2013 (1) TMI 448 - HC - Income Tax

Addition on account of late payment of PF Held that - Following the decision in case of Alom Extrusions Limited (2009 (11) TMI 27 - SUPREME COURT) wherein it has been held that Second Proviso to Section 43B omitted by F.A, 2003 with effect from 1.4.2004 was clarificatory in nature and was to operate retrospectively. Once that is so, in the present case, the respondent-assessee was entitled to deduction in respect of employer and employee s contribution to ESI and Provident Fund as the same had been deposited prior to the filing of the return u/s 139(1) In favour of assessee Disallowed claim for depreciation u/s 40(a)(i) - Payments made for technical know-how which had been capitalized, no TDS has been deducted thereon - Revenue disallow depreciation of such know-how Held that - Revenue was unable to substantiate that in the absence of any requirement of law for making deduction of tax out of the expenditure on technical know-how which was capitalized and no amount was claimed as revenue expenditure, the deduction could be disallowed u/s 40(a)(i). There was also no reason to disallow depreciation on such capitalized amount as the aforesaid provision does not deal with deduction of depreciation - In favour of assessee

Summary

Issues:
1. Late payment of PF under Section 2(24)(x) and Section 36(1)(va) of the Income Tax Act, 1961.
2. Applicability of Section 40(a)(i) of Income Tax Act, 1961 to payments of Technical know-how.
3. Interpretation of Section 40 of Income Tax Act, 1961 in relation to deductions under sections 30 to 38 and Section 35AB.

Analysis:
1. The appeal by the revenue challenged the order of the Income Tax Appellate Tribunal (ITAT) regarding the addition of Rs. 5,24,929 on account of late payment of Provident Fund (PF) made by the Assessing Officer. The High Court noted that the issue was settled by previous judgments, ruling in favor of the assessee, allowing deduction for employer and employee's contribution to ESI and PF if deposited before filing the return under Section 139(1) of the Act. The Court upheld the Tribunal's decision against the revenue.

2. The second issue revolved around the applicability of Section 40(a)(i) of the Act to payments made for technical know-how. The CIT(A) had allowed the deduction for technical know-how expenditure, stating that Section 40(a)(i) did not apply as the amount was capitalized and not claimed as revenue expenditure. The High Court concurred with the Tribunal's decision, emphasizing that since there was no legal requirement for tax deduction on capitalized technical know-how expenditure, Section 40(a)(i) could not disallow the deduction for depreciation. The Court ruled in favor of the assessee, dismissing the revenue's appeal.

3. Lastly, the issue of interpretation of Section 40 of the Income Tax Act in relation to deductions under sections 30 to 38 and Section 35AB was considered. The Tribunal had upheld the CIT(A)'s decision regarding non-deduction of amounts allowable under certain sections, including Section 35AB. The High Court found no error in the Tribunal's decision and rejected the revenue's appeal, ruling in favor of the assessee on this issue as well.

Therefore, the High Court dismissed the revenue's appeal on all grounds, upholding the Tribunal's decisions and ruling in favor of the assessee on each issue raised in the case.