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2018 (7) TMI 1844 - AT - Income TaxAdditions u/s 41(1) on account of certain outstanding amounts - bogus liability - Held that - As decided in assessee s own case for AY 2012-13 AO has treated the liability as bogus and at the same time, has treated the said liability as ceased to exist. Bogus liability does not come under the purview of 41(1) as held by the Co-ordinate Bench in the earlier year and therefore, if the liability is bogus, there does not arise any question of cessation of said liability. Disallowance on account of delay in deposit of employees contribution towards ESI and PF - Held that - Given that the contributions have been paid before the due date of filing of the return of income, following the decision of in case of CIT vs. Jaipur Vidyut Vitran Nigam Limited 2014 (1) TMI 1085 - RAJASTHAN HIGH COURT the addition made by the AO is hereby deleted. Disallowance of interest on late payment of TDS u/s 201 and interest towards late payment of ESI - Held that - As regards the interest on late deposit of ESI contribution is concerned, the Hon ble Karnataka High Court in case of CIT vs. Mysore M/s Sand Plast India Limited, Alwar vs. DCIT, Alwar Electrical Industries Ltd. 1991 (3) TMI 30 - KARNATAKA HIGH COURT has held that interest so paid by the assessee was not in the nature of penalty and therefore, allowable as deduction in the hands of the assessee. Respectively following the same, the interest of ₹ 721/- on late payment of ESI is hereby allowed. As far as interest on late payment of TDS u/s 201 (1A) is concerned, useful reference can be drawn to the decision of Hon ble Bombay High Court in case of Ferro Alloys Corporation Ltd vs. CIT (1991 (12) TMI 39 - BOMBAY HIGH COURT) where interest payment u/s 201(1A) for failure to deduct or pay tax deducted at source was held not deductible. The contention regarding section 40(a)(ii) is also not tenable as the same is in context of taxes levied on the profits or gains of business and not in context of taxes by way of TDS on payments made by the assessee and in any case, the interest will partake the character of the principal which is not otherwise allowable. Interest on late deposit of TDS u/s 201(1A) cannot be allowed to the assessee and the same has rightly been disallowed by the AO. - Decided in favour of assessee partly allowed.
Issues involved:
- Challenge against additions u/s 41(1) on account of outstanding amounts treated as bogus liability and ceased to exist. - Disallowance of employees' contribution towards ESI and PF. - Disallowance of interest on late payment of TDS u/s 201 and ESI. Additions u/s 41(1): The assessee challenged the additions u/s 41(1) related to outstanding amounts treated as bogus liability and ceased to exist. The AR argued that the liabilities being bogus did not fall under the purview of section 41(1), citing a Co-ordinate Bench decision. The Co-ordinate Bench clarified that only trading liabilities that ceased to exist would fall under section 41(1). The AR contended that if a liability is bogus, there is no question of cessation. The Ld. CIT(A) had added outstanding amounts under section 41(1) due to lack of confirmations and ITRs from creditors. However, the Co-ordinate Bench's decision in the assessee's own case for AY 2012-13 was followed, leading to the deletion of additions made by the AO u/s 41(1. Disallowance of ESI and PF Contributions: The assessee contested the disallowance of contributions towards ESI and PF due to a delay in deposit. The AR argued that all contributions were paid before the due date except for one, which was paid shortly after. Citing previous relief granted by the ld. CIT(A) and relevant court decisions, the AR asserted that the disallowance should be deleted. Following the decision of the Hon'ble Rajasthan High Court, the disallowance made by the AO was deleted. Disallowance of Interest on Late Payments: The assessee challenged the disallowance of interest on late payments of TDS u/s 201 and ESI. The AR contended that these interest payments were compensatory and allowable u/s 37(1) of the Act. The Hon'ble Karnataka High Court's decision supported the allowance of interest on late ESI payments. However, the interest on late TDS payments was disallowed based on decisions by the Hon'ble Bombay High Court and Madras High Court. The interest on late TDS payments was deemed not deductible, as it was related to failure to deduct or remit tax. Consequently, the interest on late ESI payment was allowed, but interest on late TDS payment was rightly disallowed. The appeal was partly allowed based on these grounds. This detailed analysis of the legal judgment covers the issues raised by the assessee and the decisions made by the tribunal concerning additions under section 41(1), disallowance of ESI and PF contributions, and disallowance of interest on late payments.
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