2021 (5) TMI 1007 - AT - Income Tax

Addition towards ESI and PF - addition relating to employees contribution to PF ESI on the ground that the same was deducted but was not remitted into relevant fund within the due dates prescribed under the relevant acts though the same was paid before the due date for filing return of income - HELD THAT - As decided in VALUE MOMENTUM SOFTWARE SERVICES PRIVATE LIMITED VERSUS DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-17 (2) HYDERABAD 2021 (5) TMI 989 - ITAT HYDERABAD we find no merit in the Revenue s foregoing stand. We take note of the explanatory memorandum to the Finance Act 2021 proposing amendment in both Section 36(va) as well as Section 43B by inserting corresponding Explanations that although the impugned employees provident fund comes under the former provision only the same is applicable from 01-04-2021 onwards. Meaning thereby that the legislature itself has condoned the impugned default before 01-04-2021. We thus delete the impugned employees provident fund disallowance for this precise reason alone. Necessary computation to follow as per law - we direct the AO to delete the addition made towards PF ESI in both the years under consideration. Accordingly the ground raised on this issue in both the years is allowed. Addition u/s 14A - HELD THAT - It is settled position of law that the provisions of section 14A can be applied to quantify the expenses in relation to exempt income. Since the exempt income is Nil section 14A will not apply - in the case of Cheminvest Ltd. 2015 (9) TMI 238 - DELHI HIGH COURT has held that section 14A will not apply where no exempt income is received or receivable during the relevant assessment year. We find that the investments were made and no exempt income was earned from the investment so made the provisions of Section 14A will not applicable to the case of assessee. Therefore following the said decision in the case of Cheminvest Ltd. (supra), we direct the AO to delete the addition made on this count.

Summary

Issues:
1. Addition towards PF and ESI
2. Addition made under section 14A of the Income Tax Act, 1961

Analysis:

Issue 1: Addition towards PF and ESI
The assessee filed two appeals challenging the common order of CIT(A) - 5, Hyderabad, regarding proceedings under section 143(3) of the Income Tax Act, 1961. The primary grounds of appeal in both cases were related to additions towards PF and ESI, as well as under section 14A of the Act. The AO had made the addition concerning employees' contributions to PF and ESI, stating that although the deductions were made, they were not remitted within the prescribed due dates. The CIT(A) upheld the AO's decision after considering various case laws. However, the assessee argued for deletion of the addition based on a proposed amendment to section 36 of the Income-tax Act. The Tribunal referred to a similar case and held that the addition towards PF and ESI should be deleted for both years under consideration, following the precedent set in the referenced case.

Issue 2: Addition under section 14A of the Act
Regarding the addition made under section 14A of the Act, the AO disallowed an amount in relation to expenditure incurred for income not forming part of the total income. The CIT(A) affirmed this decision. However, the Tribunal noted that as no exempt income was earned from the investments made by the assessee, section 14A would not be applicable. Citing a judgment from the Hon'ble Delhi High Court, the Tribunal directed the AO to delete the addition made under section 14A of the Act. Consequently, both appeals were allowed in favor of the assessee.

In conclusion, the Tribunal ruled in favor of the assessee by directing the deletion of additions towards PF and ESI and under section 14A of the Income Tax Act, 1961, based on the specific circumstances and legal precedents cited during the proceedings.