2021 (1) TMI 1224 - AT - Income Tax

Late deposit of employees shares of Provident Fund (PF) - Contributions deposited after the due date but before the due date of filing of return of income - HELD THAT - As relying on RAJA RAM VERSUS THE ITO, WARD 3 AND SANCHI MANAGEMENT SERVICES PRIVATE LIMITED 2021 (11) TMI 370 - ITAT CHANDIGARH impugned additions made by the Assessing Officer and sustained by the Ld. CIT(A) on account of deposits of employees contribution of ESI PF prior to filing of the return of income u/s 139(1) of the Act, in both the years under consideration prior to the amendment made by the Finance Act, 2021 w.e.f. 1.4.2021 vide Explanation 5, are deleted. - Decided in favour of assessee. Educational Cess being deductible expenditure - HELD THAT - This issue is covered in assessee's favour by the judgment of the Hon'ble Bombay High Court in the case of Sesa Goa Ltd. Vs. JCIT, 2020 (3) TMI 347 - BOMBAY HIGH COURT has held that since the term Cess is not included in clause (ii) of section 40(a)of the I.T. Act, 1961, there is no prohibition in claiming the same as a deduction in computing income chargeable under head of profits and gains of business or profession. Education cess is not a disallowable expenditure under section 40(a)(ii) - we are of the considered opinion that education cess and secondary education cess paid on income tax is an allowable expenditure. Ground raised by the assessee is allowed.

Issues Involved:
1. Validity of the order passed by CIT(A).
2. Non-issuance of notice u/s 143(2) of the Income Tax Act.
3. Disallowance of expenses on a debatable issue u/s 143(1).
4. Ignoring judgments of the Apex Court and jurisdictional High Court.
5. Disallowance of employees' contribution to PF and ESI deposited before the due date.
6. Deductibility of education cess paid on income tax.

Detailed Analysis:

1. Validity of the Order Passed by CIT(A):
The appellant contended that the order of the CIT(A) was bad in law and against the facts. The Tribunal considered the grounds of appeal and the arguments presented by both sides. The Tribunal decided to address the issues raised by the appellant comprehensively.

2. Non-Issuance of Notice u/s 143(2):
The appellant argued that the addition made u/s 143(1) was upheld without issuing a notice u/s 143(2). The Tribunal acknowledged this ground but did not provide a specific ruling on this issue in the detailed analysis.

3. Disallowance of Expenses on a Debatable Issue u/s 143(1):
The appellant claimed that the CIT(A) wrongly upheld the disallowance of expenses on a debatable issue u/s 143(1). The Tribunal noted that the issue of late deposit of employees' contribution to PF was covered in favor of the assessee by numerous orders of various Benches of the Tribunal. The Tribunal referenced multiple cases where similar disallowances were deleted, emphasizing that the contributions were made before filing the return of income u/s 139(1).

4. Ignoring Judgments of the Apex Court and Jurisdictional High Court:
The appellant argued that the CIT(A) ignored relevant judgments of the Apex Court and jurisdictional High Court. The Tribunal considered the legal precedents cited by the appellant, including decisions from the Hon'ble Supreme Court and various High Courts, which supported the appellant's claims regarding the deductibility of PF and ESI contributions made before the due date of filing the return.

5. Disallowance of Employees' Contribution to PF and ESI Deposited Before the Due Date:
The Tribunal agreed with the appellant that the issue of late deposit of employees' contribution to PF was covered in favor of the assessee by various Tribunal orders. The Tribunal cited several cases where similar disallowances were deleted, reiterating that contributions made before the due date of filing the return u/s 139(1) were allowable. The Tribunal concluded that the disallowances sustained by the CIT(A) were to be deleted.

6. Deductibility of Education Cess Paid on Income Tax:
The appellant raised an additional ground regarding the non-allowance of education cess paid on income tax. The Tribunal admitted this additional ground, referencing the judgment of the Hon'ble Karnataka High Court in PCIT Vs. Karnataka State Coop Federation Ltd., which allowed fresh claims before an appellate authority even if not claimed in the original return. The Tribunal also cited the Hon'ble Bombay High Court's judgment in Sesa Goa Ltd. Vs. JCIT, which held that education cess was a deductible expenditure. The Tribunal allowed the additional ground raised by the appellant, concluding that the education cess paid was deductible.

Conclusion:
The Tribunal allowed the appeal of the assessee, deleting the disallowances made by the Assessing Officer and sustained by the CIT(A) regarding the late deposit of employees' contribution to PF and ESI. The Tribunal also allowed the additional ground concerning the deductibility of education cess paid on income tax, following the judgments of the Hon'ble Bombay High Court and other relevant legal precedents. The appeal was disposed of in favor of the assessee.

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