 1990-91 and 1991-92 the assessee is in appeal against disallowance of interest on refinance paid to IDBI, commitment charges paid to IDBI, interest on loan in lieu of share capital paid to IDBI and right from asst. yrs. 1990-91 to 1997-98 the assessee is aggrieved against both the orders of the AO and of the learned CIT(A) for the disallowance made and confirmed relating to employer's contribution to OSFC Employees' Provident Fund.
Further, the assessee is aggrieved for the asst. yr. 1990-91 against the disallowance made for employees' own contribution to Employees' Provident Fund. Again the assessee is in appeal for asst. yrs.
1991-92 to 1997-98 against disallowance and confirmation of brokerage and underwriting commission paid on issue of bond, employees' own contribution to Employees' Provident Fund and interest paid on OSFC Employees' Provident Fund.
(b) Page 2 contains assessment year wise details, statement relating to interest on refinance paid to IDBI, interest on LISC paid to IDBI, commission charges paid to IDBI, brokerage and underwriting commission on issue of bond, employees' own contribution to EPF, interest on employees' provident fund, employer's contribution to EPF. (c) Pages 3 to 16 contain the explanatory note on expenses disallowed by the AO relating to asst. yr. 1996-97, pp. 17 to 26 contain the explanatory note on expenditure disallowed by the AO relating to asst. yrs. 1990-91 to 1997-98. Pages 27 and 28 contain the explanatory note on expenses disallowed by the AO relating to asst. yrs. 1990-91 and 1991-92. Pages 29 and 30 contain the explanation on brokerage and underwriting commission on issue of bond with citation of case law in support of the contention taken by the assessee. Page 31 contains the booklet of OSFC Employees' Provident Fund Regulation, 1959 containing 20 pages. Page 32 contains the assessment order for 1963-64 passed by the then AO. Page 33 contains the demand notice in Form No. 9 under Section 156 for the asst. yr. 1963-64.
The learned Counsel has also filed the booklet for background material without containing education programme on accounting standard notified under the IT Act and practical guide on p. 34. He has also enclosed the relevant portion to show the meaning of 'paid' and 'pay' from the relevant portion of Mitra's Legal Commercial Dictionary on pp. 35 to 37 to show the meaning of 'paid and adjust'. He had also enclosed one decision of the Hon'ble Bombay High Court in the case of CIT v. Tata Hydro Electric Supply Co. Ltd. . He has also filed in second booklet meant for asst. yr. 1990-91, the details of item wise comparative chart of expenses, explanatory note of expenditure disallowed by the AO. Similarly, he has filed in the same line for asst. yrs. 1992-93 to 1997-98.
4. The learned Counsel briefly analysing the facts of the case respectfully submitted that the assessee OSFC has established Employees' Provident Fund Scheme in this case duly approved by RBI and the Government. While contributing to the said fund the assessee has maintained a separate account and has been regularly debiting to the same by maintenance of a separate management fund where two directors are responsible to hold and manage the fund. The AO did not allow the amount contributed by the assessee on the ground that there is no actual cash payment by the employer. This is the main grievance of the assessee to come in second appeal before this Bench. In the appeals filed by the Department, the Department has agitated against the acceptance of the employees' contribution to the EPF by the learned CIT(A). The AO has treated this a non-compliance of Section 43B.According to the learned CIT(A), the CAG does not approve retention of money by the assessee of the EPF fund without keeping it in any scheduled bank. Other points are ancillary points to be considered while going into the details year-wise. Now we shall proceed on the issues involved in all these appeals chronologically.
5. In this appeal the assessee has agitated five grounds but the issues involved are four. Ground Nos. 1 and 2 relate to disallowance of a sum of Rs. 12,14,854 under Section 43B of the IT Act, 1961 being the share of employer's contribution to the EPF, which was disallowed by the learned CIT(A). On a perusal of the relevant portion of the order of the learned CIT(A) it transpires that the learned CIT(A) has allowed the employee's matching contribution of EPF and disallowed the employer's contribution to the EPF. After perusing ground Nos. 1 to 3 it is pertinent to note here that there is an omission somewhere either by the assessee or by the learned CIT(A) which is pointed out at this level that the dispute only relates to employer's contribution to the Provident Fund.
