2017 (7) TMI 857 - AT - Income Tax

Non-deposit of employees contribution towards provident fund and ESI on due date of deposit - Held that - Following the decision rendered by Hon ble jurisdictional High Court in case cited as CIT vs. AIMIL (2009 (12) TMI 38 - DELHI HIGH COURT) we find no illegality or perversity in the findings returned by ld. CIT (A) in deleting the addition on account of late deposit of employees contribution towards PF and ESI but before due date of filing the return. - Decided against revenue Disallowance u/s 14A(2) - Held that - Refereeing to Assessee s contention that since the assessee has not incurred any expenditure to earn the exempt income, the interest on debentures is fully taxable under the Act and as such provisions contained u/s 14A (2) of the Act are not applicable qua investment made in the optionally fully convertible debentures, it is tenable for the reason that when interest receivable on debentures does not fall in the category of exempt income, no addition on account of disallowance of interest as claimed u/s 36(1)(iii) of the Act can be made. So, again, we find no illegality or perversity in deleting the addition made by the AO on account of disallowance of interest claimed u/s 36(1)(iii) of the Act by the CIT (A) - Decided against revenue

Summary

Issues involved:
- Late deposit of employee's contribution towards provident fund
- Late deposit of employee's contribution towards ESI
- Expenditure in lieu of exempt income
- Legality of disallowance under Rule 8D of the Income-tax Rules

Late Deposit of Employee Contributions:
The Appellant, Deputy Commissioner of Income-tax, sought to set aside the order deleting the additions made by the Assessing Officer for late deposits of employee contributions towards provident fund and ESI. The Tribunal referred to relevant case law, including CIT vs. AIMIL Limited, to establish that if contributions are paid before the due date of filing the return, no disallowance can be made. Consequently, the Tribunal upheld the CIT(A)'s decision to delete the additions, ruling in favor of the assessee.

Expenditure in Lieu of Exempt Income:
The Assessing Officer disallowed proportionate interest under Rule 8D of the Income-tax Rules on the purchase of optionally fully convertible debentures. However, the CIT(A) overturned this disallowance, stating that since the interest on debentures did not constitute exempt income, no disallowance under section 14A(2) of the Act was applicable. The Tribunal agreed with the CIT(A)'s decision, emphasizing that when interest on debentures is not exempt income, disallowance under section 36(1)(iii) of the Act cannot be made.

Conclusion:
The Tribunal dismissed the appeals filed by the Revenue, upholding the decisions of the CIT(A) on both issues. The judgment highlighted the importance of timely payment of employee contributions and clarified the treatment of interest on debentures in relation to exempt income. Ultimately, the Tribunal's comprehensive analysis and application of relevant legal principles led to the dismissal of the Revenue's appeals.