2018 (1) TMI 1227 - AT - Income Tax

Disallowance of delay in payment of employees contribution to ESIC 559.95 lacs i.e. share capital 6.00 lacs and Free reserve 553.95 lacs whereas investment made in shares and mutual funds put together is 524.32 lacs no disallowance is warranted. Addition on account of administrative exp. u/s.14A - Held that - In the interest of the justice addition of 50, 000/- made on account of administrative expenses u/s.14A.

Summary

Issues:
1. Disallowance of employees' contribution to P.F. and ESIC under section 36(1)(va) of the IT Act, 1961.
2. Disallowance under section 40(a)(ia) for consulting service payment.
3. Disallowance of interest under section 14A of the IT Act.
4. Addition on account of administrative expenses under section 14A of the IT Act.

Analysis:

Issue 1:
The appellant contested the disallowance of employees' contribution to P.F. and ESIC under section 36(1)(va) of the IT Act. The Assessing Officer disallowed the amount despite payment before the return filing due date. The appellant relied on a Delhi High Court decision but the Gujarat High Court precedent favored the revenue. The Tribunal dismissed the appeal based on the Gujarat High Court judgment.

Issue 2:
Regarding the disallowance under section 40(a)(ia) for consulting service payment, the appellant argued that the payment did not exceed the threshold for TDS deduction. However, the Tribunal found the provision of section 194J applicable and directed 20% disallowance, instructing the AO to calculate the same.

Issue 3:
The disallowance of interest under section 14A of the IT Act was contested by the appellant, claiming sufficient free reserves and capital for investments. The AO disallowed a portion of interest expenses, but the Tribunal, citing a relevant judgment, allowed the appeal in favor of the assessee.

Issue 4:
The addition on account of administrative expenses under section 14A of the IT Act was challenged by the appellant. Despite dividend income and investments, the Tribunal found the administrative expenses reasonable and made a minor addition, ultimately allowing the appeal partly.

Additional Issue (from second appeal):
In the second appeal, the disallowance of employees' contribution to P.F. and ESIC was reiterated, and the Tribunal dismissed the appeal based on the discussion in the first appeal. The Tribunal also dismissed the appeal concerning administrative expenses and excluded the addition from book profit computation under section 115JB based on a Special Bench decision.

In conclusion, the Tribunal partly allowed the first appeal and dismissed the second appeal, emphasizing the application of relevant legal provisions and judicial precedents in determining the disallowances and additions in the assessments.