2020 (11) TMI 698 - AT - Income Tax

Addition being the amount of PF and ESI u/s 36(1)(va) - amount remitted to the concerned accounts before the due date of filing the return of income - HELD THAT - In the instant case, there is no dispute that the amounts-in-question with regard to EPF and ESI were remitted to the concerned accounts before the due date of filing the return of income u/sn 139(1). This, the Tribunal has consistently taken a view that if the PF and ESI are remitted to the respective accounts, the same are required to be allowed as deduction. See KLR INDUSTRIES LTD., HYDERABAD 2015 (7) TMI 684 - ITAT HYDERABAD No disallowance could be made in respect of employees contribution of PF and ESI if the same are deposited before the due date of filing the return of income. Accordingly, we set aside the order of Ld.CIT(A) and delete the addition made by the AO. The appeal of the assessee on this ground is allowed. Addition proportionate expenditure attributing to non-taxable units - HELD THAT - Assessee is having four units, for which the income and expenditure has been allocated unit-wise and head-wise. The assessee also stated that separate books of accounts are maintained for each unit and if separate books are maintained, there is no case for disallowance of expenditure on estimation basis. AR also submitted that all the expenditure was distributed among all the units proportionately and there is no case of making estimated disallowance relating to non-taxable unit. AO neither rejected the books of accounts nor made out case of suppression of taxable income, or inflation of expenditure in taxable units. We hold that there is no case for making the addition on estimation basis, hence, we set aside the orders of lower authorities and delete the additions made by the AO. The appeal of assessee on this ground is allowed. Set-off of loss before allowing the deduction u/s 10A - HELD THAT - In the case of CIT Vs. Yokogawa India Ltd 2016 (12) TMI 881 - SUPREME COURT it was held that the profits and gains of business of eligible undertaking has to be made independently and immediately after the stage of determination of its profits and gains and it is premature to apply the provisions of Section 70, 71 and 72 of the Act at the stage of determination of profits and gains of the business, thus held that the deduction u/s.10A of the Act is to be allowed from the gross total income of eligible undertaking but not at the stage of computation of total income. We direct the AO to allow the deduction at the stage of computation of gross total income but not under Chapter-VI for arriving the total income, accordingly we set aside the order of the CIT(A) and remit the matter back to the file of the AO for limited purpose of computing the deduction u/s.10A of the Act as per the order of the Hon ble Apex court supra. Accordingly, the appeal of the assessee on this ground is allowed for statistical purposes.

Issues Involved:
1. Sustaining of addition made by the AO of ?41,18,429/- and ?3,80,215/- being the amount of PF and ESI respectively.
2. Confirming the addition of ?2 Lakhs related to sales promotion expenses.
3. Sustaining the addition of ?8,41,862/- proportionate expenditure attributing to non-taxable units.
4. Set-off of loss before allowing the deduction u/s 10A of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Sustaining of Addition Made by the AO of ?41,18,429/- and ?3,80,215/- Being the Amount of PF and ESI Respectively:
The AO found that the assessee remitted employees' contributions towards PF and ESI beyond the due date specified under the respective Acts but before the due date of filing the return of income. The AO added these amounts to the returned income, which the CIT(A) upheld, stating that the contributions were not remitted before the due dates specified under the Act, thus disallowing the deductions u/s 43B. The Tribunal, however, noted consistent judicial precedents, including the case of KLR Industries Ltd. Vs. DCIT, which held that contributions paid before the due date of filing the return of income should be allowed as deductions. The Tribunal, following these precedents, set aside the CIT(A)'s order and deleted the addition made by the AO, allowing the appeal on this ground.

2. Confirming the Addition of ?2 Lakhs Related to Sales Promotion Expenses:
During the appeal hearing, the assessee did not press this ground. Consequently, the Tribunal dismissed Ground No.3 as not pressed.

3. Sustaining the Addition of ?8,41,862/- Proportionate Expenditure Attributing to Non-taxable Units:
The AO disallowed 25% of the MD's salary, secretarial expenses, and audit fees, totaling ?8,41,862/-, attributing them to non-taxable units. The CIT(A) upheld this disallowance. The assessee argued that separate books of accounts were maintained for each unit, and the expenditure was allocated accordingly. The Tribunal found that the AO neither rejected the books of accounts nor made a case of suppression of taxable income or inflation of expenses. Therefore, the Tribunal set aside the orders of the lower authorities and deleted the additions, allowing the appeal on this ground.

4. Set-off of Loss Before Allowing the Deduction u/s 10A of the Income Tax Act:
The AO rejected the assessee's request for deduction u/s 10A after converting the loss into positive income due to certain additions. The CIT(A) directed the AO to allow the deduction but found that the net effect would be a loss after aggregating income from various sources and set-off provisions as per Sections 70, 71, and 72. The Tribunal, following the Supreme Court's decision in CIT Vs. Yokogawa India Ltd., held that the deduction u/s 10A should be allowed at the stage of computing the gross total income of the eligible undertaking, not under Chapter VI for arriving at the total income. The Tribunal set aside the CIT(A)'s order and remitted the matter back to the AO for computing the deduction as per the Supreme Court's order, allowing the appeal for statistical purposes.

Conclusion:
The appeal of the assessee was partly allowed for statistical purposes, with the Tribunal providing detailed reasoning for each issue and following consistent judicial precedents and Supreme Court judgments. The Tribunal's order emphasized the importance of adhering to the provisions of the Income Tax Act and judicial interpretations for fair adjudication.

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