2010 (9) TMI 1101 - AT - Income Tax

Disallowance u/s 36(1)(va) r.w.s. 2(24)(x) - profits eligible for deduction u/s10A - In present case , The CIT(A) held that in respect of payment made within the grace period of 5 days the addition made by the AO has to be deleted. Aggrieved by the order of the CIT(A) the assessee has preferred the present appeal before the Tribunal. HELD THAT - Following the decision in the case of CIT vs. AIMIL Limited 2009 (12) TMI 38 - DELHI HIGH COURT , the assessee is entitled to claim the deduction even in respect of a sum of ₹ 6,07,000/-, which disallowance was sustained by the CIT(A). Even the contention that the disallowance even if sustained will only go to increase the business profits of the assessee which is exempt u/s 10A as laid down in the case of Gemplus Jewellery India Ltd. 2010 (6) TMI 65 - BOMBAY HIGH COURT is acceptable. We, therefore, direct that the addition sustained by the CIT(A) be deleted. In the result, the appeal of the assessee is allowed.

Summary

Issues:
1. Disallowance of employees' PF contribution under section 36(1)(va) r.w.s. 2(24)(x) and its impact on deduction under section 10A of the Income Tax Act.

Detailed Analysis:

1. The appellant, a company engaged in manufacturing and exporting jewelry, appealed against the CIT(A)'s order regarding the disallowance of employees' PF contributions under section 36(1)(va) r.w.s. 2(24)(x) for the assessment year 2006-07.

2. The Assessing Officer (AO) treated the delayed employees' PF contributions as the assessee's income under section 2(24)(x) and disallowed the deduction under section 36(1)(va). The AO added the sum to the assessee's income, not eligible for deduction under section 10A, affecting the profits derived from jewelry manufacturing and export.

3. The appellant argued that payments made within the grace period allowed by the PF Act should not be disallowed. The CIT(A) upheld the disallowance for payments beyond the grace period but ruled in favor of the appellant for payments made within the grace period.

4. The appellant, dissatisfied with the CIT(A)'s decision, appealed to the Tribunal, contending that even if the disallowance was upheld, the deduction under section 10A should still apply, citing relevant case law supporting the position.

5. The Tribunal considered the appellant's submissions and referred to the decision of the Hon'ble Bombay High Court and Hon'ble Delhi High Court, emphasizing that the disallowance would increase business profits, eligible for deduction under section 10A.

6. Citing the judgment of the Hon'ble Delhi High Court in CIT vs. AIMIL Limited, the Tribunal highlighted the treatment of employees' contributions as income and the conditions for deduction under section 36(1)(va), emphasizing the importance of actual payment before the return filing date.

7. Based on the legal principles discussed, the Tribunal concluded that the appellant was entitled to claim the deduction even for the disallowed amount, as upheld by the CIT(A). The Tribunal ruled in favor of the appellant, directing the deletion of the addition sustained by the CIT(A).

8. Consequently, the Tribunal allowed the appeal of the assessee, emphasizing the applicability of deductions under section 10A despite the disallowance of employees' PF contributions under section 36(1)(va) r.w.s. 2(24)(x).

This detailed analysis covers the issues involved in the legal judgment, providing a comprehensive overview of the arguments, decisions, and legal principles applied in the case.