2021 (4) TMI 393 - AT - Income Tax

Addition on account of late deposit of ESIC PF - assessee company has not deposited the employees contribution within the due date which is prescribed under the said statute i.e. Provident Fund and ESIC - HELD THAT - This issue is dealt by the Hon ble Delhi High Court in case of CIT vs. M/s Bharat Hotels Ltd. 2018 (9) TMI 798 - DELHI HIGH COURT wherein the issue is decided in favour of the Revenue without considering the decision of the Hon ble Delhi High Court in case of CIT vs. AIMIL Ltd. 2009 (12) TMI 38 - DELHI HIGH COURT - But the Ld. AR relied upon the decision of the Hon ble Delhi High Court in case of Pr. CIT vs. Pro Interactive Service (India) Pvt. Ltd. 2018 (9) TMI 2009 - DELHI HIGH COURT wherein the Hon ble High Court decided the issue in favour of the assessee relying upon the judgment of AIMIL Ltd. (supra). The Hon ble Delhi High Court held that the legislative intent was/is to ensure that the amount paid is allowed as expenditure only when payment is actually made. We do not think that the legislative intent and objective is to treat belated payment of Employee s Provident Fund (EPD) and Employee s State Insurance Scheme (ESI) as deemed income of the employer under Section 2(24)(x) of the Act. It is settled law that when two judgments are available giving different views then the judgment which is in favour of the assessee shall apply as held in case of Vegetable Products Ltd 1973 (1) TMI 1 - SUPREME COURT by the Hon ble Supreme Court. Hence in light of the latest decision in case of Pro Interactive Service (India) Pvt. Ltd. the issue is covered in favour of the assessee. Allowability of sales promotion expenses and Diwali Expenses - allowable business expenses or not? - HELD THAT - The assessee has given details as to how these expenses are related to the business expenses. The CIT(A) has given a detailed finding to that effect.There is no need to interfere with the findings of the CIT(A). Hence Ground No. 2 is dismissed. Addition on account of expenditure incurred on Corporate Social Responsibility - HELD THAT - As in case of National Seeds Corporation Ltd. Vs. Additional CIT 2018 (4) TMI 335 - ITAT DELHI it has been categorically held that the Explanation (2) of Section 37(1) was inserted w.e.f. 1st April 2015 and cannot be construed as to assessee s disadvantage in respect of the period prior to this amendment and thus supports the case of the assessee. Hence Ground No. 3 is dismissed. Addition u/s 14A read with rule 8D - HELD THAT - It is clear finding in assessment order as well as by the CIT(A) that there is no exempt income earned by the assessee during the year. Hence the decision of the Hon ble Delhi High Court in case of Cheminvest Ltd. 2015 (9) TMI 238 - DELHI HIGH COURT will be applicable. Hence Ground No. 4 is dismissed. Provision for carbon credit s - As assessee admitted that the provision of carbon credits was inadvertently included in the taxable income of the assessee though the same is not taxable under the Act - HELD THAT - Assessee submitted the basis for creation of said provision by submitting the calculation of provision basis for the same and a certification report and these documents were verified by the Assessing Officer. In remand report dated 11.09.2015 the Assessing Officer observed that the provision of carbon credits has been written off in the subsequent year i.e. A.Y. 2012-13 which was disallowed by the Assessing Officer in the assessment order for the said year. AO has also further observed that no taxable event has occurred or accrued to the assessee in the year under consideration. The assessee has also given a proper reasoning as to why the evidences were not before the Assessing Officer at the time of assessment proceedings. CIT(A) has rightly accepted those evidences and has taken cognizance of the remand report filed by the Assessing Officer wherein it is observed that no taxable amount has incurred in the present Assessment Year and provisions has been written off in subsequent years. Therefore there is no need to interfere with the finding of the CIT(A). Hence Ground No. 5 6 are dismissed.

Summary

Issues:
1. Late deposit of ESIC & PF
2. Sales promotion & festival expenses
3. Expenditure on Corporate Social Responsibility
4. Disallowance u/s 14A of the Income Tax Act
5. Allowability of provisions of carbon credits

Late deposit of ESIC & PF:
The Revenue challenged the deletion of the addition made by the Assessing Officer on account of late deposit of ESIC & PF. The CIT(A) relied on legal precedents and held that the amount deposited by the assessee after the due dates but before filing the Income Tax Return qualifies for deduction. The Hon'ble Delhi High Court's decisions in favor of the assessee were considered, leading to the dismissal of this ground in favor of the assessee.

Sales promotion & festival expenses:
The Revenue contended that the sales promotion and Diwali expenses were personal in nature and not related to business. However, the CIT(A) provided a detailed finding supporting the business nature of these expenses. The lack of justification by the Assessing Officer led to the dismissal of this ground in favor of the assessee.

Expenditure on Corporate Social Responsibility:
The Revenue challenged the addition made on account of expenditure incurred on Corporate Social Responsibility. The assessee argued that the expenditure was incidental to the business and should be allowed as a deduction under Section 37 of the Act. Legal precedents and the absence of exempt income during the year supported the assessee's position, resulting in the dismissal of this ground in favor of the assessee.

Disallowance u/s 14A of the Income Tax Act:
As the assessee did not earn any exempt income during the year, the disallowance under Section 14A was not permissible. The decisions in relevant cases were cited to support this argument, leading to the dismissal of this ground in favor of the assessee.

Allowability of provisions of carbon credits:
The provision of carbon credits was inadvertently included in the taxable income of the assessee, though it was not taxable under the Act. No sale of carbon credits occurred during the year, and the provision was written off in subsequent years. The CIT(A) accepted the evidence provided by the assessee, including certification reports, and observed that no taxable event had occurred. The dismissal of this ground in favor of the assessee was based on these findings.

In conclusion, the appeal of the Revenue was dismissed by the Appellate Tribunal ITAT DELHI, with detailed analysis and legal reasoning provided for each issue raised by the Revenue against the order passed by the CIT(A) for Assessment Year 2011-12.