2015 (9) TMI 1411 - AT - Income Tax

Deduction of Employees Contribution to PF - whether same was paid after due date and hence to be treated as income u/s.2(24)(x) r.w.s. 36(1)(va) of the Act - Held that - Issue in dispute is suqarely covered against the assessee by the decision of Hon ble Jurisdictional High Court rendered in the case of CIT vs. Gujarat State Road Transport Corporation reported at (2014 (1) TMI 502 - GUJARAT HIGH COURT ) wherein held that if the assessee failed to deposit the amounts representing employees contribution to PF & ESI accounts within the time limit prescribed under these Acts then assessee will not be entitled for deduction. - Decided against revenue Addition u/s.40A(2)(b) - Held that - The payment of interest at a little higher rate to the persons even if covered u/s.40A(2)(b) cannot be termed as exorbitant when the fair market value of such interest cost is being considered. The assessee has paid interest commensurate with the interest rate prevailing in the open market. An order in case of Vipul Y. Mehta vs. ACIT 2010 (7) TMI 1051 - ITAT AHMEDABAD has been brought to our notice wherein Tribunal has upheld the allowance of the interest rate @ 18% per annum to the relatives on unsecured loan. Considering all these aspects we are of the view that ld. First Appellate Authority has appreciated the controversy in right perspective. Assessee has not extended any undue benefit to the persons covered u/s.40A(2)(b) of the Income Tax Act.- Decided against revenue Deemed dividend u/s 2(22)(e) - Held that - First Appellate Authority has recorded a finding of fact that assessee is not the share holder of both the companies. The ld. CIT(A) has followed the decision of Special Bench of ITAT in case of ACIT vs. Bhaumik Colour Pvt. Ltd. 2008 (11) TMI 273 - ITAT BOMBAY-E . Hon ble Delhi High Court has also held in case of CIT vs. Ankitech (P.) Ltd. in 2011 (5) TMI 325 - DELHI HIGH COURT that the assessee should be a share holder in the lender company and such holding should be more than 10% of the voting rights only then Section 2(22)(e) would be attracted. CIT(A) correctly deleted the addition - Decided against revenue

Summary

Issues:
1. Deduction of Employees Contribution to PF
2. Addition of Interest Payment
3. Addition made under section 2(22)(e) of the Act

1. Deduction of Employees Contribution to PF:
The Revenue appealed against the order of the ld. CIT(A) allowing the deduction of Employees' Contribution to PF despite being paid after the due date. The Assessing Officer disallowed Rs. 1,81,414 as the assessee failed to deposit the employees' contribution to PF accounts within the specified time. The CIT(A) deleted the disallowance, stating that the amounts were paid before the due date of filing the return. The ITAT, Ahmedabad, referred to a decision of the Hon'ble Jurisdictional High Court and ruled in favor of the Revenue, stating that if the contributions were not deposited within the prescribed time, the deduction would not be allowed. The order of the Assessing Officer was restored on this issue.

2. Addition of Interest Payment:
The Revenue contested the deletion of an addition of Rs. 21,83,749 made by the Assessing Officer. The dispute arose from interest payments made to entities covered under section 40A(2)(b) of the Income Tax Act. The Assessing Officer disallowed an excess interest payment of Rs. 6,83,311. However, the Revenue mentioned a figure of Rs. 21,83,749, which was deemed erroneous. The ITAT analyzed the fair market value of the interest paid by the assessee and upheld the CIT(A)'s decision, stating that the interest paid was commensurate with prevailing market rates. Citing relevant case law, the ITAT rejected the Revenue's appeal, concluding that no undue benefit was extended to the related parties as per section 40A(2)(b).

3. Addition made under section 2(22)(e) of the Act:
The Revenue challenged the deletion of an addition under section 2(22)(e) of the Act by the CIT(A). The Assessing Officer treated loans received by the assessee from certain companies as deemed dividends, resulting in an addition of Rs. 2,63,12,188. The CIT(A) overturned this addition, noting that the assessee was not a shareholder in the lending companies. Referring to relevant legal precedents, the ITAT upheld the CIT(A)'s decision, emphasizing that for section 2(22)(e) to apply, the assessee must be a shareholder with more than 10% voting rights in the lender company. The ITAT rejected the Revenue's appeal, aligning with the decision of the Hon'ble Gujarat High Court in a similar case.

In conclusion, the ITAT partially allowed the Revenue's appeal, specifically on the deduction of Employees' Contribution to PF, while rejecting the appeals on the addition of Interest Payment and the addition under section 2(22)(e) of the Act. The detailed analysis of each issue provides a comprehensive understanding of the judgment delivered by the ITAT, Ahmedabad.