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2015 (3) TMI 354 - AT - Income TaxPayment of employees contribution towards provident fund disallowed - Held that - The payment has been made within due date of filing of return of income i.e. 30/9/2008 and there is a judgment in favour of the assessee in the case of CIT vs. Ghatge Patil Transport (2014 (10) TMI 402 - BOMBAY HIGH COURT) wherein, it was held that when the payments of employees contribution to the PF, employees state insurance and pension fund within due date of filing of return of income to be allowed as deduction while computing income of the assessee and amendment to section 43B w.e.f. 1/4/2004 wherein two changes were made in section 43B, firstly, by deleting the 2nd proviso and further amendment in the first proviso and thereby, this amendment provided by Finance Act 2003, put on par the benefit of deduction of tax, duty, cess and fee on the one hand with contribution to various employees welfare fund on the other. - Decided in favour of assessee. Disallowance under section 41(1) - sundry creditors outstanding for more than 3 years - CIT(A) deleted addition - Held that - The AO treated these liabilities as cessation liabilities as since there was no response to the notice issued to these parties under section 133(6) of the Act. Just because the parties did not appear personally before the AO it cannot be deemed that liabilities ceased to exist. There is no positive material brought on record to suggest that this liability ceased to exist. More so, when the assessee itself offered as income in respect of sl.no.4 of the above item and payments were made in respect of sr.no.2,3, and 5 and in respect of s.no.1 the amount is still shown as outstanding in the books of account of the assessee it is pre-postrous to treat these credits as non-existing in the assessment year under consideration by AO. Accordingly, in our opinion the deletion in addition made by the AO under section 41(1) by CIT(A) is justified - Decided in favour of assessee. Undervaluation of closing stock - CIT(A) deleted the addition - assessee follows FIFO method of valuation of closing stock - AO taken value of purchases made during last week of the month - Held that - In this case the assessee consistently valuing closing stock based on the weighted average purchase of last three months for the last several years. Same method was followed for this assessment year. Contrary to this the AO has taken the purchase value only for the month of March 2008. He has disregarded/disturbed the method followed by the assessee consistently which is not proper with the method followed by the AO to value the closing stock giving the distorted picture of assessee s financial position which is to be avoided. Section 145A stipulates that valuation of inventory should be done in accordance with the method of accounting regularly employed by the assessee. As such, the AO is precluded from disturbing the method of valuation followed by the assessee consistently. In our opinion CIT(A) has taken an appropriate view in this case and has deleted the addition and the same is upheld. We find that the finding of ld. CIT(A) is in conformity with the judgment in the case of ACIT vs. Torrent Cables Ltd. (2012 (11) TMI 190 - SUPREME COURT ) wherein it was held that where the assessee is following net method of valuation of closing stock, and included excise duty at the time of removal of goods. - Decided in favour of assessee. Disallowance u/s. 40(a)(ia) - Section 194C is applicable to the sums paid by M/s. Vishal Shipping Agency P. Ltd. and no TDS had been deducted as held by AO - CIT(A) deleted the disallowance - Held that - Similar issue was considered in the case of CIT vs. Gujarat Narmada Valley Fertilizer Co. Ltd. (2014 (4) TMI 235 - GUJARAT HIGH COURT), wherein it was held that the expenses were incurred by the agent on behalf of the assessee for transportation and other charges, which has been spelt out in the bill itself including the commission to the agent. The relation between the assessee and the agent was principal. The obligation to deduct tax at source from the payment of transport charges and other charges was complied with by the agent, who had made payment on its behalf. In such circumstances no disallowance can be made u/s. 40(a)(ia) of the Act, on the amount reimbursed where obligation to deduct tax at source for payment was complied with by the agent. - Decided in favour of assessee. Disallowance made u/s. 40(a)(ia) - amount of ₹ 2,60,846/- was paid by Tri-lad to Kuehne Negel P. Ltd. who was a foreign freight agent - income accrues or arises in India to the NRI transport agent - CIT(A) deleted the disallowance - Held that - In this case the respondent is having no business connection in India and no income accrued to it in India. The respondent is also not having any permanent establishment in India. Thus the provisions of section 9(1)(i) is not applicable and the said amount is not taxable in India. Being so CIT(A) is justified in deleting the addition made by the AO - Decided in favour of assessee.
Issues Involved:
1. Verification and allowance of employees' contribution towards provident fund under section 36(1)(va). 2. Deletion of disallowance under section 41(1) regarding sundry creditors outstanding for more than three years. 3. Deletion of addition on account of undervaluation of closing stock. 4. Deletion of disallowance made under section 40(a)(ia) for payments made without TDS. 5. Deletion of disallowance under section 40(a)(ia) for reimbursement of freight expenses. Issue-wise Detailed Analysis: 1. Verification and Allowance of Employees' Contribution towards Provident Fund: The issue revolved around whether the CIT(A) erred in directing to verify and allow the correct payment of employees' contribution towards provident fund of Rs. 66,700 under section 36(1)(va). The appellant argued that the payment of Rs. 58,620 was made within the due date of filing the return of income. The judgment in CIT vs. Ghatge Patil Transport (368 ITR 749) (Bom.) was cited, which allowed deductions for payments made within the due date of filing the return. The tribunal upheld the CIT(A)'s decision, stating that the payment was made within the due date and thus should be allowed as a deduction. Consequently, the revenue's ground was rejected. 2. Deletion of Disallowance under Section 41(1) Regarding Sundry Creditors Outstanding for More Than Three Years: The AO had added Rs. 6,09,832 under section 41(1) for sundry creditors outstanding for more than three years, assuming cessation of liability. The assessee provided details showing that payments were made in subsequent years or were still outstanding in the books. The CIT(A) found no evidence of cessation of liability and deleted the addition. The tribunal agreed, noting that the AO had not established cessation of liability and upheld the deletion of the addition. 3. Deletion of Addition on Account of Undervaluation of Closing Stock: The AO added Rs. 30,00,570 for undervaluation of closing stock, arguing that the assessee should have used the FIFO method. The assessee had consistently used the weighted average cost method. The CIT(A) observed that the AO's method was inconsistent and did not reflect the true financial position. The tribunal upheld the CIT(A)'s decision, stating that the assessee's consistent method should not be disturbed, and the addition was deleted. 4. Deletion of Disallowance Made Under Section 40(a)(ia) for Payments Made Without TDS: The AO disallowed Rs. 48,94,765 paid to Vishal Shipping Agencies Pvt. Ltd. for non-deduction of TDS. The CIT(A) found that the amount was a reimbursement of expenses, not subject to TDS. The tribunal cited the judgment in CIT vs. Gujarat Narmada Valley Fertilizer Co. Ltd. (361 ITR 192), which supported the CIT(A)'s view that reimbursements were not subject to TDS. The tribunal upheld the deletion of the disallowance. 5. Deletion of Disallowance Under Section 40(a)(ia) for Reimbursement of Freight Expenses: The AO disallowed Rs. 2,60,846 for reimbursement of freight expenses to Tri-lad Flanc, Canada, arguing that TDS should have been deducted. The CIT(A) found that the payment was a reimbursement and not subject to TDS. The tribunal agreed, noting that the foreign agent had no business connection or permanent establishment in India, making the income non-taxable in India. The deletion of the disallowance was upheld. Conclusion: The tribunal dismissed the appeal, upholding the CIT(A)'s decisions on all grounds, including the verification and allowance of provident fund payments, deletion of disallowances for sundry creditors, undervaluation of closing stock, and reimbursements without TDS. The order was pronounced in the open court on 24/02/2015.
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