2022 (6) TMI 791 - AT - Income Tax

Delay in payment towards employee s contribution to Provident Fund (P.F.) under section 36(1)(va) r/w section 2(24) - intimation under section 143(1) - HELD THAT - As relying on kALPESH SYNTHETICS PVT LTD. VERSUS DEPUTY COMMISSIONER OF INCOME TAX, CPC BENGALURU. 2022 (5) TMI 461 - ITAT MUMBAI the said disallowance does not come into play when the payment is made well before the due date of filing the income tax return under section 139(1) - we are of the considered view that the impugned adjustment in the course of processing of return under section 143(1) is vitiated in law, and we delete the same. Assessee appeal allowed. Disallowance as personal expenditure incurred on motor cars, salary and bonus to driver and depreciation on motor car - HELD THAT - From the perusal of audited report, forming part of the paper book, it is evident that the auditor had treated the entire expenditure pertaining to motor car as personal expenditure. However, the assessee while filing its return of income only disallowed 20% of motor car expenditure as personal in nature. As, entire expenditure was treated as personal in the audit report and the same was not disallowed by the assessee while computing the total income in the return, CPC Bengaluru vide intimation disallowed the entire motor car expenditure as per section 143(1)(a)(iv) of the Act. Vide impugned order, learned CIT(A) has also confirmed the disallowance so made. Thus, in the present case, from the perusal of material available on record, it is evident that the impugned disallowance is merely based upon the report of the auditor and the details pertaining to the expenditure were not examined by any of the lower authorities. The assessee though has suo-moto disallowed 20% of motor car expenditure as personal in nature, however, no details pertaining to same were furnished. Thus, in view of the above, we deem it appropriate to remand this issue to the file of the jurisdictional AO for de novo adjudication after verification of all the details pertaining to the motor car expenditure. Upon verification, if it is found that any expenditure is pertaining to the business of assessee, the Assessing Officer is directed to allow the expenditure to that extent. Needless to say that the Assessing Officer shall have the liberty to call for all the details as may be required for complete adjudication of this issue. Accordingly, ground raised in assessee s appeal is allowed for statistical purpose.

Summary

Issues Involved:
1. Disallowance of Rs. 32,140 for delayed payment of Provident Fund under section 36(1)(va) r/w section 2(24) of the Income Tax Act.
2. Disallowance of Rs. 14,52,311 as personal expenditure on motor cars, salary and bonus to the driver, and depreciation on the motor car.

Detailed Analysis:

Issue 1: Disallowance of Rs. 32,140 for Delayed Provident Fund Payment

The first issue concerns the disallowance of Rs. 32,140 due to an alleged delay in the payment of the employee's contribution to the Provident Fund under section 36(1)(va) r/w section 2(24) of the Income Tax Act. The Centralized Processing Centre (CPC), Bengaluru, disallowed this amount while processing the income tax return under section 143(1), which was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)].

The Tribunal referred to a similar case, Kalpesh Synthetics Pvt. Ltd. v/s DCIT, where it was held that payments made after the due date under the respective statute but before filing the income tax return are deductible in computing business income. The Tribunal noted that the assessee had objected to the proposed adjustment, citing jurisdictional High Court precedents that support the deductibility of such payments if made before the due date for filing the return under section 139(1). Despite these objections, the CPC did not provide specific reasons for rejecting the assessee's response, merely using a standard template text.

The Tribunal emphasized that the CPC must provide specific reasons for rejecting objections, as this is a quasi-judicial function requiring a judicious call. The Tribunal concluded that the adjustments made under section 143(1) were not justified because the CPC failed to consider the binding judicial precedents and provide specific reasons for the disallowance. Consequently, the Tribunal deleted the disallowance of Rs. 32,140, allowing ground no. 1(a) in the assessee's appeal.

Issue 2: Disallowance of Rs. 14,52,311 as Personal Expenditure

The second issue pertains to the disallowance of Rs. 14,52,311, which included expenses on motor cars, salary and bonus to the driver, and depreciation on the motor car. The assessee had initially disallowed 20% of these expenses as personal expenditure. However, the CPC disallowed 100% of the expenses based on the audit report (Form 3CD), which treated the entire amount as personal expenditure.

In the appeal before the CIT(A), the assessee argued that the auditor could not estimate the personal element in the expenses and that the allowable depreciation on the motor car should be based on the block method. The CIT(A) upheld the disallowance but directed the Assessing Officer to give credit for the 20% disallowed by the assessee after verification.

The Tribunal observed that the disallowance was based solely on the auditor's report without examining the details of the expenditure. The Tribunal deemed it appropriate to remand the issue to the jurisdictional Assessing Officer for de novo adjudication. The Assessing Officer was directed to verify the details of the motor car expenditure and allow the expenses related to the business of the assessee. The Tribunal allowed ground no. 1(b) for statistical purposes, directing the Assessing Officer to call for all required details for a complete adjudication.

Conclusion:

The appeal by the assessee was allowed for statistical purposes, with the Tribunal deleting the disallowance of Rs. 32,140 related to the Provident Fund payment and remanding the issue of Rs. 14,52,311 for personal expenditure to the jurisdictional Assessing Officer for further verification and adjudication. The order was pronounced in the open court on 14/06/2022.