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 August 8, 2008, passed by the Income-tax Appellate Tribunal, Delhi Bench “C”, Delhi (hereinafter referred to as “the Tribunal”) in I.T.A 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 learned Income-tax Appellate Tribunal was right in law in upholding the order of the learned Commissioner of Income-tax (Appeals) in deleting the addition of Rs. 5,24,929 on account of late payment of provident fund made by the Assessing Officer under section 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, the learned Income-tax Appellate Tribunal is right in law in upholding the order of the learned Commissioner of Income-tax (Appeals), 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 under section 32 of the Income-tax Act, 1961?
(iii) Whether, on the facts and in the circumstances of the case, the learned Income-tax Appellate Tribunal is right in law in upholding the order of the learned Commissioner of Income-tax (Appeals) ignoring the legal position that section 40 of the Income-tax Act, 1961, provides for non-deduction of all amounts allowable under sections 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 November 27, 2003, declaring a loss of Rs. 7,90,68,960. The assessment was completed, vide order dated March 28, 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)”).
3. The Commissioner of Income-tax (Appeals), vide order dated September 19, 2007, allowed the appeal and observed with regard to the 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 also 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 Commissioner of Income-tax (Appeals), the Revenue filed an appeal before the Tribunal. The Tribunal, vide order dated August 8, 2008, dismissed the appeal. Hence, the present appeal by the Revenue.
4. We have heard learned counsel for the Revenue.
5. 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 Commissioner Of Income Tax v. Alom Extrusions Limited, [2009] 319 ITR 306 (SC) and this court in Income Tax Appeal No. 663 of 2005 (Commissioner Of Income-Tax v. Rai Agro Industries Ltd., decided on November 30, 2010—since reported in [2011] 334 ITR 122 (P&H)) wherein it has been held that second proviso to section 43B of the Act omitted by the Finance Act, 2003, with effect from April 1, 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 the employer and the employee's contribution to the 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.
6. Adverting to questions (ii) and (iii), the issue which arises for consideration is whether the assessee could be disallowed the 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 paragraph 3, had noticed as under:
“3. Ground No. 4 is against deletion of an addition of Rs. 6,88,175 made by the Assessing Officer 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 Commissioner of Income-tax (Appeals) 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 Departmental representative could not find any fault with this direction of the Commissioner of Income-tax (Appeals) 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 Commissioner of Income-tax (Appeals) which requires correction from us. Thus, this ground is also dismissed.”
7. 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.
8. Consequently, the appeal is dismissed.