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2010 (1) TMI 913 - AT - Income TaxDisallowance of employees and employer ESI and contribution to provident fund beyond the grace period allowed under the respective statute Held that - amendment to proviso to section 43B as per Finance Act, 2003 is retrospective in nature. But in this case the disallowance has been made in respect of employees contribution also. The employees contribution towards P.F. and ESIC are treated as income u/s 2(24) of the Act and thereafter are allowable as a deduction u/s 36(1)(va) of the Act. There is no amendment in section 36(1)(va). As this expenditure is specifically governed by section 36(1)(va), the claim cannot be allowed u/s 37. Section 43B comes into play, if the expense is otherwise allowable under the Act. As the employees contribution in this case is not allowable u/s 36(1)(va) of the Act, for the reason that the same is not paid within the due date, order of the first appellate authority upheld and dismiss this ground of the assessee, issue set aside to the file of the AO for fresh adjudication in the light of the decision of the Hon ble Supreme Court in the case of Alom Exclusions(2009 - TMI - 35073 - SUPREME COURT), as the dates of payment are not on record, and allow payments made before the due date of filing of the return.
Issues Involved:
1. Disallowance of employees and employer ESI and contribution to provident fund beyond the grace period. 2. Various adhoc disallowances made by the AO and sustained by the first appellate authority. 3. Disallowance of payment of PF and ESIC, which was disallowed in the previous year by invoking section 43B. 4. Addition on account of undisclosed income. 5. Allowing employer's and employee's contribution towards PF and ESIC made after the due dates but within the grace period. 6. Deletion of disallowance made by the AO out of Car and Jeep hire charges. 7. Disallowance of 10% of total wages and salary. 8. Deletion under the head "Uniform Deposit". Issue-wise Detailed Analysis: 1. Disallowance of Employees and Employer ESI and Contribution to Provident Fund Beyond the Grace Period: The assessee argued that the second proviso to section 43B, omitted by the Finance Act, 2003, is retrospective. The Supreme Court in CIT vs. Alom Extrusions Ltd. held the amendment to section 43B as retrospective. However, the disallowance in this case pertains to employees' contributions, which are treated as income under section 2(24) and allowable under section 36(1)(va). Since there is no amendment in section 36(1)(va), the claim cannot be allowed under section 37. The Tribunal upheld the first appellate authority's order, dismissing the assessee's ground but set aside the issue of employees' contribution and ESI payment for fresh adjudication by the AO in light of the Alom Exclusions decision. 2. Various Adhoc Disallowances Made by the AO and Sustained by the First Appellate Authority: - General Expenses: The CIT(A) restricted the disallowance to 10%. The assessee did not press this ground due to the smallness of the amount. Hence, it was dismissed as not pressed. - Telephone Expenses: The AO disallowed expenses for a telephone installed at the Director's residence. The CIT(A) sustained this disallowance. The Tribunal agreed that residential telephones are partly used for business and restricted the disallowance to 50%. - Conveyance Expenses: The AO disallowed 50% due to lack of proper vouchers, and the CIT(A) restricted it to 10%. The assessee did not press this ground due to the smallness of the amount. Hence, it was dismissed as not pressed. - Staff Welfare Expenses: The disallowance was restricted to Rs.1 lakh by the CIT(A). The assessee did not press this ground due to the smallness of the amount. Hence, it was dismissed as not pressed. - Labour Welfare Expenses: The disallowance of Rs.1,76,995/- was not pressed by the assessee due to the smallness of the amount. Hence, it was dismissed as not pressed. - Travelling Expenses and Tiffin Allowances: These disallowances were also dismissed as not pressed. 3. Disallowance of Payment of PF and ESIC: The payment of provident fund during the year, which was disallowed under section 43B in the earlier year, entitles the assessee to a deduction. As only the employer's contribution is disallowed by applying section 43B, it should be allowed on a payment basis. This ground was allowed in part. 4. Addition on Account of Undisclosed Income: The AO added Rs.5,71,953/- as undisclosed income due to the assessee's inability to correlate certain expenditures with income. The CIT(A) confirmed the addition due to lack of documentary proof. The Tribunal found the addition was based on surmises and conjectures, with no evidence of unrecorded income. The explanation provided by the assessee was plausible, and the amount in question was small compared to the total turnover. The addition was deleted. 5. Allowing Employer's and Employee's Contribution Towards PF and ESIC: The CIT(A) allowed contributions made after the due dates but within the grace period, following the decision of the Madras High Court in Salem Cooperative Spinning Mill Ltd. and the jurisdictional High Court. This ground of the Revenue was dismissed. 6. Deletion of Disallowance Made by the AO Out of Car and Jeep Hire Charges: The AO disallowed substantial increases in car and jeep hire charges. The CIT(A) allowed the claim, noting that all evidence and details were provided, and no defects were found. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's ground. 7. Disallowance of 10% of Total Wages and Salary: The AO disallowed 10% of wages and salary due to discrepancies in bank account payments. The CIT(A) found the increase in wages and salary was consistent with the turnover and that payments were made through bank accounts without discrepancies. The Tribunal agreed with the CIT(A) and dismissed this ground of the Revenue. 8. Deletion Under the Head "Uniform Deposit": The issue was covered in favor of the assessee by a previous Tribunal decision. The assessee provided detailed records of uniform issuance and refundable security deposits. The Tribunal upheld the CIT(A)'s findings, dismissing the Revenue's ground. Conclusion: The appeal of the assessee was partly allowed, and the appeal of the Revenue was dismissed. The Tribunal's order was pronounced on 27.1.2010.
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