2017 (5) TMI 1704 - AT - Income Tax

Disallowance of expenditure pertaining to payment of ESI and EPF - HELD THAT - Amount allowable and cannot be treated as income of Assessee. The case of Spectrum Consultants India (P.) Ltd., Vs CIT 2013 (7) TMI 414 - KARNATAKA HIGH COURT held that amounts which were paid before the due date of filing of return are required to be allowed. The Hon ble Karnataka High Court followed its earlier decision in the case of CIT vs Sabari Enterpirses 2007 (7) TMI 169 - KARNATAKA HIGH COURT where the Divisional Bench of the Karnataka High Court after extracting Section 2(24)(x), Sec. 36(1)(viia) and Sec. 43B(b) of the IT Act, held that the contributions rendered by Assessee to EPF and ESI are allowable deductions, even though made beyond the stipulated period as contemplated under the mandatory provisions of Sec. 36(1)(viia) r.w.s 2(24)(x) of the IT Act and Sec 43B Case of CIT vs ALOM Extrusions Ltd. 2009 (11) TMI 27 - SUPREME COURT has dismissed the Revenue appeals and accordingly those orders have become final. Respectfully following the same, since the amounts were paid much before the due date for filing return of income, A.O s action in treating the same as income of Assessee cannot be supported. Accordingly, said addition is deleted. - Decided in favour of assessee.

Summary

Issues:
Appeal against disallowance of expenditure on ESI and EPF.

Analysis:
The appeal was filed by the Assessee challenging the disallowance of expenditure related to ESI and EPF payments. The Assessee, engaged in business under the name Jyothi Computer Services, had declared a total income of ?60,10,040. The Assessing Officer disallowed a portion of the motor car expenditure and also brought to tax an amount of ?2,35,92,596 for belated payments towards ESI and EPF. The matter was taken to the CIT(A) who dismissed the appeal, leading the Assessee to raise grounds on the two issues.

With regard to the disallowance of ?2,35,92,596, the Assessee contended that the amounts were remitted before the due date for filing the return of income for the relevant year. Various case laws were cited to support the Assessee's position, including judgments from different High Courts. The Counsel also referred to a Coordinate Bench decision and submitted that the contributions under EPF and ESI Acts were made after the due dates prescribed by the statutes but before the due date for filing the return of income under the IT Act.

During the proceedings, the Departmental Representative acknowledged that all the amounts were paid well before the due date for filing the return. However, it was argued that amounts not paid within the due dates of the relevant Acts would be treated as income as per the provisions of the Act. After considering the arguments from both sides and examining the facts, the Tribunal held that the amount in question was allowable and should not be treated as the Assessee's income. The Tribunal relied on the decision of the Karnataka High Court in the case of Spectrum Consultants India (P.) Ltd., which emphasized that payments made before the due date of filing the return must be allowed as deductions. The Tribunal also referred to the Supreme Court's decision in CIT vs ALOM Extrusions Ltd., where the appeals by the Revenue were dismissed, reinforcing the principle that payments made before the due date should not be treated as income. Consequently, the addition made by the Assessing Officer was deleted, and the appeal by the Assessee was allowed.

In conclusion, the Tribunal ruled in favor of the Assessee, emphasizing that the payments towards ESI and EPF, made before the due date for filing the return of income, should be allowed as deductions and not treated as income. The judgment highlighted the importance of timely payments and cited relevant case laws to support its decision.