5.1 The next issue relates to disallowance of a sum of Rs. 4,98,54,284 being the interest paid to IDBI on borrowed money debited in this year on ascertainment and reconciliation which was duly approved by CAG according to the appellant. The third issue as per ground No. 5 pertains to disallowance of a sum of Rs. 79,19,654 being the commitment charges paid to IDBI on borrowed money debited this year on ascertainment and reconciliation duly approved by CAG. Ground Nos. 6, 7 and 8 are supporting grounds to the main issues.
5.2 With regard to the main issue i.e. disallowance of provident fund as per the stand taken by the learned Counsel on behalf of the appellant as is evident from the arguments heard, the written notes and explanation submitted along with the case laws cited, it transpires that OSFC is a statutory corporation established under State Financial Corporation Act, 1951 [an Act passed in the Parliament of India (LH III of 1951)] in terms of Section 16 of the Employees Provident Fund and Miscellaneous Provisions Act, 1952. SFCs are especially exempted from the purview of the EPF Act under Section 48(2) of SFC Act, the Board of Directors of the Corporation are authorized to make regulations for establishment and maintenance of provident fund or other benefit funds for employees of the financial corporations. The Board of Directors of OSFC in exercise of the powers conferred by Section 48 of SFC Act in consultation with the RBI and with the previous sanction of the Government of Orissa has made a regulation named as "OSFC Employees' Provident Fund Regulations, 1959" to establish and maintain provident fund for the benefit of the employees of OSFC. Accordingly, the OSFC Employees Provident Fund has been created and in the terms of the art.
V of the said regulation, the fund is held by the corporation and is administered by a Board of Administrators elected/nominated by the Board of Directors of the corporation called as the administrators of the fund. That apart they have got one resolution of their own known as Employees' Provident Fund Regulations, 1959. As per the clauses and conditions adumbrated in this regulation at a particular ratio subscription from the employees are duly collected and credited in a separate account duly maintained by the appellant-corporation every month while disbursing the salary by deducting from the same. It is in consonance with regulation No. 7 according to the learned Counsel.
Again as per regulation No. 9 the assessee-corporation contributes its own contribution at a fixed rate as per decision of the Board of Administrators every month. As per regulation No. 11, according to the decision taken by the Board of Administrators at par with the provisions of EPF Act interest at a fixed rate is being duly credited in the respective accounts of each employee under the EPF Act every year, i.e., at the end of the year 31st March. Therefore, the contentions of the appellant-corporation is that one separate account is being duly maintained for the purpose of contribution of provident fund both by the employees and by the employer, interest is being paid in consonance with the EPF Act and the fund is being managed and controlled by a Board of Administrators duly elected/nominated by the corporation from amongst the directors and the employees, respectively.
5.3 During the course of argument the learned Counsel further argued and replied in response to the queries made by the Bench that the employees do not have any objection till date and are assured and are safe and secured so far as the maintenance of the provident fund by the Board of Administrators is concerned. At the time of their requirement and necessity the fund is being duly disbursed to them or to their families and there is no grumbling in that regard from the side of the employees. Right from asst. yr. 1963-64 till asst. yr. 1989-90 the IT Department has already accepted the modus operandi with regard to maintenance of provident fund account by the assessee-corporation: 5.4 Thus, apprising the factual aspect on the issue involved regarding the EPF and the disallowance so made by the learned CIT(A) the learned Counsel further proceeded with the legal aspects involved on this issue and argued before the Bench on the relevant sections, provisions and case laws involved on this issue.
5.5 Section 2(24)(x) of the IT Act, 1961 provides that any sum received by the assessee from the employees as contribution to any provident fund shall be included in its income. However, the same shall be allowed as deduction under Section 36(1)(va) of the IT Act, 1961 if the same is credited by the assessee to the employees' account in the relevant fund on or before the due date.
5.6 As per the Explanation following Section 36(1)(va) for the purpose 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, contracts of service or otherwise.
5.7 Supporting with the relevant sections the learned Counsel vehemently objected to the observation made by the AO in this regard as to not having a recognised provident fund or not making any payment of employees' contribution to the provident fund authority in the State of Orissa or to any administrators otherwise under the OSFC Provident Fund Regulations to administer the fund. On a perusal of the assessment order and the order of the learned CIT(A) in this connection it was found that both the orders are quite cryptic and does not state the facts in detail as have been borne out from record.
