2017 (4) TMI 252 - AT - Income Tax

Delay in deposit by the assessee of the employees contributions towards PF and ESIC - Held that - We are of the considered view that as a fall out of the amendment made to Section 43B with effect from vide Finance Act, 2003 which came into force with effect from 1st April 2004, now when the assessee is found to have deposited the employees contribution towards PF and other labour funds though beyond the stipulated time, but prior to the due date of filing of its return of income under Sec. 139(1), therein no disallowance with respect to the said amount would be called for in the hands of the assessee. - Decided in favour of assessee Disallowance made under Sec. 36(1)(iii)- Held that - No scope for carrying out any disallowance of interest connected with the amount funded for OTS. That as regards the current amount outstanding in respect of VCCL Ltd. (excluding the amount) outstanding on account of OTS, we are of the considered view that in the absence of any material being placed on record by the Ld. DR, in order to persuade us to take a view otherwise for the reason that any new facts had emerged during the year under consideration, we are constrained to conclude that as stand covered from the findings of the lower authorities in the case of the assessee for the preceding years, as o nexus had been proved by the AO in respect of the current amount outstanding in respect of the aforesaid company, viz. VCCL Ltd. and the borrowed funds, therefore no disallowance as regards any part of the said amount is called for under Sec. 36(1)(iii) of the Act, in the hands of the assessee company. We thus in light of our aforesaid observations are of the considered view that the CIT(A) by way of a reasoned order had rightly deleted the addition/disallowance of ₹ 1,81,81,940/-.- Decided in favour of assessee Disallowance of interest pertaining to debts which were due to the assessee company - Held that - We are of the considered view that as the issue pertaining to the disallowance of interest of ₹ 1,13,40,000/- as regards the debts due to the assessee company from M/s. ESSLON Synthetics Ltd. as conceded by the Ld. DR is covered in favour of the assessee in the backdrop of the earlier orders passed in the case of the assessee company, we therefore uphold the deletion of the addition/disallowance of interest of ₹ 1,13,40,000/- pertaining to the debts due from ESSLON Synthetics Ltd. Thus, the order of the CIT(A) of the aforesaid issue under consideration is upheld as such.- Decided in favour of assessee

Summary

Issues Involved:

1. Justification of allowing a sum of ?1,09,46,590/- on account of late payment of Provident Fund (PF) and ESIC contribution.
2. Justification of deleting notional interest of ?1,81,81,940/- on loans due from VCCL Ltd.
3. Justification of deleting notional interest of ?1,13,40,000/- on debts due from Esslon Synthetics Ltd.

Issue-wise Detailed Analysis:

1. Late Payment of Provident Fund and ESIC Contribution:

The department questioned whether the CIT(A) was justified in allowing ?1,09,46,590/- for late payment of PF and ESIC contributions. The assessee argued that the amounts were deposited before the due date for filing the return of income, invoking the amended provisions of Section 43B. The CIT(A) agreed with the assessee, referencing judicial pronouncements like Allied Motors Pvt. Ltd. Vs. CIT and Alom Extrusions Ltd. The Tribunal upheld CIT(A)'s decision, noting that post-amendment, if contributions are deposited before the due date of filing the return, no disallowance is warranted. The Tribunal cited the Supreme Court's judgment in CIT Vs. Alom Extrusions Ltd. and the Bombay High Court's ruling in CIT-4, Mumbai Vs. Hindustan Organic Chemicals Ltd., confirming that the amendments to Section 43B apply retrospectively from April 1, 1988.

2. Notional Interest on Loans to VCCL Ltd.:

The department contested the deletion of notional interest of ?1,81,81,940/- on loans to VCCL Ltd., arguing that advances to subsidiary companies cannot be considered for business purposes under Section 36(1)(iii). The assessee countered that VCCL Ltd. was promoted for a business purpose and not as a loan. The CIT(A) observed that similar disallowances in previous years (A.Y. 2000-01, 2001-02 to 2005-06, 2006-07, 2007-08, and 2008-09) were deleted in appeal, and the facts remained unchanged. The Tribunal agreed with CIT(A), noting no new evidence was presented to distinguish the current year's facts from previous years. It upheld the deletion, referencing the consistent treatment in earlier assessments and the absence of any proven nexus between the borrowed funds and the amounts advanced to VCCL Ltd.

3. Notional Interest on Debts Due from Esslon Synthetics Ltd.:

The department challenged the deletion of notional interest of ?1,13,40,000/- on debts due from Esslon Synthetics Ltd. The assessee argued that the issue was consistently decided in their favor in previous years (A.Y. 2000-01 and 2006-07). The CIT(A) found no change in facts and followed the earlier decisions, deleting the addition. The Tribunal upheld CIT(A)'s decision, noting the department's concession that the issue was covered by earlier favorable orders for the assessee.

Conclusion:

The Tribunal dismissed the department's appeal, upholding the CIT(A)'s decisions on all grounds. The Tribunal confirmed that the amendments to Section 43B apply retrospectively, allowing the late payment of PF and ESIC contributions if deposited before the due date for filing the return. It also upheld the deletion of notional interest on loans to VCCL Ltd. and debts due from Esslon Synthetics Ltd., consistent with previous years' rulings. The appeal was dismissed, and the order was pronounced in open court on March 31, 2017.