2016 (5) TMI 1173 - AT - Income Tax

Disallowance of deduction u/s 36(1)(va) for employees contribution beyond due date of payment - Held that - The assessee credited the amount of employees contribution in the books and delayed in depositing the same with PF/ESI department within the statutory time limit. Ld. Assessing Officer further observed that assessee was required to deposit PF on a monthly basis but in respect of PF deducted at ₹ 59,784/- the same was deposited after the due date of payment and claimed the same to be deductible u/s 43B of the Act to have been deposited before the due date of filing the return. Respectfully following the decision in the case of CIT vs. GSRTC 2014 (1) TMI 502 - GUJARAT HIGH COURT Assessing Officer has rightly disallowed the deduction u/s 36(1)(va) of the Act at ₹ 59,784/- in regard to employees contribution deposit beyond due date of payment - Decided against assessee Disallowance of proportionate interest - Held that - Looking to the past history of decisions by the coordinate bench in assessee s own case it has been repeatedly held that no disallowance is called for on account of proportionate disallowance of interest for application of borrowed funds to interest free loans and advances and therefore, for the year under appeal also we do not find any reason to interfere with the order of ld. CIT(A) in deleting the disallowance - Decided against revenue Addition on account shortage of automobile parts - Held that - From going through the records, we observe that short was duly shown in the quantitative details forming part of tax audit report showing therein a shortage of 1111 number of parts. We however, observe that complete quantitative details have been maintained and no defect has been pointed out by ld. Assessing Officer during the course of assessment proceedings. We further observe that total number of 825262 nos. of components were sold during the year and in percentage terms the shortage is just 0.13% of the total items sold. We are of the considered view that ld. Assessing Officer has made an estimated addition without corroborating the facts with the books of accounts and not pointing out any mistake in the quantitative purchase and sale nor any defect has been pointed out in the manufacturing activities carried on by the assessee and not appreciating the fact that while conducting business of items which are huge in numbers, a minor shortage on account of pilferage, handling, wear and tear etc. cannot be ruled out. Therefore, ld. CIT(A) has rightly deleted the addition - Decided against revenue Disallowance of diesel expenses and trip and bhatta expenses - Held that - Respectfully applying the ratio of the decision taken by coordinate bench on the issue which is verbatim same in assessee s own case the disallowance on account of trip bhatta and diesel expenses to be restricted to 1/3rd of the total disallowance of ₹ 41,74,300/-. In other words, disallowance sustained by ld. CIT(A) at ₹ 13,82,433/- is upheld. - Decided against revenue

Summary

Issues Involved:
1. Disallowance of deduction under section 36(1)(va) for employees' contribution.
2. Disallowance of proportionate interest on loans and advances.
3. Addition on account of shortage of automobile parts.
4. Disallowance of diesel expenses and trip and bhatta expenses.

Issue-wise Detailed Analysis:

1. Disallowance of Deduction under Section 36(1)(va) for Employees' Contribution:
The Revenue appealed against the deletion of disallowance of ?59,784/- under Section 36(1)(va) of the Income Tax Act, 1961, for employees' contribution. The Hon’ble Jurisdictional High Court in the case of CIT vs. Gujarat State Road Transport Corporation (GSRTC) held that the employees' contribution must be credited to the employees' account in the relevant fund on or before the due date mentioned in the explanation to Section 36(1)(va). Since the assessee delayed depositing the employees' contribution beyond the statutory time limit, the Tribunal followed the High Court's decision and upheld the disallowance by the Assessing Officer. This ground of the Revenue was allowed.

2. Disallowance of Proportionate Interest on Loans and Advances:
The Revenue contested the deletion of the disallowance of ?2,42,500/- on account of proportionate interest on loans and advances given to WGF Finances Services Ltd. and India Telecom Ltd. The Assessing Officer had disallowed 10% of the loans and advances, considering them non-business purposes. However, the CIT(A) deleted the disallowance, following the decision of the co-ordinate bench in the assessee’s own case for the earlier assessment years. The Tribunal noted that this issue was consistently decided in favor of the assessee in previous years. Thus, following the precedent, the Tribunal upheld the deletion of the disallowance by the CIT(A). This ground of the Revenue was dismissed.

3. Addition on Account of Shortage of Automobile Parts:
The Revenue challenged the deletion of the addition of ?1,84,570/- for the shortage of 1111 automobile parts. The Assessing Officer had added this amount, citing the shortage as unexplained. The CIT(A) deleted the addition, considering the shortage to be a normal business occurrence due to handling, wear and tear, etc. The Tribunal observed that the shortage was a meager 0.13% of the total sales and that the complete quantitative details were maintained without any pointed defects. The Tribunal found the addition to be estimated without corroborating facts and upheld the CIT(A)'s deletion of the addition. This ground of the Revenue was dismissed.

4. Disallowance of Diesel Expenses and Trip and Bhatta Expenses:
The Revenue appealed against the deletion of disallowance of ?27,64,867/- out of ?41,47,300/- for diesel expenses and trip and bhatta expenses. The Assessing Officer had disallowed 10% of the total expenses, citing self-generated invoices and a sharp increase in expenditure compared to turnover. The CIT(A) reduced the disallowance to 1/3rd of the total, considering the decline in the ratio of expenses to income and the nature of the business. The Tribunal noted that similar disallowances in the past had been restricted to 1/3rd by the co-ordinate bench. Following the precedent, the Tribunal upheld the CIT(A)'s decision to restrict the disallowance to ?13,82,433/-. This ground of the Revenue was dismissed.

Conclusion:
The Tribunal allowed the Revenue's appeal on the disallowance of deduction under Section 36(1)(va) for employees' contribution but dismissed the appeals on the disallowance of proportionate interest, addition for shortage of automobile parts, and disallowance of diesel and trip and bhatta expenses. The Revenue's appeal was partly allowed.