5.8 According to the learned Counsel it is not required/necessary to pay the amount to recognised provident fund authority in the State of Orissa as OSFC like other SFCs are excluded from the purview of the General Provident Fund and Miscellaneous Provisions Act, 1952 (under Section 16 of the said Act) and under Section 48(2) of the SFCs Act, 1951. The assessee-corporation with prior approval of RBI and the State Government has formulated its regulations for establishment and maintenance of provident fund of its employees.
5.9 Further it has been the stand of the appellant that in cash system of accounting there should be actual or constructive payment. According to the provisions of Section 43(2) of the IT Act, 1961 the assessee paid means actually paid or incurred according to the method of accounting upon the payees of which the profits and gains are computed under the head "Profits and gains of business or profession".
Dictionary meaning of word 'realised' is to mean "convert into actuality" or "convert into money".
5.10 In order to show that the maintenance of account is proper and as per the practical guide of the accounting standard the learned Counsel referred to p. 31 of July, 1997 issue of publication of the ICAI in this regard. The learned Departmental Representative on the other hand, while defending the Revenue invited our attention to p. 31 of the paper book Chapter II part 5 that filed by the assessee-corporation on Employees Provident Fund Regulations, 1959. Thus, drawing to the relevant portion the learned Departmental Representative emphatically argued that since the provident fund account has not been kept in a scheduled bank the objections raised by the Revenue having binding force on the assessee-corporation, the disallowance/addition on this ground should be sustained by the Tribunal.
5.11 On a perusal of the relevant portion of the Employees' Provident Fund Regulationv1959 Chapter VI Part 5 it is stated as : 5. Admn.--The fund shall be held by the corporation or in any scheduled bank approved by the board of administrators and shall be administered by a board of administrators consisting of the managing director and two other directors elected by the board of directors of the corporation and one subscriber nominated by the board of directors of the corporation. These persons shall be called the administrators of the fund.
Thus, vide this clause the appellant-corporation is eligible to hold the fund itself or can deposit it in any scheduled bank.
5.12 On hearing the contested rival submissions, going through the factual as well as legal aspects involved in the issue, perusing the detailed paper book filed and the case record, it has been observed that the general impression carried out by the Revenue with regard to maintenance of provident fund account in a scheduled bank like other assessees in general is not at all applicable to the assessee-corporation in the impugned case. It has been found on an analytical basis as has been rightly pointed out during the course of hearing by the learned Counsel appearing before this Bench that there is no grumbling from the side of the employees so far as their sense of security of the account is concerned and the requirement of withdrawal according to necessity is involved. Even as per the contentions taken by the assessee-corporation, the assessee-corporation is excluded from the clutches of provident fund authorities under the State of Orissa under the Employees Provident Fund Act and Rules as per the prior approval and sanction of the RBI and the State Government of Orissa combined together. So certainly it is a special case of its own nature where the general treatment of the Revenue authorities cannot be applicable to this assessee-corporation as they have a separate regulation of their own for administration of EPF is concerned. Even relating to interest paid on outstanding provident fund dues there is no relevance with either Section 43B or Section 2(24)(x) or Section 36(1)(ya) of the IT Act, 1961 as this is also made by the assessee-corporation on investments made from the fund/fund held by the corporation and utilised for the purpose of financing to the industrial unit. On this backdrop of the case both factually and legally the assessee-corporation appears to have a sound case whereas the objections raised by the Revenue are general in nature without any specific finding as to any irregularity. It will not be out of place to mention here that the IT Department has not gathered any information of violation of EPF Act and Rules from the concerned authority administering the same in the State of Orissa nor there is any complaint from any employee's side., Thus, the Revenue's treatment to the fund maintained by the assessee-corporation in general terms cannot be sustainable in view of the specific exception clause applicable to the assessee-corporation in the light of the analysis and observation made above.
