2018 (2) TMI 1636 - AT - Income Tax

Addition for depositing the employee s contribution to PF & ESI beyond the prescribed time limit - Held that - If Employee s contribution towards PF, if paid after the due date under the respective Acts but before filing of return of income u/s 139(1), cannot be disallowed u/s 43B or u/s 36(l)(va). The ESI & PF were deposited within the Financial year and hence deduction could not be denied in view of decisions of various courts, ratio of which have held that payment of ESI and PF before the due date of filing of return of income is an allowable deduction. CIT(A) also held that where Provident Fund and Employees State Insurance Contribution were paid by the assessee before filing of the return and proof of payment was submitted before the AO, the amounts were deductible as deduction. CIT(A) relied on the decision in the case of CIT Vs Alom Extrusions Ltd. 2009 (11) TMI 27 - SUPREME COURT and CIT Vs Aimil Ltd. & ors. (2009 (12) TMI 38 - DELHI HIGH COURT) deleted the addition. - Decided against revenue. Disallowance of consultancy charges - CIT-A deleted the addition by considering the additional evidence without providing opportunity to the Assessing Officer - Held that - Since the additional evidence has been entertained by the ld. CIT(A) without providing adequate and effective opportunity of being heard to AO, therefore, in the interest of justice and equity, we restore the issue back to the file of the Assessing Officer to be decided de novo.

Summary

Issues:
1. Addition of employee's contribution to PF & ESI beyond prescribed time limit.
2. Applicability of Section 43B vs. Section 36(1)(va) r.w.s. 2(24)(x) of the IT Act.
3. Disallowance of consultancy charges without providing opportunity under Rule 46-A.

Analysis:

Issue 1: Addition of employee's contribution to PF & ESI beyond prescribed time limit
The appeal addressed whether the deletion of the addition of ?13,62,84,653/- for depositing the employee's contribution to PF & ESI beyond the prescribed time limit was justified. The CIT(A) ruled in favor of the assessee, citing precedents and legal provisions. The Rajasthan High Court's decision supported the assessee's case, emphasizing that payments made before the due date of filing the return of income are allowable deductions. The Hon'ble Supreme Court and Delhi High Court decisions further reinforced this stance. The bench upheld the CIT(A)'s decision, dismissing the revenue's grounds of appeal.

Issue 2: Applicability of Section 43B vs. Section 36(1)(va) r.w.s. 2(24)(x) of the IT Act
The interlinked grounds of appeal questioned the applicability of Section 43B and Section 36(1)(va) regarding the employee's contribution to PF & ESI. The CIT(A) held that if payments were made before the due date of filing the return of income, deductions could not be denied. Citing various court decisions and legal provisions, the CIT(A) justified the allowance of deductions. The bench found no contrary material and upheld the CIT(A)'s decision, dismissing the revenue's grounds of appeal.

Issue 3: Disallowance of consultancy charges without providing opportunity under Rule 46-A
The issue involved the deletion of ?22,02,715 disallowed as consultancy charges without providing an opportunity under Rule 46-A. The CIT(A) allowed this ground, stating that the expenses were related to the business and not capital in nature. The bench, however, noted that the additional evidence was entertained without adequate opportunity for the Assessing Officer. In the interest of justice, the issue was restored to the Assessing Officer for a fresh decision.

In conclusion, the appeal was partly allowed for statistical purposes, with the bench upholding the CIT(A)'s decisions on the first two issues while remanding the third issue back to the Assessing Officer for reconsideration.