M.L. Outsourcing P. Ltd., New Delhi vs Department Of Income Tax

ITO, Ward 6 (1), vs. M/s. M.L. Outsourcing P. Ltd., New Delhi. B - 137/1, East of Kailash, New Delhi - 110 048.

(PAN : AADCM9508K)

(APPELLANT) (RESPONDENT)

ASSESSEE BY : Ms. Aditi Gupta, CA REVENUE BY : Shri P. Dam Kanunjna, Senior DR

Date of Hearing : 12.06.2015 Date of Pronouncement : 17.06.2015

ORDER

PER GEORGE GEORGE K., JUDICIAL MEMBER :

This appeal, at the stance of the revenue, was filed against the order of the

Commissioner of Income-tax (Appeals)-IX, New Delhi dated 30.09.2013. The

relevant assessment year is 2010-11.

2. The ld. Counsel for the assessee filed an application for adjournment which

was rejected.

2 ITA No.6292/Del/20113

3. The assessee is engaged in the business of development and maintenance of

Computer Software and IT enabled services and is a 100% export oriented unit

under STPI, Bangalore. For the relevant year, the return of income was filed on

24.09.2010 declaring an income of Rs.1,31,790/-. The return was processed u/s

143(1) of the Income-tax Act, 1961 at the returned income. The assessment was

taken up for scrutiny by issuance of notice u/s 143 (2) of the Act and scrutiny

assessment u/s 143(3) was completed vide order dated 24.05.2012 assessing total

income at Rs.66,60,310/-. The Assessing Officer reduced the claim of deduction

u/s 10B by Rs.63,75,900/-. The Assessing Officer also added a sum of

Rs.1,52,619/- u/s 2(24)(x) read with section 36(i)(va) of the Act..

4. Aggrieved, the assessee preferred an appeal before the first appellate

authority. The ld. CIT (A) allowed the appeal on both the issues.

5. The assessee, being aggrieved, is in appeal before us.

6. In the Ground No.1, the revenue has challenged whether the CIT (A) has

erred in deleting the disallowance of Rs.63,75,900/- u/s 10B without appreciating

the fact that assessee is not eligible for deduction on entire receipts.

7. The AO noticed that during the relevant financial year, the assessee had

included in its export turnover the following amounts :- 3 ITA No.6292/Del/20113

(i) Software development and maintenance service Rs.5,90,55,954/-

(ii) International recruitment service Rs.2,67,53,551/-

The Assessing Officer held that these were two different activities. The Assessing

Officer, relying on the assessment order for assessment year 2007-08, reduced the

claim u/s 10B by the amount related to "international recruitment service". The

reasoning of the Assessing Officer for assessment year 2007-08, which is

incorporated in the impugned assessment order, is reproduced below for ready reference:

"The assessee was simply a recruitment agent involved in rendering services of an employment consultant. The use of computers in the gamut of services rendered by the assessee, points to the fact that use of computers was minimal. The extent of computers and IT enabled tools were just not enough to earn assessee the tag of being involved in IT enabled business so as to make it eligible for a special incentive, as envisaged u/s 10A. However, the benefit u/s 10A was not envisaged for such kind of middleman activity. The intention of the legislature for grant of special benefit u/s 10A granting Tax Holiday for a period of 10 years, pre empted the fact that assessee would put in place a comprehensive infrastructure which would enable that assessee to earn foreign exchange on a consistent basis for a long period of time and also further the reputation of the country in the field of Information Technology Enables Services (ITES). Such a Tax Holiday cannot be extended to any other assessee whose commitment to the line of business is rather shallow and may not reflect its intention to continue in the field beyond the period of Tax Holiday.

It stands established, both factually and legally, that the business of the assessee cannot be held to be offering IT enables 4 ITA No.6292/Del/20113

services, so as to make it eligible for exemption u/s 10A. Consequently, the operations conducted from STPI, Noida are held to be ineligible for benefit of deduction u/s 10A."

8. On appeal, the ld. CIT (A) observed that for the assessment year 2007-08,

the Tribunal had allowed the claim of the assessee u/s 10B in full and included in

the export turnover, the receipt from international recruitment service. The ld. CIT

(A) also noticed that the Tribunal observed, as per Section 10A Explanation 2

clause (b), any customize electronic data is qualified for treatment as a computer

software on whose export deduction would be admissible to an assessee and this

sub-clause further classify that any other service if notified by the Board then those

services would also qualify for treatment as computer software. The ld. CIT (A)

also observed that his Predecessor in assessee's own case for assessment year

2009-10 had allowed the claim u/s 10B of the Act following the Tribunal order for

assessment year 2007-08. The ld. CIT (A), following the aforesaid decision in

assessee's own case, allowed the ground of the assessee and directed the AO to re-

compute the deduction u/s 10B.