5.13 Besides this, the appellant-corporation has taken resort to the decision of the Hon'ble apex Court in the case of Standard Triumph Motor Company Ltd. v. CIT and the guidelines issued by the Institute of Chartered Accountants of India. For better appreciation of the legal position the case cited as analysed hereunder : In this case it has been held by the apex Court that the credit entry of the royalty to the account of the appellant in the books of the Indian company amounted to receipt of the royalty by the appellant and it was accordingly taxable. It was immaterial when the appellant actually received it in the UK and the method of accounting adopted by the appellant was irrelevant and, therefore, the order of remand made by the Tribunal was unnecessary.
5.14 Thus, despite strong opposition from the side of the learned Departmental Representative, we do not have any hesitation to allow this ground in favour of the assessee-corporation and against the Revenue.
5.15 This covers ground Nos. 1, 2 and 3 filed by the assessee in its appeal for the asst. yr. 1990-91.
6. Ground No. 4 relates to disallowance of a sum of Rs. 4,98,54,284 being the interest component paid to IDBI on borrowed money debited in this year on ascertainment and reconciliation which has duly approved by CAG. In this regard the learned Counsel respectfully submitted that refinance by IDBI is a major source of fund of the corporation. After sanction and disbursement of loan to the loanees the assessee-corporation lodges claims with IDBI for release of refinance under Section 7(4) of the SFCs Act, 1951, which becomes a long-term borrowing of the corporation. IDBI being a refinancing agency had deducted the amount of Rs. 4,98,54,284 in the year 1988-89 without sending the details of the nature of deduction to OSFC. The details of such deductions were made available to the assessee in the year 1989-90 after various persuasions in this regard. In the year 1988-89 such an amount was shown as advance deposit to IDBI. In the year 1989-90 having received the details the same was charged to proper head namely interest on loans from IDBI. This aspect was duly disclosed vide note No. 16 in Schedule 'R' of the published account duly audited and approved by CAG of India. Therefore, the claim of the assessee-corporation is legal on this point.
6.1 Despite strong opposition from the learned Departmental Representative on this point, we shall have to place reliance on the stand taken by the assessee-corporation on this point as their contention is based on the correspondence held in between them and IDBI and is stated to have been duly audited and approved by CAG of India.
Accordingly, this point is decided in favour of the assessee and against the Revenue.
7. Next ground i.e. ground No. 5 relates to disallowance of a sum of Rs. 79,19,654 being the commitment charges paid to IDBI on borrowed money. On this ground also the stand of the assessee-corporation is that it has been duly debited on ascertainment and reconciliation which was duly approved by CAG.7.1 The learned Departmental Representative though strongly contested this point, we find from the case record that no queries have been raised on this point nor any material has been gathered to disprove the stand of the assessee. Therefore, the stand taken by the assessee-corporation has to be accepted as it is an open declaration made before this Bench by the assessee-corporation regarding ascertainment of details from IDBI and due reconciliation and approval of CAG is there.
8. Ground No. 6 relates to disallowance of Rs. 1,65,35,187 being interest on loan in lieu of share capital according to the assessee-corporation.
8.1 In this connection the assessee-corporation has contended that during the years 1983 to 1987, pending amendment to SFCs Act and enhancement to the authorised capital of the corporation, both the State Government and IDBI have contributed to the share capital of the corporation in the shape of loan in lieu of share capital on matching proportion. Such loans are meant to be converted to ordinary share capital as per the schedule of conversion mutually agreed between the State Government and IDBI. These loans given by IDBI represents a quasi-equity of the corporation for the interim period till extension of authorised capital and conversion to equity.
8.2 On such loan in lieu of share capital, IDBI had deducted Rs. 1,65,35,187 towards interest in the year 1988-89 at front from refinance disbursement and such fact was not made available to the corporation. As such it was shown as advance repayment to IDBI. This fact was ascertained by assessee corporation in the following year, i.e., during the year 1989-90 and hence, it was charged to the proper head, i.e., interest payment during 1989-90 relevant to the asst. yr.
1990-91.
8.3 As it appears due to lack of clarity on correspondence in between IDBI and OSFC the amount was treated as advance earlier as stated above and later on after ascertainment of real facts from IDBI which was treated as interest payment and charged to the proper account.
Therefore, the charging of interest to IDBI account has to be accepted and allowed.
