2014 (1) TMI 951 - AT - Income Tax

Disallowance made u/s 36(1)(iv) of the Act PF contribution Held that - The decision in INCOME TAX OFFICER Versus LKP SECURITIES LTD 2013 (11) TMI 359 - ITAT MUMBAI followed - The payment/s made within the grace period as allowed by virtue of any circular, order, etc. would be eligible for deduction - The language of the provision accords primacy to not only the relevant Act, but also to any circular, order, notification, etc. issued thereunder - Two, a due dale - the benefit of the grace period could not be disallowed, and which would rather bring the two enactments in harmony - The AO is directed to allow deduction u/s. 36(1)(iv) where any payment is made within the grace period. Disallowance made on account of marketing and field expenses Held that - All these expenses were incurred in cash - No further details of these expenses were made available unlike traveling expenses for directors and field staff where full details were maintained by assessee - CIT(A) was therefore of the view that when entire tour expenses of directors and field staff were booked under the head of traveling expenses, there was no justification for incurring these expenses - assessee could not give any cogent reason for claiming these expenses the order of the CIT(A) upheld Decided against Assessee. Disallowance of interest on loans and advances made for non-business purpose Held that - The assessee contended that the he was having interest free funds at its disposal, no disallowance of interest should have been made by AO - Before Ld. CIT(A) also this argument was advanced on behalf of the assessee, the same was however not accepted by him by observing that assessee has failed to substantiate this claim with any facts and figures the contention of the assessee deserves due consideration and for this purpose, the matter is restored back to the file of AO for fresh adjudication Decided partly in favour of Assessee.

Summary

Issues:
1. Disallowance of P.F. Contribution under section 36(1)(iv)
2. Disallowance of Marketing and Field Expenses
3. Disallowance of Interest on Loans and Advances for Non-Business Purpose

Issue 1: Disallowance of P.F. Contribution under section 36(1)(iv)
The assessing officer disallowed the delayed payment of employee's contribution to the provident fund under section 36(1)(iv) of the Act. The assessee argued that post the Finance Act 2003, impugned payments were allowable if paid before filing the return of income. The Ld. CIT(A) clarified that the amendments by Finance Act 2003 were related to the employer's contribution, not the employee's. The ITAT Ahmedabad held that payments within the grace period of five days are considered within the due date under section 36(1)(va) and are eligible for deduction. The Tribunal referred to the decision of ITAT Mumbai Bench, emphasizing that deduction is allowed if payment is made by the due date. Thus, the disallowance of P.F. Contribution was upheld.

Issue 2: Disallowance of Marketing and Field Expenses
The assessing officer disallowed marketing and field expenses due to lack of justification for incurring expenses when sales had decreased. The Ld. CIT(A) upheld this disallowance as the expenses lacked proper details and justification, contrasting with the meticulous record-keeping for other expenses. The ITAT found no cogent reason provided by the assessee to challenge the disallowance, leading to the affirmation of the Ld. CIT(A)'s decision.

Issue 3: Disallowance of Interest on Loans and Advances for Non-Business Purpose
The assessing officer disallowed interest on loans and advances for non-business purposes after examining the nature of the advances and loans given by the assessee. The Ld. CIT(A) partially allowed the claim after considering the submissions made by the assessee regarding the nature of the transactions and the interest charged. The ITAT, upon hearing both parties, directed the matter back to the AO for fresh adjudication, instructing the assessee to substantiate the claim of having interest-free funds. The ITAT allowed this ground for statistical purposes, indicating a partial success for the assessee.

In conclusion, the ITAT upheld the disallowance of P.F. Contribution and Marketing and Field Expenses while partially allowing the claim related to Interest on Loans and Advances for Non-Business Purpose, sending it back for further assessment. The judgment provided detailed analysis and legal reasoning for each issue, ensuring a fair and comprehensive review of the case.