2015 (7) TMI 84 - AT - Income Tax

Disallowance employees (staff) contribution to Provident Fund which were not paid on due dates - CIT(A) deleted the addition - Held that - The contribution of provident fund and ESIC not being paid before the due dates and in the absence of any contrary binding decision and respectfully following the decision of Hon ble Gujarat High Court in the case of CIT vs. Gujarat State Road Transport Corporation (2014 (1) TMI 502 - GUJARAT HIGH COURT) we set aside the order of ld. CIT(A) on this issue and uphold the decision of A.O. - Decided against assessee. Addition in respect of long outstanding debts - CIT(A) deleted the addition - Held that - CIT(A) while deleting the addition has noted that the amounts outstanding in the Assessee s Balance Sheet were considered as liability by the Assessee and in the absence of any material suggesting that the Assessee had no intention of honoring the debts, no profit could be said to accrue. We further find that the issue in the present case is also covered in Assessee s favour by the decision of Hon ble Gujarat High Court in the case of CIT vs. Bhogilal Ramjibhai Atara (2014 (2) TMI 794 - GUJARAT HIGH COURT). Before us, Revenue has not brought any material on record to controvert the findings of ld. CIT(A) nor has brought any contrary binding decision in its support. In view of the aforesaid facts, we find no reason to interfere with the order of ld. CIT(A) - - Decided against revenue. Addition on account of welfare expenses - CIT(A) deleted the addition - Held that - CIT(A), following the order in Assessee s own case for A.Y. 2000-01 has deleted the addition by a cryptic order. Before us none of the parties have placed the order of ld. CIT(A) for A.Y. 2000-01 that was relied by ld. CIT(A) while deleting the addition nor could throw light as to whether the order of ld. CIT(A) for A.Y. 2000-01 has attained finality. In view of the aforesaid facts, we restore the issue back to the file of ld. CIT(A). In case the order of ld. CIT(A) for A.Y. 2000-01 that was relied by ld. CIT(A) for deciding the present ground has been accepted by Revenue and attained finality, then no interference to the order of ld. CIT(A) for the year under consideration is called for. In case the order of ld.CIT(A) for A.Y. 2000-01 has been decided at a higher forum, ld. CIT(A) is directed to follow the same. - Decided in favour of revenue for statistical purposes. Addition of miscellaneous expenses - CIT(A) deleted the addition - Held that - A.O has made an ad hoc disallowance of 10% of miscellaneous expenses. While disallowing the expenses, he has not pointed out any expenditure which is not for the purpose of business. At the same time, we find that ld. CIT(A) following the decision for A.Y. 2000-01 has also noted that no such disallowance were made in earlier years and ad hoc addition, in the absence of adverse report by the auditor, cannot be sustained. Before us, Revenue has not brought any material on record to any controvert the findings of ld. CIT(A) nor has pointed out any contrary binding decision. In view of the aforesaid facts, we find no reason to interfere with the order of ld. CIT(A) - Decided against revenue. Disallowance of bad debts - CIT(A) deleted the addition - Held that - The issue in the present case is with respect to writing off of bad debts. We find that Hon ble Supreme Court in the case of TRF Ltd. vs. CIT (2010 (2) TMI 211 - SUPREME COURT) has held as under - After the amendment of section 36(i)(vii) of the Income-tax Act, 1961, with effect from April 1 1989, in order to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable, it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. Before us, Revenue has not brought any contrary binding decision in its support nor has controverted the findings of ld. CIT(A).- Decided against revenue. Addition on account of repairs to building - Held that - We find that ld. CIT(A) while upholding the addition has by a very cryptic order upheld the order of A.O. We further find that there is no finding of ld. CIT(A) with respect to the nature of expenses incurred by the Assessee. In such circumstances, we are of the view that the issue needs to be reconsidered and therefore we remit the issue back to the file of ld. CIT(A) to decide the issue afresh after giving a clear finding on the expenses. Needless to state that ld. CIT(A) shall grant reasonable opportunity of hearing to both the parties.- Decided in favour of assessee for statistical purposes. Deletion of charges paid to GEB - Held that - CIT(A) while upholding the disallowance made by A.O has noted that the deposit with GEB cannot be compared with deposit under OYT scheme which is under different terms and conditions. We find that ld. CIT(A) has not pointed out as to how the scheme of deposit with GEB is different from OYT scheme which was relied upon by Assessee. In such circumstance, we are of the view that the issue needs to be re-examined in the light of the submissions made by ld. A.R, the case law relied upon by ld. A.R. and on the basis of facts and circumstances of the case. Ld. CIT(A) shall give a categorical finding with respect to the nature of expense. The Assessee is also directed to co-operate by furnishing all the required details called for by ld. CIT(A). - Decided in favour of Assessee for statistical purposes. Additions of the payments made towards Credit Cards expenses incurred by the Director - Held that - The expenses incurred by the Directors of the Company through Credit Cards were considered to be personal in nature by the A.O. On the other hand, it is Assessee s submission that the expenses have been incurred on behalf of the Company and no personal element is involved. The Assessee has also placed reliance on the decision of Sayaji Iron & Engineering Company vs. CIT (2001 (7) TMI 70 - GUJARAT High Court). Considering the fact that ld. A.R. has also placed reliance on the decision of Sayaji Iron (supra) and in the absence of any finding by ld. CIT(A) on the nature of expenses and in the light of the aforesaid decision of Gujarat High Court which has been relied upon by ld A.R., we are of the view that the issue needs to be re-examined in the light of the aforesaid decision and in accordance with law. We therefore set aside the issue back to the file of ld. CIT(A) to decide the issue afresh in accordance with law. Needless to state that CIT(A) shall grant adequate opportunity of hearing to the Assessee. - Decided in favour of Assessee for statistical purposes. Addition on account of interest payments u/s. 43B(e) - Held that - On perusing Section 43B(e), it is seen that interest on any loan or advance from a schedule bank, in accordance with terms and conditions of the agreement governing such loans or advance, would be allowed as deduction in the previous year in which sum is actually paid by the Assessee. We further find that Explanation 3D has been inserted by Finance Act, 2006 with retrospective effect from 01.04.1997 and the Explanation 3D states that for the removal of doubt it is declared that the deduction, being interest payable, shall be allowed if such interest has been actually paid and any interest referred to in clause (e) which has been converted into a loan or advance shall not be deemed to have been actually paid. In the present case, it is an undisputed fact that a portion of interest has been converted into loan pursuant to the CDR package approved by the Bankers of the Assessee. Considering the express provision of the Act read along with Explanation 3D and in view of the aforesaid facts, we are of the view that the A.O was right in disallowing the claim of Assessee. - Decided against assessee.