9. Thus, on an overall study of the case record and the argument and counter argument placed before this Bench, it appears that the assessee-corporation has a good case both factually as well as legally as the management and affairs of the corporation has been based on a different footing other than ordinary assessees and the disallowances made by the Revenue authorities have been made on a routine manner without going into the depth of the matter that the assessee-corporation is meant for a specific purpose and it is not a profit making organisation like other general assessees. Therefore, considering from all possible angles after due study of the case, we do not have any hesitation in allowing the appeal of the assessee against the Revenue. Accordingly, the assessee's appeal is allowed for asst.
yr. 1990-91.
10. Now after deliberating the issues at length for the asst. yr.
1990-91, it has been deemed proper to make a chart of both the issues involved in assessee's appeals and Departmental appeals separately in order to facilitate all quarters to be acquainted with the issues and deliberations quickly and in a smooth manner as it has been found that the issues are almost identical in both the assessee's appeal as well as the Departmental appeals.ITA No. Asst. yr Ground No. Remarks78/Ctk/200 1990-91 All grounds Discussed in detail in this order para 5to 9.179 to 85/Ctk/2003 1991-92 to 1 &2 EPF and allowable expenses discussed 1997-98 (common) in para 5 to 5.14 vide order of 1990-91.79/Ctk/2003 1991-92 3 Interest paid to IDBI-discussed in para 6 to 6.1 vide order of 1990-9179/Ctk/2003 1991-92 4 Commitment charges paid to IDBI- discussed in para 7 to 7.1 of order of79/Ctk/2003 1991-92 5&6 Repetitive and general in nature. No discussion is required.80 to 85/Ctk/2003 1992-93 to 3 General in nature. No discussion is 1997-98 required.
11. In order to appreciate further the case laws cited on different issues by the learned Counsel appearing on behalf of the appellant from the enclosures filed for each years separately it has been deemed proper to make an analysis of the same in order to appreciate the legal contention raised on the issues although the factual aspect has almost been covered in the order portion of asst. yr. 1990-91.
12. Brokerage and underwriting commission relating to asst. yr. 1991-92 on an amount of Rs. 11,10,000 allowed by the learned CIT(A) and agitated in the Departmental appeal although no separate ground has been agitated by the appellant-corporation before the Bench to consider the ground. As per the last ground taken by the appellant, reserving the right to urge other grounds at the time of hearing, the same is being considered at the instance of the assessee.
12.1 The contention of the appellant is that the corporation transacts its annual business as per BPRF (Business Plan & Resource Forecast) approved for a particular year by IDBI/SIDBI and the State Government.
In terms of the provisions of Section 7(1) of SFCs Act, 1951, the corporation issued and sold bonds for the purpose of working business capital for a year being allotted by IDBI/SIDBI as per BPRF with approval of RBI. Commission and brokerage for subscription and underwriting of such bonds (as per the rate instructed by RBI with each quota of bond allotment) are paid for raising the business/working capital as per BPRF for a year through issue and sale of bonds is a business expenditure for that particular year. Further, the money was borrowed by issue of bonds and this act of borrowing money was incidental to the carrying on of business. This loan obtained was not an asset or an advantage of enduring nature. The learned Counsel has cited certain case laws in this regard in support of his contention those are the Tribunal decision of the Patna Bench in ITA No. 7567 of 1964-65 (asst. yr. 1962-63) in the case of Bihar State Financial Corporation v. ITO, Ward-A, Patna on the basis of the decision of the Supreme Court of India in India Cement Ltd. v. CIT passed in favour of the assessee, Bihar State Financial Corporation, wherein the brokerage and incidental expenses on issue of bonds as business expenses has been allowed.
loan of Rs. 40 lakhs from the Industrial Finance Corporation secured by a charge on its fixed assets. In connection therewith it spent a sum of Rs. 84,633 towards stamp-duty, registration fees, lawyer's fees, etc. and claimed this amount as business expenditure.
Held, that the amount spent was not in the nature of capital expenditure and was laid out or expended wholly and exclusively for the purpose of the assessee's business and was, therefore, allowable as a deduction under s. 10(2)(xv) of the Indian IT Act, 1922. The act of borrowing money was incidental to the carrying on of business, the loan obtained was not an asset or an advantage of enduring nature, the expenditure was made for securing the use of money for a certain period and it was irrelevant to consider the object with which the loan was obtained.
Where there is no express prohibition, an outgoing, by means of which an assessee procures the use of a thing by such he makes a profit, is deductible from the receipts of the business to ascertain the taxable income.
