2019 (2) TMI 1642 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - HELD THAT - Ends of justice would meet if we restrict the disallowance equivalent to the tax-free income shown by the assessee Addition u/s 36(1)(va) r. w. s. 2(24)(x) - Failure to make payment of employees contribution to PF account within the due date provided - CIT-A confirmed the disallowance - HELD THAT - CIT(A) confirmed this disallowance following the judgement of Hon ble High Court of Gujarat in the case of CIT vs. GSRTC reported 2014 (1) TMI 502 - GUJARAT HIGH COURT . Since the ld. first appellate authority has based his order on the decision of Hon ble Gujarat High Court and Hon ble High Court has held that if an assessee failed to pay employees contribution to PF and ESI account within the due date provided under those Acts, then assessee will not be entitled for deduction of such expenditure. - Decided against assessee.

Summary

Issues:
1. Proper opportunity of hearing not given by CIT(A)
2. Addition under Section 14A r. w. r. 8D of the Income Tax Rules, 1962
3. Disallowance of employees' contribution to PF account under section 36(1)(va) r. w. s. 2(24)(x) of the Act

Analysis:
1. The first issue raised by the assessee was regarding the lack of proper opportunity of hearing provided by the CIT(A). The appellant contended that the appeal was decided ex-parte without a fair chance to present arguments. However, during the hearing, the appellant's counsel did not advance any argument on this issue, leading to its rejection by the tribunal.

2. The second issue pertained to the addition of ?8,05,856 under Section 14A r. w. r. 8D of the Income Tax Rules, 1962. The Assessing Officer had disallowed this amount as per Rule 8D, based on the analysis of the expenditure required to earn tax-free dividend income declared by the assessee. The tribunal, after considering relevant case laws, observed that the disallowance should not exceed the amount of exempt income. Therefore, the tribunal partially allowed this ground, restricting the disallowance to the tax-free income of ?22,697 declared by the assessee.

3. The final issue revolved around the disallowance of ?10,80,088 related to employees' contribution to the PF account under section 36(1)(va) r. w. s. 2(24)(x) of the Act. The Assessing Officer disallowed this claim as the assessee failed to make the payment within the due date specified under the PF Act. The CIT(A) upheld this disallowance citing a judgment of the Hon'ble High Court of Gujarat, which stated that non-payment of employees' contribution within the stipulated time would render the assessee ineligible for deduction. The tribunal, finding no reason to interfere with this decision, rejected the appeal on this ground.

In conclusion, the tribunal partly allowed the appeal of the assessee, modifying the additions made by the Assessing Officer and the CIT(A) based on the issues raised and the legal interpretations provided during the proceedings.