2021 (8) TMI 997 - AT - Income Tax

Addition in respect of commission expenses - disallowance of expenses on account of export commission on the ground that it has not deducted tax on the aforesaid foreign commission payment - HELD THAT - The year under consideration since the assessee has failed to submit the supporting relevant detail to substantiate the genuineness of the commission payment. Therefore, respectfully following the decision of the ITAT Ahmedabad in the case of the assessee itself for assessment year 2013-14 2021 (7) TMI 152 - ITAT AHMEDABAD this ground of appeal of the assessee is dismissed. Addition u/s. 36(1)(iii) in respect of proportionate interest on capital advances - HELD THAT - As decided in own case 2021 (7) TMI 152 - ITAT AHMEDABAD the impugned advance was made out of the interest free fund and no borrowed fund has been used therefore respectfully following the decision of Co-ordinate Bench as supra we are not inclined with the decision of the ld. CIT(A). Accordingly, the appeal of the assessee on this issue is allowed. Addition in respect of employees contribution to Provident Fund - employee s contribution to P.F. amounting to ₹ 5,23,396/- to Provident Fund was not paid within the due dates specified u/s. 36(i)(va) - HELD THAT - The Hon ble Jurisdictional High Court of Gujarat in the case of Gujarat Road Transport Corporation 2014 (1) TMI 502 - GUJARAT HIGH COURT held that assessee is entitled for the deduction only if the amount is credited to the relevant funds before the due date, therefore, respectfully following the decision of the Hon ble Gujarat High Court as referred above, we do not find any infirmity in the decision of the Ld. CIT(A). Therefore, this ground of appeal of the assessee is dismissed.

Summary

Issues Involved:
1. Addition of ?5,42,751/- in respect of commission expenses payable to non-resident foreign agent.
2. Addition u/s 36(1)(iii) of ?23,13,140/- in respect of proportionate interest on capital advances.
3. Addition u/s 36(1)(va) r.w.s 2(24)(x) of ?5,23,396/- in respect of employees' contribution to PF and ESIC.

Issue-Wise Detailed Analysis:

1. Addition of ?5,42,751/- in respect of commission expenses payable to non-resident foreign agent:
The assessee claimed commission expenditure of ?48,57,000/- in the profit and loss account. The Assessing Officer (AO) disallowed ?23,84,170/- of this amount, citing the assessee's failure to deduct tax on foreign commission payments and failure to prove the identity and services rendered by the commission agents. The CIT(A) partially upheld this disallowance, reducing it to ?5,42,751/-, as the assessee provided some supporting documents for other amounts. The ITAT referenced a similar case from the assessment year 2013-14, where the assessee also failed to provide necessary details despite multiple opportunities. Consequently, the ITAT upheld the CIT(A)'s decision to disallow ?5,42,751/- due to the lack of supporting documentation for these payments.

2. Addition u/s 36(1)(iii) of ?23,13,140/- in respect of proportionate interest on capital advances:
The AO observed that the assessee had shown capital advances of ?1,92,76,000/- for the purchase of intangible assets and had paid substantial interest on loans. The AO capitalized proportionate interest of ?23,13,140/- on these advances, arguing that the assessee did not provide a cash flow statement to prove that the advances were made from interest-free funds. The CIT(A) upheld this disallowance, noting that the assessee did not have sufficient funds to make the capital advance. However, the ITAT referenced a previous decision (ITA No. 830-831/Ahd/2018) where it was determined that the assessee had sufficient own funds and interest-free loans to cover the advances, thus no borrowed funds were used. Therefore, the ITAT overturned the CIT(A)'s decision and allowed the appeal on this issue.

3. Addition u/s 36(1)(va) r.w.s 2(24)(x) of ?5,23,396/- in respect of employees' contribution to PF and ESIC:
The AO disallowed the late payment of employees' contribution to PF amounting to ?5,23,396/-, as it was not paid within the due dates specified under section 36(1)(va). The CIT(A) upheld this disallowance, referencing the Gujarat High Court's decision in the case of Gujarat Road Transport Corporation, which stated that deductions are only allowable if the contributions are credited to the relevant funds before the due date. The ITAT, following this precedent, found no infirmity in the CIT(A)'s decision and dismissed the appeal on this ground.

Conclusion:
The appeal was partly allowed, with the ITAT overturning the CIT(A)'s decision on the issue of proportionate interest on capital advances, but upholding the disallowances related to commission expenses and employees' contribution to PF.