Obtaining capital by issue of share is different from obtaining loan by debentures.
A loan obtained cannot be treated as an asset or advantage for the enduring benefit of the business of the assessee.
CIT v. East India Hotels Ltd. In this case it has been held that Section 35D has been introduced to give benefit to the assessee in cases of capital expenses. The capital expenses cannot be allowed as deduction in computing the income but under Section 35D capital expenses can be allowed as deduction in 10 years span, i.e., 1/10th in each year. But how a deduction which is allowable otherwise as revenue expenses, can be denied after insertion of Section 35D. The counsel failed to explain. Board has also clarified this issue in Circular No.56, dt. 19th March, 1971. Board clarified that the provision of amortisation is not intended to supersede any other provision of the income-tax law under which such expenditure is admissible as a deduction or deduction allowable by virtue of decision of the Supreme Court in the case of India Cements Ltd. v. CIT (supra). Admittedly, here the loan has to be repaid within 11 years from the date of allotment of debentures. If 20 per cent of that loan is payable by end of 3 years from the date of issue of debentures by way of issue of shares to make the debentures more lucrative/attractive, that does not change the character of repayment of loan within 11 years. Therefore, in view of this admitted fact, there is no reason to interfere with the order of the Tribunal and it is to be held that expenditure on issue of debentures is deductible as revenue expenditure notwithstanding the introduction of Section 35D.12.2 As is evident from the relevant portion of the assessment order, the AO disallowed these expenses incurred by the assessee-corporation as revenue expenses on the following grounds : (ii) The CBDT Circular No. 32/6/02 ITA-1 dt. 16th Jan., 1963 is clear on the point that expenditure incurred in connection with raising of such capital can only be treated as capital expenditure.
(iii) The maximum deduction can only be permitted in accordance with the provisions of Section 35D of IT Act, 1961.
(iv) That the expenditure cannot be allowed lawfully as per the decision of the Hon'ble Calcutta High Court in the case of Woodcrafts Ltd. v. CIT . The learned CIT(A) in the relevant portion of his order has deleted the same justifying with the case laws cited by the assesses and the Department is aggrieved on the issue of deletion. Accordingly, we are to deliberate on the same as follows : As per the decision of the Calcutta High Court in the case of Woodcraft Ltd. v. CIT (supra) it has been held that in this decision the decision of Union Carbide India Ltd. v. CIT has been followed which is held as under: That, on the issue of bonus shares, a portion of the reserves of the company have to be transferred and shown as subscribed capital. This has nothing to do with the capital structure of the company. The profit making apparatus remains the same. There is no addition or alteration to the profit making apparatus. The total funds available with the company will remain the same. As a result of the issue of bonus shares, there will be no change in the capital structure of the company. Hence, the Tribunal was right in holding that Rs. 500 representing the application fees paid for issue of bonus shares was not capital expenditure.
13. As per the chart stated above the issues have been dealt in depth in asst. yr. 1990-91 in assessee's appeals and the assessee succeeds on all the grounds in its own appeals for all the assessment years as issues agitated are identical in assessees appeals.
14. Now we shall go to Departmental appeals as per the chart given below : ITA No Asst. yr.
Ground No Remarks142 to 147/Ctk/2003, 1990-91 to 1995-96, 1 & 2 EPF & allowable expenses-205/Ctk/2003 & 1996-97 & discussed in para 5 to 5.14148/Ctk/2003 1997-98 vide order of 1990-91.142/Ctk/2003 1990-91 3} common Accounting standard -143 to 147/Ctk/2003 1991-92 to 1995-96 4} discussed in para 5 to 10148/Ctk/2003 & 1997-98 & 4) vide order of 1990-91205/Ctk/2003 1996-97 4}142/Ctk/2000 1990-91 4 EPF issue-discussed in para 5 to 5.14 vide order of143 to 147/Ctk/2003, 1991-92 to 1995-96, 3 common CIT(A) deleted the addition148/Ctk/2003 & 1997-98 wrongly under Section 43B when205/Ctk/2003 1996-97 the AO made the addition on the basis of cash143 to 147/Ctk/2003, 1991-92 to 1995-96, 5 common Expenses for guarantee148/Ctk/2003 & 1997-98 & bond205/Ctk/2003 1996-97143 to 147/Ctk/2003, 1991-92 to 1995-96, 6 common General in nature148/Ctk/2003 & 1997-96 & 15. In the Departmental appeals filed for the asst. yrs. 1990-91 to 1997-98 the ground Nos. 1 and 2 are identical as stated above relating to addition made on account of unpaid employees' contribution to EPF and the Department opposed the reliance of the learned CIT(A) on the case laws decided by the apex Court in the case of Standard Triumph Co.
