2015 (8) TMI 160 - AT - Income Tax

Disallowance of employees contribution towards PF and ESIC and provision for employees contribution towards PF and ESIC paid beyond due date - CIT(A) deleted the addition u/s.36(1)(va) - Held that - There is no fallacy in the findings of learned CIT(A) because now this issue is squarely covered by the decisions of Alom Extrusions (2009 (11) TMI 27 - SUPREME COURT ) and P.M. Electronics, (2008 (11) TMI 3 - DELHI HIGH COURT) because the PF and ESIC contribution of employees was deposited before the due date of the filing of the return, no disallowance to be made - Decided against revenue. Disallowance u/s 40(a)(ia) - CIT(A) deleted the addition following an order of the Special Bench pronounced in the case of Merliyn Shipping (2012 (4) TMI 290 - ITAT VISAKHAPATNAM) - whether Section 40(a)(ia) of the Act can be invoked only to disallow expenditure of the nature which is shown as payable as on the date of the balance sheet and it cannot be invoked if amount is not outstanding even if payment has been paid without deduction of tax? - Held that - The issue now stood covered by few orders of the Hon ble High Court, wherein it is held that if the payment is made before the due date of filing of the return and the TDS deducted has duly been paid within that period then the same is allowable as an expenditure. In view of these orders, we hereby hold that although the decision of Merliyn Shipping (supra) was followed by learned CIT(A) is no more a good law but otherwise the issue now stood covered in favour of the assessee

Summary

Issues involved:
1. Disallowance of employees' contribution towards PF and ESIC and provision for employees' contribution towards PF and ESIC paid beyond due date.
2. Disallowance of expenditure under Section 40(a)(ia) of the Act for not depositing tax deducted at source within the prescribed time.

Detailed Analysis:

Issue 1: The first issue pertains to the disallowance of employees' contribution towards PF and ESIC and provision for employees' contribution towards PF and ESIC paid beyond the due date. The Assessing Officer (AO) disallowed a sum of Rs. 3,14,12,313/- as the assessee failed to deposit the employees' contributions towards PF and ESIC on the due date. The assessee argued that the payment was made as per the amended provisions of the Act but the AO held it disallowable under Section 2(24)(x) read with Section 36(1)(va) of the IT Act. The Commissioner of Income Tax (Appeals) (CIT(A)) granted relief based on a precedent for the assessment year 2008-09 where the contributions were deposited before the due date of filing the return. The ITAT, after considering the submissions, upheld the CIT(A)'s decision citing precedents like Alom Extrusions and P.M. Electronics, thereby dismissing the Revenue's appeal.

Issue 2: The second issue revolves around the disallowance of Rs. 19,39,017/- under Section 40(a)(ia) of the Act for not depositing tax deducted at source within the prescribed time. The AO disallowed the amount as the tax was not deposited within the time allowed under Section 200(1) of the IT Act, despite deduction at the time of payment. The CIT(A) relied on a Special Bench order in the case of Merliyn Shipping to delete the addition. The ITAT noted that subsequent High Court decisions held that if the payment and TDS deduction were made before the due date of filing the return, the expenditure was allowable. The ITAT dismissed the Revenue's appeal, stating that while the decision in Merliyn Shipping was not considered good law, the issue was covered in favor of the assessee by the cited case law.

In conclusion, the ITAT dismissed both the Revenue's appeal and the Cross Objection (CO) filed by the Assessee, upholding the decisions of the CIT(A) based on legal precedents and interpretations of relevant sections of the Income Tax Act.