2018 (8) TMI 1128 - AT - Income Tax

Additions u/s 2(24)(x) - delayed payment of employee contribution to PF - Addition towards interest expenses on account of diversion of borrowed funds for non-business consideration. - Genuineness of commission expenses - Held that - The ld. CIT(A) has referred to more than 10 case laws in which it has been held that disallowance under section 36(15A) cannot be made if the amount has been deposited before the due date of filing of return. - The Ld. Departmental Representative failed to controvert the contentions against the findings of Ld.CIT(A). - No addition can be made - Decided against the revenue. Regarding interest expenses - Held that - the assessee has taken loans by way of cash credit limit from bank, term loan from bank and other loans from Chola Mandalam DBF Finance and these loans have been taken for the specific business purposes. Nowhere during the course of assessment proceedings as well as proceedings before the first appellate authority and before us the revenue has been able to bring any evidence on records to prove that the interest bearing founds have been diverted to interest free advances. Further, from perusal of the list of alleged loans and advances, we find that they have been given in connection to the business of the assessee and are for the business exigencies which do not call for any addition for disallowance of interest expenditure. - No additions - Decided against the revenue. Payment of commission - unreasonable expenses - genuineness - Held that - payment of commission paid to Capt. Hanif has been paid under written agreement, alleged commission has been offered to tax by Capt. Hanif who is assessed to tax @30%, tax has been duly deducted at source, payment of commission has been made through account payee cheque and the purpose of making the payment is also well established from the agreement as well as the nature of payment which is for procuring the helicopter on hire by a political party. - Claim of expenses cannot be denied - Decided against the revenue.

Summary

Issues Involved:
1. Deletion of disallowance on account of delayed payment of employee contribution to Provident Fund (PF).
2. Deletion of disallowance of interest expenses on account of diversion of borrowed funds for non-business consideration.
3. Deletion of disallowance of commission payment.

Issue-wise Detailed Analysis:

1. Deletion of disallowance on account of delayed payment of employee contribution to Provident Fund (PF):

The Revenue contended that the CIT(A) erred in deleting the disallowance of ?35,477/- made under section 2(24)(x) of the Income Tax Act due to the delayed payment of employee contributions to the Provident Fund. The CIT(A) observed that the contributions were deposited within the previous year but beyond the due dates specified under the PF Act. The CIT(A) referred to multiple judgments, including the Gujarat High Court decision in Commissioner of Income Tax vs. Gujarat State Road Transport Corporation, which held that if the contributions are deposited before the due date of filing the return under section 139(1), the disallowance under section 36(1)(va) is not applicable. The Tribunal upheld the CIT(A)'s decision, noting the difference in opinions among various High Courts and following the principle that the view favorable to the assessee should be adopted. Thus, the Tribunal dismissed the Revenue's ground.

2. Deletion of disallowance of interest expenses on account of diversion of borrowed funds for non-business consideration:

The Revenue challenged the deletion of ?7,66,563/- disallowed by the AO on the grounds of diversion of borrowed funds for non-business purposes. The CIT(A) found that the loans were taken for specific business purposes, such as purchasing airport handling equipment and a vehicle for transporting aviation fuel, and there was no diversion of these funds. The CIT(A) also noted that the assessee had substantial interest-free funds exceeding the interest-free loans and advances. The Tribunal agreed with the CIT(A), emphasizing that the Revenue failed to establish any nexus between the interest-bearing loans and the interest-free advances. The Tribunal also noted that the assessee's balance sheet showed sufficient interest-free funds to cover the advances. Consequently, the Tribunal dismissed the Revenue's ground.

3. Deletion of disallowance of commission payment:

The Revenue argued against the deletion of ?59,85,000/- out of the total commission payment of ?70,50,000/- disallowed by the AO. The CIT(A) noted that the commission was paid to Capt. Hanif under a written agreement for procuring helicopters on hire and was confirmed by Capt. Hanif, who also paid tax on the commission income. The CIT(A) highlighted that the commission payment was made through an account payee cheque, and the genuineness of the expenditure was not disputed. The Tribunal upheld the CIT(A)'s decision, stating that the payment of commission was for business purposes and was duly substantiated. The Tribunal found no reason to interfere with the CIT(A)'s findings, given the lack of new material evidence from the Revenue. Thus, the Tribunal dismissed the Revenue's ground.

Conclusion:

The Tribunal dismissed all grounds of appeal raised by the Revenue, upholding the CIT(A)'s deletions of disallowances related to the delayed payment of employee contributions to PF, interest expenses on borrowed funds, and commission payments. The Tribunal emphasized the importance of substantiating claims with evidence and following judicial precedents favoring the assessee when there are conflicting views. The order was pronounced in the open court on 31.07.2018.