2016 (2) TMI 751 - AT - Income Tax

Disallowance in respect of contribution to the employees PF & ESI u/s.43B - Held that - As decided in M/s. Farida Shoes Pvt. Ltd. 2016 (2) TMI 376 - ITAT CHENNAI as the assessee had remitted the employees contribution beyond the due date for payment, but within the due date for filing the return of income, thus no disallowance required - Decided in favour of assessee Disallowance made u/s.40(a)(ia) - non deduction of tds - payments of Commission, contract payments, professional charges, shipping and forwarding expenses, freight on exports, clearing and forwarding charges - Held that - Similar issue came consideration before this Tribunal in the case of Shri N.Palanivelu Vs. ITO, Salem reported in 2015 (10) TMI 1415 - ITAT CHENNAI wherein it was held that the disallowance under section 40(a)(ia) of the Act was not applicable, when there was no outstanding balance at the end of the close of the previous year. The assessee failed to bring details of outstanding expenses or schedule of sundry creditors showing whether the amount was outstanding at the end of the close of the previous year in the name of the party or outstanding expenses. The Assessing Officer was to verify the matter and examine afresh. If no amount was outstanding at the close of the previous year in respect of the expenses either as outstanding expenses or as sundry creditors, the amount could not be disallowed. Hence the amount outstanding as payable at the end of the close of the Financial year i.e. 31st March only be disallowed by applying the provisions of Sec.40(a)(ia) of the Act. Accordingly we direct the ld. Assessing Officer to disallow the only amount which is outstanding at the end of the close of the previous year relevant to the assessment year and accordingly for limited purpose to verify the outstanding amount towards impugned amount at the end of the close of the previous year relevant to the assessment year, we remit the issue back to the file of the ld. Assessing Officer.

Summary

Issues:
1. Deletion of disallowance of contribution to employees PF & ESI u/s.43B of the Act.
2. Deletion of disallowance made u/s.40(a)(ia) of the Act regarding various payments.

Issue 1: Deletion of disallowance of contribution to employees PF & ESI u/s.43B of the Act:

The appeal by the Revenue challenged the order of the Commissioner of Income Tax(A)-IX, Chennai concerning the assessment year 2006-07. The primary contention was the deletion of disallowance of Rs. 7,78,674/- for the contribution to employees PF & ESI under section 43B of the Income Tax Act. The Tribunal referred to a similar case involving M/s.Farida Shoes Pvt. Ltd., where the decision highlighted the retrospective effectiveness of amendments to Section 43B. Citing precedents, including the Supreme Court's ruling in CIT v. Alom Extrusions Ltd., and the Delhi High Court's decision in CIT v. Amil Ltd., it was established that if the employee's contribution towards Provident Fund and ESI was deposited after the due date but before the filing deadline of the income tax return, no disallowance could be made. As the assessee in this case remitted the contributions within the return filing due date, the Tribunal upheld the decision of the Commissioner and dismissed the appeal by the Revenue.

Issue 2: Deletion of disallowance made u/s.40(a)(ia) of the Act regarding various payments:

The second ground for consideration was the deletion of disallowance under section 40(a)(ia) of the Act related to payments such as commission, contract payments, professional charges, and other expenses. The Tribunal referred to a previous case, Shri N.Palanivelu Vs. ITO, Salem, where it was held that disallowance under section 40(a)(ia) did not apply if there was no outstanding balance at the end of the previous year. The assessee failed to provide details of outstanding expenses or creditors at the end of the previous year. The Assessing Officer was directed to verify the outstanding amounts and examine the matter afresh. It was clarified that only the amount outstanding at the close of the previous year could be disallowed under section 40(a)(ia). Therefore, the Tribunal partly allowed the appeal by the Revenue for statistical purposes, remitting the issue back to the Assessing Officer for further examination.

In conclusion, the judgment by the Appellate Tribunal ITAT Chennai addressed the issues of disallowance of contributions to employees PF & ESI under section 43B and disallowance under section 40(a)(ia) for various payments. The decisions were based on legal precedents and interpretations of relevant sections of the Income Tax Act, ensuring a thorough analysis and application of the law to the specific circumstances of the cases at hand.