2011 (8) TMI 1092 - AT - Income Tax

Delayed payment of PF of employees contribution - addition on account of staff welfare expenditure - nature of expenditure -

Summary

Issues:
1. Deletion of addition on account of delayed payment of PF of employees' contribution.
2. Relief granted on staff welfare expenditure under sec. 40A(9).
3. Deletion of disallowance of bond issue expenses.

Issue 1 - Delayed Payment of PF Contribution:
The revenue challenged the deletion of an addition of Rs. 1,82,77,138 due to delayed payment of PF of employees' contribution for the A.Y. 2006-07. The ITAT Mumbai found that the assessee made payments beyond the due date but before filing the income tax return, with some payments within the grace period. Referring to the decision of the Hon'ble Supreme Court in CIT vs. Aloum Extrusion Ltd., the ITAT concluded that the issue was in favor of the assessee. The Tribunal noted that the issue was also addressed in a similar case by the ITAT 'C' Bench Mumbai, following the Supreme Court's decision. Consequently, the ITAT upheld the findings of the Ld. CIT (A) and allowed ground no.1.

Issue 2 - Relief on Staff Welfare Expenditure:
The second issue involved relief granted on staff welfare expenditure of Rs. 4 lakhs under sec. 40A(9). The Tax Audit Report highlighted that certain payments were not allowed under sec. 40A(9), including amounts for Officer's club and Staff club. The assessee explained that the expenditure was for sports and cultural activities on various occasions, which the AO disallowed. However, the Ld. CIT (A) allowed the claim, noting its acceptance in the assessee's case for the A.Y. 2004-05. The ITAT, finding no reason to interfere, confirmed the Ld. CIT (A)'s order.

Issue 3 - Deletion of Bond Issue Expenses Disallowance:
Regarding the disallowance of Rs. 10,00,300 for bond issue expenses, the AO treated it as capital expenditure, resulting in a full disallowance. The Ld. CIT (A) overturned this decision, citing precedents from the assessee's previous cases. The ITAT noted that the expenditure was for bond registration charges related to guarantees against borrowings, which the AO disallowed. However, the ITAT considered this as a revenue expenditure under sec. 37(i), in line with the Government of India's guarantee on borrowings. Consequently, the ITAT dismissed the revenue's appeal and confirmed the Ld. CIT (A)'s order.

In conclusion, the ITAT Mumbai upheld the decisions of the Ld. CIT (A) on all three issues, dismissing the revenue's appeal in its entirety.