2017 (8) TMI 1377 - AT - Income Tax

Addition u/s 40A - cash repayment of loan - proof of urgency for cash payment - payment exceeding permissible limits - Held that - There is no violation of provisions of section 40A(3) of the Act. As it is abundantly clear from the facts that the assessee has paid 6, 03, 150/- to Shivam Enterprises on the instruction of its creditor M/s Charco Electronics Pvt. Ltd through account payee cheque. There is no cash payment at all. Therefore we are of the view that addition made by assessing officer and confirmed by ld CIT(A) needs to be deleted. Accordingly we delete the addition - Decided in favour of assessee. Transfer the amount for sundry creditor to loan creditor with the motive to hoodwink the revenue - Held that - Assessee s creditor M/s Rollataniers Niryat Pvt. Ltd. has been renamed in the books of assessee as a loan creditor and just to rename the liability does not mean that the liability has been paid by the assessee. The same liability remained in the books of accounts of the assessee and the payment has not been made by the assessee. The AO also did not dispute the fact that the liability of 70, 00, 000/- did not exist in the books of the assessee. Just because that the trade creditor has been renamed by the assessee as unsecured loan does not mean that the assessee has paid any liability or has done any illegal activity to conceal the particulars of income. Payment of ESI and payment of EPF after due date and in violation of provisions of section 36(1) (va) - Held that - In the instant case the assessee has paid ESI liability of 2813/- and provident fund liability of 63299/- within the due date of filing the income tax return. It is a sufficient compliance therefore respectfully following the decision of jurisdictional Kolkata High Court in case of CIT Vs. Vijay Shree Ltd. (2011 (9) TMI 30 - CALCUTTA HIGH COURT) we are of the view that there is no any infirmity in the order passed by ld. CIT(A). Hence we confirm the order passed by ld. CIT(A).

Summary

Issues Involved:
1. Addition of ?6,03,150/- under Section 40A(3) of the Income Tax Act.
2. Transfer of ?70,00,000/- from sundry creditor to loan creditor under Section 40A(3).
3. Disallowance of employees' contribution to ESI and EPF for delayed payment under Section 36(1)(va).

Issue-wise Detailed Analysis:

1. Addition of ?6,03,150/- under Section 40A(3) of the Income Tax Act:
The primary grievance of the assessee was the addition of ?6,03,150/- under Section 40A(3) by the Assessing Officer (AO). The AO found that the assessee credited ?6,03,150/- to M/s Charco Electronics Pvt. Ltd. through a book entry, not by account payee cheque or draft. The assessee argued that the payment was made to M/s Shivam Enterprises on instructions from M/s Charco Electronics Pvt. Ltd., and thus Section 40A(3) was not applicable. The CIT(A) confirmed the AO's addition, but the Tribunal found that the payment was made through an account payee cheque to M/s Shivam Enterprises, and there was no cash payment. Therefore, the Tribunal deleted the addition, allowing the assessee's appeal.

2. Transfer of ?70,00,000/- from Sundry Creditor to Loan Creditor under Section 40A(3):
The Revenue appealed against the CIT(A)'s deletion of the disallowance of ?70,00,000/- under Section 40A(3A). The AO noted that the assessee transferred ?70,00,000/- from a sundry creditor to a loan creditor through a book entry, which the AO deemed as payment attracting Section 40A(3). The CIT(A) observed that the creditor remained the same, only the nature of liability changed, and no actual payment was made. The Tribunal upheld the CIT(A)'s decision, stating that renaming the liability did not constitute payment, and thus, Section 40A(3) was not applicable. The appeal by the Revenue was dismissed.

3. Disallowance of Employees' Contribution to ESI and EPF for Delayed Payment under Section 36(1)(va):
The AO disallowed ?2,813/- for ESI and ?63,299/- for EPF due to delayed payment, citing Section 36(1)(va) read with Section 2(24)(x). The CIT(A) allowed the assessee's appeal, referencing the Kolkata High Court's decision in CIT Vs. M/s Vijay Shree Limited and the Supreme Court's judgment in CIT Vs. Alom Extrusion Ltd., which held that contributions paid before the due date of filing the return should not be disallowed. The Tribunal confirmed the CIT(A)'s order, dismissing the Revenue's appeal.

Conclusion:
The assessee's appeal regarding the addition of ?6,03,150/- was allowed, and the Revenue's appeals concerning the transfer of ?70,00,000/- and the disallowance of employees' contributions to ESI and EPF were dismissed. The Tribunal's decisions were based on the interpretation of payment under Section 40A(3) and compliance with due dates for contributions under Section 36(1)(va).