2011 (3) TMI 240 - HC - Income Tax

Addition - Scrutiny - The assessee had claimed interest expenditure relating to the period 1.4.2004 to 31.3.2006 during the period ending 31.3.2006 - Held that - In view of the provisions of the Act, which mandated that where payment of specified items of expenditure are exigible to deduction to tax at source and where such tax has not been deducted, then the assessee is not entitled to the claim of deduction in respect of such expenditure on which TDS has not been deducted and paid within the previous year. - The proviso to the said sub section mandates that in case of payments of TDS in subsequent year s then the claim of the assessee is to be allowed in the year when the tax deducted has been paid in the account of the treasury - Claim of expenditure allowed. Regarding deduction on account late payments of employees contribution of ESI & PF - Held that - In view of decision of Supreme Court in Commissioner of Income-Tax Vs. Alom Extrusions Ltd. (2009 -TMI - 35073 - SUPREME COURT) the issue decided against the revenue.

Summary

Issues:
1. Appeal by revenue under Section 260A of the Income Tax Act, 1961 against ITAT order.
2. Disallowances made by Assessing Officer on interest paid and late payments of ESI/EPF.
3. CIT(A) partially allowing the appeal, further appeal by assessee accepted by Tribunal.
4. Challenge to Tribunal's deletion of addition on interest paid to Mrs. Gargi Goel.
5. Interpretation of Section 40(a)(ia) regarding tax deduction at source and allowance of expenditure.
6. Application of Supreme Court judgment in Commissioner of Income-Tax Vs. Alom Extrusions Ltd. to the case.

Analysis:

1. The appeal before the High Court was filed by the revenue under Section 260A of the Income Tax Act, 1961 against an order of the Income Tax Appellate Tribunal (ITAT) relating to the assessment year 2006-07. The substantial questions of law raised included the treatment of interest paid to Mrs. Gargi Goel and late payments of ESI/EPF contributions.

2. The Assessing Officer had made disallowances on interest paid to Mrs. Gargi Goel and late payments of ESI/EPF contributions. The CIT(A) partly allowed the appeal, granting some relief, which was further appealed by the assessee and accepted by the Tribunal, leading to the deletion of the additions made by the Assessing Officer.

3. The High Court heard the arguments challenging the Tribunal's decision to delete the addition on interest paid to Mrs. Gargi Goel for the period up to 31.3.2005. The Tribunal's finding was based on the interpretation of Section 40(a)(ia) of the Act regarding the deduction of tax at source and the allowance of expenditure based on tax payments made in subsequent years.

4. The Tribunal's decision was supported by the interpretation of the proviso to Section 40(a)(ia) which allows for the deduction of expenditure in the year in which tax has been paid, even if it pertains to a preceding year. The High Court found no fault in the Tribunal's decision regarding the allowability of expenditure on interest paid to Mrs. Gargi Goel for the specified period.

5. Regarding the second question raised, the High Court noted that it was covered by a judgment of the Supreme Court in Commissioner of Income-Tax Vs. Alom Extrusions Ltd., which was against the revenue. Based on this, the High Court concluded that no substantial question of law arose, and therefore, the appeal was dismissed.