2016 (6) TMI 734 - AT - Income Tax

Disallowance of contribution made to Trust - whether an allowable business expenditure? - proof of direct business nexus - Held that - Similar orders were passed by the Tribunal for the assessment year 2009- 10 and 2010-11. There is no change of circumstances brought to our notice after passing of the orders referred hereinabove or no change in law has been brought to our notice by either of parties. We have heard the rival contentions and perused the material available on record. The issue in question is covered in favour of the assessee by the earlier decisions of the Coordinate Benches in assessee s own case. Respectfully following the earlier decisions of the Coordinate Benches, the contribution - made by the assessee to SPARSH Trust is accordingly allowed as an eligible business expenditure under section 37(1) of the Act Disallowance of expenditure u/s 36(1)(va) r.w.s. 2(24)- depositing the employee s contribution to PF and ESI - Held that - Admittedly the contribution was deposited by the assessee with the Provident fund on the next day immediately it was due. The Provident fund Act by which the deposit of the contribution by the assessee within the grace period of 5 days from the date when it becomes due. The ld. CIT(A) has given the finding that the payments of ESI & PF were made before the due date of filing of income tax return. In light of decision of Hon ble Rajasthan High Court in the case of CIT vs. State Bank of Bikaner and Jaipur and Jaipur Vidhyut Vitran Nigam Ltd. 2014 (5) TMI 222 - RAJASTHAN HIGH COURT we find no infirmity in the decision of Ld CIT(A) which is hereby deleted. Appeal Decided partly in favour of revenue

Summary

Issues:
1. Disallowance of contribution made to Sparsh Trust under section 37(1) of the Income Tax Act.
2. Disallowance of employee's contribution to PF and ESI under section 36(1)(va) r.w.s. 2(24) of the Income Tax Act.

Issue 1 - Disallowance of Contribution to Sparsh Trust:
The appeal was filed by the Revenue against the order of the ld. CIT(A)-2, Jaipur regarding the disallowance of the contribution made to Sparsh Trust. The AO disallowed the contribution stating it falls under the definition of donation and cannot be treated as an expenditure under section 37(1). The assessee argued that the contribution was for the betterment of milk quality and quantity, directly linked to the business purpose. The Coordinate Bench in a previous order for AY 08-09 held in favor of the assessee, stating the contribution was for business purposes and allowable under section 37(1). The Tribunal upheld the earlier decisions and allowed the contribution as an eligible business expenditure, dismissing the Revenue's appeal.

Issue 2 - Disallowance of Employee's Contribution to PF and ESI:
The second issue involved the disallowance of employee's contribution to PF and ESI under section 36(1)(va) r.w.s. 2(24) of the Income Tax Act. The AO made additions for depositing the contributions beyond the time limit provided in the respective acts. However, the ld. CIT(A) found that the payments were made before the due date of filing the income tax return. Citing decisions of the Hon'ble Rajasthan High Court, the Tribunal found no infirmity in the decision of the ld. CIT(A) and deleted the disallowance. As a result, the appeal filed by the Revenue was partly allowed.

In conclusion, the Tribunal ruled in favor of the assessee regarding both issues, allowing the contribution to Sparsh Trust as a business expenditure under section 37(1) and overturning the disallowance of employee's contribution to PF and ESI. The judgment provides clarity on the treatment of such contributions and emphasizes the importance of business nexus in determining allowable expenditures under the Income Tax Act.