9. We have heard the rival submissions and perused the material on record.

After going through the order of the CIT (A), we find that this issue is already

decided in favour of the assessee by the Tribunal in assessee's own case for

assessment year 2007-08 and the same was followed by the CIT (A) in assessment

year 2009-10 and in this relevant assessment year. In this view of the matter, we 5 ITA No.6292/Del/20113

do not find any infirmity in the order of the CIT (A) and we uphold the same. It is

ordered accordingly. Ground No.1 is rejected.

10. Ground no. 2 of the revenue reads as under :-

"2. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) erred in deleting the disallowance of Rs.1,52,619/- made by the A.O. on account of delay in payment of employees' contribution to EPF/ESI as per the provision of Section 36(1 )(va) read with 2(24 )(x), by following the judgement of Hon'ble Delhi High Court (AIMIL Ltd.) and ignoring the fact that same is pending with the Hon'ble Supreme Court and also the fact that the Hon'ble ITAT, Mumbai after having discussion of the above judgement of the Hon'ble High Court (AIMIL Ltd.) in the case of ITO v. LKP Securities (ITA 1093/Mum/20 12) has taken a different view?

11. The AO made disallowance of Rs.1,52,619 u/s 36(1)(va) being deposit of

receipt from employees towards contribution to ESIC and EPF beyond the due date

prescribed by the relevant Act. Before the CIT (A), the assessee submitted that the

amount was paid before the due date for filing of return of income and hence,

deduction is to be allowed. The assessee relied on following judicial

pronouncements :-

(i) CIT vs. Alom Extrusions Limited - (2009) 319 ITR 306 (SC);

(ii) CIT vs. Vinay Cement Ltd. - (2007) 213 CTR (SC) 268;

(iii) CIT vs. AIMIL & Ors. - Delhi High Court 229 CTR (Del.) 418.

6 ITA No.6292/Del/20113 The CIT (A), relying on the judgment of the Hon'ble jurisdictional High Court in

the case of CIT vs. AIMIL reported in 321 ITR 508 (Del.), deleted the

disallowance, as the assessee has made the payments before the due date of filing

the income tax return.

12. We have heard the rival submissions and perused the material on record. We

find that this issue is covered in favour of the assessee by the judgment of Hon'ble

jurisdictional High Court in the case of CIT vs. AIMIL Limited, cited supra, and

also the Hon'ble Supreme Court in the case of CIT vs. Vinay Cements Limited

reported in 213 CTR 286 (SC). The Hon'ble jurisdictional High Court in the case

of CIT vs. AIMIL Limited, cited supra, has held as under :-

"As soon as employees' contribution towards PF or ESI is received by the assessee by way of deduction or otherwise from the salary/wages of the employees, it will be treated as 'income' at the hands of the assessee. It clearly follows therefrom that If the assessee does not deposit this contribution with PF/ESI authorities, it will be taxed as Income at the hands of the assessee. However, on making deposit with the concerned authorities, the assessee becomes entitled to deduction under the provisions of s. 36(1)(va). Sec. 43B(b), however, stipulates that such deduction would be permissible only on actual payment. This is the scheme of the Act for making an assessee entitled to get deduction from Income insofar as employees' contribution is concerned. Deletion of the second proviso has been treated as retrospective in nature and would not apply at all. The case is to be governed with the application of the first proviso. If the employees' contribution is not deposited by the due date prescribed under the relevant Acts and is deposited late, the employer not only pays interest on delayed payment but can incur penalties also, for which specific provisions 7 ITA No.6292/Del/20113

are made in the Provident Fund Act as well as the ESI Act. Therefore, the Acts permit the employer to make the deposit with some delays, subject to the aforesaid sequences. Insofar as the IT Act is concerned, the assessee can get the benefit if the actual payment is made before the return is filed. CIT vs.Vinay Cement Ltd., (2007) 213 CTR (SC) 268, CIT vs. Dharmendra Sharma (2007) 213 CTR (Del) 609 : (2008) 297 ITR 320 (Del) and CIT vs. P.M. Electronics Ltd. (2008) 220 CTR (Del) 635 : (2008) 15 DTR (Del) 258 followed."

In view of the aforesaid decision, the deduction of payment of employees'

contribution towards provident fund and ESI cannot be disallowed under section

43B, if paid before the due date of filing the return. In view of this fact, we reject

this ground.

13. In the result, the appeal of the revenue is dismissed.

Order pronounced in open court on this 17th day of June, 2015.

Sd/- sd/- (S.V. MEHROTRA) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated the 17th day of June, 2015 TS Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT(A)-IX, New Delhi 5.CIT(ITAT), New Delhi. AR, ITAT NEW DELHI.