Summary

Issues Involved:
1. Deletion of additions on account of Employees' Contribution to Provident Fund and ESIC.
2. Deletion of addition in respect of long-standing debts.
3. Deletion of addition on account of welfare expenses.
4. Deletion of addition of miscellaneous expenses.
5. Addition of Provident Fund Employees Contribution paid after the due date.
6. Classification of repairs to the building as capital expenditure.
7. Classification of upgradation charges to Gujarat Electricity Board as capital expenditure.
8. Disallowance of credit card expenses incurred by directors.
9. Disallowance of interest payments under Section 43B(e).
10. Disallowance of bad debts.

Detailed Analysis:

1. Deletion of Additions on Account of Employees' Contribution to Provident Fund and ESIC:
The Tribunal found that the employees' contribution to Provident Fund and ESIC was deposited late by the Assessee. The Hon'ble Gujarat High Court in the case of CIT vs. Gujarat State Road Transport Corporation held that the deduction of employees' contribution is only allowable if deposited on or before the due date under the relevant Acts. Consequently, the Tribunal upheld the decision of the A.O. and reversed the CIT(A)'s relief to the Assessee.

2. Deletion of Addition in Respect of Long-Standing Debts:
The A.O. added long-standing debts of Rs. 5,39,217/- considering them time-barred. The CIT(A) deleted the addition, citing that mere time-barred debts do not lead to remission or cessation of liability. The Tribunal upheld the CIT(A)'s decision, referencing the Hon'ble Gujarat High Court's rulings in similar cases.

3. Deletion of Addition on Account of Welfare Expenses:
The A.O. disallowed 10% of welfare expenses, suspecting non-business use. The CIT(A) deleted the addition referencing a prior year's order. The Tribunal restored the issue to CIT(A) for verification if the prior year's order had attained finality, allowing the ground for statistical purposes.

4. Deletion of Addition of Miscellaneous Expenses:
The A.O. made an ad hoc disallowance of 10% of miscellaneous expenses. The CIT(A) deleted the disallowance, noting no adverse auditor report. The Tribunal upheld the CIT(A)'s decision, finding no material evidence from the Revenue to support the A.O.'s disallowance.

5. Addition of Provident Fund Employees Contribution Paid After the Due Date:
This ground was interconnected with the Revenue's appeal and was dismissed by the Tribunal for similar reasons stated in the Revenue's appeal.

6. Classification of Repairs to Building as Capital Expenditure:
The A.O. classified repairs amounting to Rs. 2,85,787/- as capital expenditure. The CIT(A) upheld this view. The Tribunal remitted the issue back to the CIT(A) for a detailed examination of the nature of expenses.

7. Classification of Upgradation Charges to Gujarat Electricity Board as Capital Expenditure:
The A.O. considered the charges paid to GEB as capital expenditure. The CIT(A) upheld the disallowance. The Tribunal remitted the issue back to CIT(A) for re-examination in light of Assessee's submissions and relevant case law.

8. Disallowance of Credit Card Expenses Incurred by Directors:
The A.O. disallowed expenses incurred by directors through credit cards, considering them personal. The CIT(A) partially upheld the A.O.'s decision. The Tribunal remitted the issue back to CIT(A) for re-examination in light of the decision in Sayaji Iron & Engineering Company vs. CIT.

9. Disallowance of Interest Payments Under Section 43B(e):
The A.O. disallowed unpaid interest converted into a loan under a CDR package. The CIT(A) upheld the disallowance. The Tribunal agreed with the A.O., citing Section 43B(e) and Explanation 3D, which mandates actual payment for deduction eligibility.

10. Disallowance of Bad Debts:
The A.O. denied the claim of bad debts due to lack of substantiation. The CIT(A) allowed the claim following the Supreme Court's decision in TRF Ltd. vs. CIT. The Tribunal upheld the CIT(A)'s decision, finding no contrary evidence from the Revenue.

Conclusion:
The appeals were partly allowed for statistical purposes, with several issues remitted back to CIT(A) for further verification and detailed examination. The Tribunal upheld the disallowance of delayed Provident Fund contributions and interest payments under Section 43B(e), while remanding other issues for re-evaluation.