2015 (1) TMI 697 - HC - Income Tax

Reopening of assessment - contributions made under the Employees State Insurance Act and towards Labour Welfare Fund disallowed as payments were effected after the due date - Held that - Ext.P1 and P3 orders of disallowance need to be modified to allow the deduction claimed by the petitioner in respect of the employers contribution under the Employees State Insurance Act. In the orders impugned in the writ petition while considering the assessment of the petitioner the respondents had erroneously disallowed these payments for the purposes of deduction under the Income Tax Act. The eligibility of the petitioner for deduction of the employers contribution is now settled through the retrospective amendment made to Section 43B by the Finance Act 2003 as clarified by the Supreme Court in the case of Commissioner of Income Tax v. Solar Export 2012 (11) TMI 897 - SUPREME COURT - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of payments made under Employees State Insurance Act and Labour Welfare Fund for assessment year 2000-2001.
2. Challenge to orders Ext.P1 and P3 disallowing the amount of Rs. 34,180 representing contributions made under the Acts.

Analysis:
1. The petitioner, engaged in processing raw cashew nuts, was assessed for the assessment year 2000-2001 under the Income Tax Act. The 1st respondent reopened the assessment proceedings under Section 147 and disallowed payments of Rs. 34,180 made under the Employees State Insurance Act and Labour Welfare Fund for being made after the due date. The petitioner challenged these disallowances via a revision petition under Section 264 of the Income Tax Act.

2. In response, the respondents admitted that the deduction for the employer's contribution under the Employees State Insurance Scheme should be allowed. However, they contended that the deduction for the employee's contribution cannot be accepted as the payments were made after the stipulated due date under the Act. The court heard arguments from both sides.

3. After considering the submissions and relevant legal provisions, the court found that Ext.P1 and P3 orders needed modification to allow the deduction claimed by the petitioner for the employer's contribution under the Employees State Insurance Act. The court referred to a retrospective amendment to Section 43B by the Finance Act, 2003, and a Supreme Court decision in Commissioner of Income Tax v. Solar Export [(2012) 210 Taxman 520] to support its decision.

4. Consequently, the court set aside Ext.P1 and P3 orders to the extent they disallowed Rs. 24,447 out of the total Rs. 34,180 claimed by the petitioner. The 1st respondent was directed to pass consequential assessment orders within two months, considering the findings of the judgment. The writ petition was allowed in favor of the petitioner to the specified extent.