2013 (8) TMI 938 - AT - Income Tax

Addition u/s 43B - non payment of PPF contribution - Held that - It is evident that the assessee had not paid the employee s contribution within the due date under the PF Act or other relevant Acts. In this case the issue was involving payment made u/s 43B of the Act on assessee s contribution not contribution of the employee. Thus we uphold the order of the learned CIT(A). Accordingly assessee s ground No.1 stands dismissed. Disallownce on account of authorized share capital - Held that - The payment made to ROC for increase of authorized share capital is a capital expenditure. It was incurred by the assessee company to expand the capital base of the company. The character of the expenses is capital expenses. The case laws cited by the assessee are not applicable as the expenses directly related to bonus share as held by the Hon ble Apex Court as revenue expenditure. However the nature of payment i.e. payment to ROC for increase of share capital is capital expenditure. Section 35D of the Act is also not applicable in the case of the assessee as it pertained to expenditure incurred before commencing of the business it does not cover the ROC fees. Thus we uphold the order of the learned CIT(A). Resultantly this ground of appeal of the assessee is dismissed. Disallowance of business development expenses - Held that - As education expenses of a son of the director was incurred for personal gain and not for the business purpose. Keeping in view of the factual position as well as legal position on this issue we uphold the order of the learned CIT(A) and dismiss this ground of appeal of the assessee.

Summary

Issues Involved:
1. Disallowance of Rs. 42,013 on account of late payment of P.F. and E.S.I.
2. Disallowance of Rs. 2,65,000 on account of expenses on authorized share capital.
3. Disallowance of Rs. 19,16,049 out of business development expenses.

Issue-wise Detailed Analysis:

1. Disallowance of Rs. 42,013 on account of late payment of P.F. and E.S.I.:
The assessee contended that the employee's contribution to P.F. and E.S.I., which was paid along with the employer's contribution, should not be treated as income of the assessee company. The assessee argued that the contributions were deposited within the stipulated time. However, the Assessing Officer (AO) observed that the payments were not made within the due dates prescribed under section 36(1)(va) of the Income Tax Act. The CIT(A) upheld the AO's decision, stating that employee's contributions are allowable only if paid within the due dates under the relevant Acts, and section 43B does not apply to employee's contributions. The Tribunal confirmed the CIT(A)'s order, dismissing the assessee's appeal on this ground.

2. Disallowance of Rs. 2,65,000 on account of expenses on authorized share capital:
The AO disallowed the expenditure of Rs. 2,65,000 incurred towards ROC fees and stamp charges for increasing the authorized share capital, treating it as capital expenditure. The CIT(A) upheld this disallowance, referencing Supreme Court decisions that such expenses are capital in nature and not allowable as revenue expenditure. The assessee argued that the expenses were related to issuing bonus shares and should be considered revenue expenditure. However, the Tribunal agreed with the CIT(A) that the expenses were capital in nature and not covered under section 35D of the Act. Consequently, the Tribunal dismissed the assessee's appeal on this ground.

3. Disallowance of Rs. 19,16,049 out of business development expenses:
The AO disallowed the business development expenses of Rs. 19,16,049, as the assessee failed to provide details of the expenses and their relation to business activities. The CIT(A) confirmed the disallowance, noting that the expenses were incurred for the foreign study of the director's son, who was not an employee of the company. The CIT(A) held that such personal expenses could not be claimed as business development expenses. The assessee argued that the expenses were authorized by the company and that the director's son was supposed to render services to the company. However, the Tribunal upheld the CIT(A)'s decision, stating that the expenses were personal in nature and not incurred for business purposes. The Tribunal dismissed the assessee's appeal on this ground.

Conclusion:
The Tribunal dismissed the assessee's appeal on all grounds, confirming the disallowances made by the AO and upheld by the CIT(A). The Tribunal emphasized the importance of adhering to statutory due dates for employee contributions and the capital nature of expenses related to increasing authorized share capital. Additionally, it reinforced that personal expenses of directors or their family members cannot be claimed as business expenses.