2011 (6) TMI 827 - AT - Income Tax

Summary

Issues Involved:
1. Addition on account of closing Work-in-Progress (WIP).
2. Disallowance of employees' contribution towards PF/ESIC u/s 36(1)(va) of the Act.

Summary:

Issue 1: Addition on account of closing Work-in-Progress (WIP)

The assessee, engaged in dyeing and printing of synthetic fabric on a job work basis, did not show any closing stock of work-in-progress (WIP) for the Assessment Year 2006-07. The Assessing Officer (AO) estimated 109,335 meters of WIP, resulting in an addition of Rs. 2,80,991/-. The CIT(A) confirmed this addition, relying on the ITAT's decision in the case of Akruti Dyeing & Printing Mills Pvt. Ltd. The CIT(A) noted that the assessee had not shown closing stock of WIP, which was in existence at the end of the relevant previous year. The valuation of WIP was based on the average cost incurred per meter by the assessee.

On appeal, the ITAT referred to its previous decisions in similar cases, including Jay Santoshi Tex Prints Pvt. Ltd. vs. ITO and Krishna Art Silk Cloth (P) Ltd. vs. DCIT. The ITAT concluded that there cannot be any WIP in a case where the business of dyeing and printing of cloth is done on a job work basis, as the fabric does not belong to the assessee. The ITAT allowed the claim of the assessee and deleted the addition of Rs. 2,80,991/-.

Issue 2: Disallowance of employees' contribution towards PF/ESIC u/s 36(1)(va) of the Act

The AO disallowed Rs. 20,245/- on account of employees' contribution towards PF/ESIC, which was deposited beyond the due dates stipulated under the relevant enactments. The CIT(A) directed the AO to verify the dates of payment and allow deduction only for payments made within the due date or within the grace period permitted.

On appeal, the ITAT referred to the decision of the Hon'ble Supreme Court in CIT vs. Alom Extrusions Ltd., which held that the omission of the second proviso to section 43B of the Act by the Finance Act, 2003, operated retrospectively with effect from April 1, 1988. The ITAT also referred to the decisions of various High Courts, including the Hon'ble Delhi High Court in CIT vs. AIMIL Ltd., which held that employees' contribution towards PF/ESIC made before the due date of filing of return u/s 139(1) of the Act is allowable. The ITAT vacated the findings of the CIT(A) and directed the AO to allow payments made on account of employees' contribution towards PF/ESIC on or before the due date of filing of the return u/s 139(1) of the Act.

Conclusion:

The appeal was allowed, with the ITAT deleting the addition on account of closing WIP and directing the AO to allow the disallowance of employees' contribution towards PF/ESIC made before the due date of filing of the return.