2023 (6) TMI 1358 - AT - Income Tax

Delayed deposits of employee s share of contribution towards Employee s Provident Fund (EPF) - Addition u/s.36(1)(va) r.w.s. 2(24)(x) - scope of payment within the grace period - whether or not the employees share of contribution towards EPF deposited by the assessee within the extended/grace period under the EPF Act 1952 is to be construed as a payment made on or before the due date within the meaning of section 36(1)(va) of the Act? - HELD THAT - As grace/extended period of 5 days that was available to the assessee for depositing other dues had been withdrawn w.e.f. February 2016. As the deposits in the case of the assessee were made much prior to the aforesaid cut off date i.e. February 2016 therefore the grace period for making respective payments was duly available to the assessee during the year under consideration. As the assessee firm in the case before us had deposited the employees share of contribution towards EPF within the grace period under the EPF Act 1952 therefore respectfully following the judgment of Hind Filter Ltd. 2017 (12) TMI 810 - BOMBAY HIGH COURT thus that the said amount could not have been disallowed u/s.36(1)(va) r.w.s 2(24)(x) of the Act. Hon ble Apex Court in the case of Checkmate Services Pvt. Ltd. 2022 (10) TMI 617 - SUPREME COURT had held that employees share of contribution towards the welfare enactment had to be deposited by the assessee in terms of those enactments and on or before the due dates mandated by such concerned law. Thus unable to persuade to subscribe to the disallowance of employees share of contribution made by the A.O u/s.36(1)(va) r.w.s 2(24)(x) - disallowance made by the A.O u/s.36(1)(va) r.w.s 2(24)(x) of the Act is herein vacated. Disallowance of the balance amount qua the delayed deposit of employees share of contribution made by the A.O u/s.36(1)(va) r.w.s 2(24)(x) as the said amount had been deposited by the assessee beyond the due date therefore the A.O had rightly made an addition of the same to the returned income of the assessee. Thus the Ground of appeal No.2 raised by the assessee is partly allowed in terms of my aforesaid observations. Disallowance of expenses booked by the assessee under various heads of expenses u/s 37(1) - HELD THAT - A disallowance of an expenditure claimed by the assessee as a deduction as per the mandate of section 37 of the Act can only be disallowed in case of satisfaction of either of the conditions set out in the said section viz. (i) the expenditure is in the nature of a capital expenditure or personal expenditure of the assessee; or (ii) that the expenditure had been incurred for any purpose which is an offence or which is prohibited by law. As the A.O had failed to place on record any material which would prove to the hilt that the assessee had either raised a bogus claim of expenditure; or that the said expenditure was not incurred wholly and exclusively for the purpose of business; or that the expenditure so claimed as a deduction did not fall within the four parameters of Section 37 of the Act therefore unable to persuade myself to subscribe to the disallowance to the said effect so made by the A.O. Thus we vacate the disallowance made by the A.O. The Ground of appeal is allowed in favour of assessee.

Summary

Issues Involved:
1. Validity of the order passed by CIT(A), National Faceless Appeal Center.
2. Disallowance of Rs. 5,44,519/- under Section 36(1)(va) r.w.s 2(24)(x) of the Income Tax Act, 1961.
3. Ad-hoc disallowance of Rs. 2,50,000/- on account of business promotion expenses.

Summary:

Issue 1: Validity of the Order Passed by CIT(A), National Faceless Appeal Center
The appellant contended that the order passed by the CIT(A), National Faceless Appeal Center, was illegal and void ab initio. However, this ground was general in nature and was dismissed as not pressed.

Issue 2: Disallowance of Rs. 5,44,519/- under Section 36(1)(va) r.w.s 2(24)(x) of the Income Tax Act, 1961
The assessee firm, engaged in mining contracting/transporting, filed its return for A.Y. 2014-15. During assessment, it was noted that the assessee delayed deposits of the employee's share of EPF contributions totaling Rs. 5,44,519/-. The A.O. added this amount to the income under Section 36(1)(va) r.w.s 2(24)(x). The CIT(A) upheld this addition, citing the Supreme Court's judgment in Checkmate Services Pvt. Ltd. The Tribunal found that Rs. 1,88,346/- was deposited within the grace period allowed under the EPF Act, 1952, and thus could not be disallowed. The remaining Rs. 3,56,173/- deposited beyond the due date was correctly disallowed by the A.O. Therefore, the Tribunal partly allowed this ground of appeal.

Issue 3: Ad-hoc Disallowance of Rs. 2,50,000/- on Account of Business Promotion Expenses
The A.O. made an ad-hoc disallowance of Rs. 2,50,000/- for business promotion expenses, claiming the expenses were supported only by internal vouchers and were unverifiable. The Tribunal found that the A.O. did not point out any specific instance of unverifiable or non-business expenditure. It was held that disallowance under Section 37(1) must be based on specific findings, not on an arbitrary ad-hoc basis. Consequently, the disallowance of Rs. 2,50,000/- was vacated.

Conclusion:
The appeal was partly allowed for statistical purposes. The disallowance of Rs. 1,88,346/- under Section 36(1)(va) was vacated, while the disallowance of Rs. 3,56,173/- was upheld. The ad-hoc disallowance of Rs. 2,50,000/- for business promotion expenses was vacated. Grounds of appeal No. 1 and 4 were dismissed as not pressed.