Ltd. (supra) which according to the Revenue has been based on a different set of facts and circumstances totally irrelevant and inapplicable to the present case.
15.1 As the matter has already dealt in depth in asst. yr. 1990-91 in assessee's appeal, it requires no more deliberation. However, to clarify the position it is analysed in brief again as under.
15.2 As per provisions of Section 2(24)(x) income certainly included the sum received by the assessee from his employees as contribution to provident fund but as has been narrated earlier, under the facts and circumstances of the case the same is deductible from the business income under Section 36(va) as the said sum (employees' contribution to the provident fund scheme) is being credited by the assessee to the employees' account in the relevant fund on or before the due date. It should not be out of place to mention herein that it has already been clarified by the assessee-corporation in this case that the assessee-corporation has been excluded from the clutches of the provident fund authorities and they have been adopting a separate provident fund account with prior approval of the RBI and the State Government and they create a liability to the employees by making and maintaining separate ledger accounts, by crediting the employees' provident fund along with the employer's contribution to the same and keeping in readiness in order to facilitate the employees for withdrawal of the same as permissible under the scheme according to their requirement and necessity. Therefore, the Revenue cannot make an addition in general terms particularly when they have accepted this method and maintenance of accounts by the assessee-corporation right from the inception and particularly when there is no grumbling from the side of the employees in this regard.
15.3 Again, it is not the case of the Revenue nor the Revenue has been able to establish a case against the assessee-corporation that the assessee-corporation has violated the norms of the provident fund scheme and any proceedings whatsoever has been started against them by the authorities administering the Provident Fund Act and Rules. So, when the Revenue has not established any violation of the provident fund scheme by the assessee-corporation and the assessee-corporation not being a profit motive business organisation established by the State Government to facilitate the loans to small-scale industries has been following a particular set of Act and Rules under the combined guidelines of RBI and the State government, the Revenue does not have a case to make an addition on this score. Accordingly, the Revenue does not succeed on these, two grounds.
16. The next ground relates to the challenge of the Revenue regarding maintenance of accounting system. The factual aspect has already been dealt in 1990-91 of the assessee's appeal. It is an admitted fact that the assessee-corporation is a Government of Orissa undertaking having checked and restrained by the State Government of Orissa and RBI from time-to-time. The CAG has also got control over the same. Therefore, the Revenue should not treat the assessee-corporation like an ordinary assessee and unnecessarily raise objection on the maintenance of the accounting system. With this considerate view in favour of the assessee-corporation we discard the Revenue's contention on this issue.
Accordingly, this ground of the Revenue also fails.
17. With regard to ground No. 5 raised in asst. yrs. 1991-92 to 1997-98 regarding deletion of expenses for guarantee bond. On this issue it has been found that the learned CIT(A) has dealt the matter in depth in the relevant portion of his order and the contentions of the assessee-corporation has already been taken into consideration. While deciding the issue in asst. yr. 1990-91, we are in agreement with the deliberation held by the learned CIT(A) and not able to approve the order of the AO for application of Section 35D(2)(c)(iv) because of the nature of the business undertaken by the assessee-corporation it is quite different from that of general assessees. Therefore, the application of the case laws of Woodcrafts Industries (supra) will not be justified to the present set of, circumstances of the case. The Revenue's ground No. 5 is, therefore, rejected on this score.
18. Even on an analysis of the factual aspect of the case, it has been observed that Section 35D relates to amortisation of preliminary expenses and Section 36(1)(va) relates to the employees' contribution from the employer as per the interpretation of Section 2(24)(x), thus, Section 35(2) does not have any application to the facts of the case of the appellant.
18. In the result, the appeals of the assessee are fully allowed and the appeals of the Department are dismissed.