2011 (7) TMI 717 - HC - Income Tax

Disallowance - Belated payment of ESI and EPF - Apex Court in the case of CIT v. Alom Extrusions Ltd. 2009 -TMI - 35073 - SUPREME COURT where it has been held that if the employers contribute the ESI and EPF even when made after the due date under the aforesaid Acts but before filing of the return section 43B is attracted and the said contribution is liable to be deducted as expenditure - Decided in favor of the assessee

Summary

Issues:
1. Allowability of deduction for belated payment of employees' contribution to ESI and EPF under Section 43B of the Act.
2. Inclusion of excise duty and sales tax component in total turnover for computation of deduction under section 80HHC of the Act.
3. Eligibility of interest received on overdue bills for deduction under Section 80-IA of the Act.

Analysis:

1. The first issue revolves around the deduction for belated payment of employees' contribution to ESI and EPF. The court referred to the judgment in CIT v. Alom Extrusions Ltd., where it was established that if the employers contribute to ESI and EPF after the due date but before filing the return, Section 43B is applicable, allowing the deduction as expenditure. Consequently, the court held in favor of the assessee, emphasizing the importance of timely contributions under the relevant Acts.

2. The second issue pertains to the inclusion of excise duty and sales tax in the total turnover for deduction under Section 80HHC. Citing the judgment in CIT v. Lakshmi Machine Works, the court clarified that excise duty and sales tax, being indirect taxes, do not constitute turnover and must be excluded for Section 80HHC computation. As a result, the court ruled in favor of the assessee, reinforcing the exclusion of these components from the total turnover.

3. Lastly, the issue of interest received on overdue bills for deduction under Section 80-IA was addressed. The court rejected the revenue's argument, citing the judgment in Liberty India v. CIT, which was deemed inapplicable. The court reasoned that interest on overdue payments is considered income earned from the business, especially when received with the principal amount after a delay. This income falls within the purview of Section 80-IA, allowing the assessee to claim a deduction. Consequently, the court favored the assessee, highlighting the nature of interest on overdue payments as business income eligible for deduction under Section 80-IA.

In conclusion, the court resolved all substantial questions in favor of the assessee and dismissed the appeal, emphasizing the importance of adhering to statutory provisions and established legal principles in determining deductions under the relevant sections of the Act.