2017 (4) TMI 1278 - AT - Income Tax

Addition u/s 14A - Held that - We remit the disputed issue to the file of the Ld. AO for verification of investments of the assessee in subsidiary companies/sister concern with own funds or borrowed funds for the purpose of disallowance U/s.14A of the Act and the assessee should be provided adequate opportunity of hearing before passing the order on merits. Accordingly we remit the disputed issue for limited purpose to the file of AO and allow the ground of the Revenue for statistical purpose. Disallowance of employee s contribution u/s. 2(24)(X) for delayed payment of PF and ESI - Held that - Under the provisions of Income Tax Act the assessee company has deposited employees contribution of ESI and EPF before time limit specified u/s.139(1) of the Act and covered by the provisions of Sec. 43B of the Act. We found similar issue was considered by the Jurisdictional High Court in the case of CIT vs. M/s. Industrial Security & Intelligence India Pvt. Ltd 2015 (7) TMI 1063 - MADRAS HIGH COURT - Decided in favour of assessee

Summary

Issues Involved:
1. Delay in filing the appeal by the Revenue.
2. Disallowance under Section 14A of the Income Tax Act.
3. Disallowance of employee's contribution to PF and ESI under Section 2(24)(x) of the Income Tax Act.

Detailed Analysis:

1. Delay in Filing the Appeal:
At the hearing, the Revenue submitted that there was a delay of 16 days in filing the appeal. The delay was explained through an affidavit, and there were no serious objections from the Respondent. The Tribunal was satisfied with the reasons provided and admitted the appeal.

2. Disallowance under Section 14A:
The Revenue challenged the CIT(A)'s direction to exclude investments made in subsidiaries while calculating disallowance under Section 14A and to restrict the disallowance to the amount of dividend received. The CIT(A) had relied on judicial decisions and found that the investments were made for business participation and profit motive, not for earning dividend income. The Tribunal noted that the investments were made out of the assessee's own funds and not interest-bearing borrowed funds. The Tribunal referred to the Karnataka High Court's decision in M/s. United Breweries Ltd. v. DCIT, which upheld the applicability of Section 14A even when the motive was to obtain controlling interest in companies. The Tribunal remitted the issue back to the Assessing Officer (AO) for verification of whether the investments in subsidiary companies were made with own funds or borrowed funds, and to provide the assessee an opportunity of hearing before passing the order on merits.

3. Disallowance of Employee's Contribution to PF and ESI:
The CIT(A) had directed the AO to delete the disallowance of ?26,37,965 under Section 2(24)(x) for delayed payment of PF and ESI, relying on the jurisdictional High Court decision in CIT vs. Industrial Security & Intelligence India Pvt. Ltd. The Revenue argued that the CIT(A) erred in directing the deletion without considering that the payments were made after the due date specified under the respective Acts. The Tribunal noted that the assessee had deposited the contributions before the due date of filing the return under Section 139(1) of the Income Tax Act, which is covered by the provisions of Section 43B. The Tribunal followed the jurisdictional High Court's decision and upheld the CIT(A)'s direction to delete the addition, dismissing the Revenue's grounds on this issue.

Conclusion:
The Tribunal allowed the Revenue's appeal partly for statistical purposes by remitting the issue of disallowance under Section 14A back to the AO for verification. The Tribunal upheld the CIT(A)'s decision regarding the deletion of disallowance for delayed payment of PF and ESI. The appeal was pronounced on April 13, 2017, at Chennai.