2022 (12) TMI 109 - AT - Income Tax

Disallowing the employees contribution of Provident Fund which the assessee has remitted the same beyond the date specified in the respective Act after two days delay u/s.36 - case was selected for scrutiny under CASS and notices u/s. 143(2) and 142(1) - HELD THAT - We observe from the record that the assessee claimed the expenditure which assessee has debited to the income and expenditure as provision for special memento to the members. However, it is brought to our notice that this is a regular expenditure claimed by the assessee in every Financial Year. In this regard assessee has filed copy of the expenditure for three years i.e. for the F.Y. 2016-17, 2017-18 and 2018-19. Therefore, it clearly indicates that this expenditure is a recurring expenditure incurred by the assessee in this assessment year also. Therefore, merely observing that assessee has declared as a provision it cannot be disallowed. However, what is relevant is the nature of expenditure which assessee claims every year and AO has not expressed his view on the nature of expenditure which can be disallowed or which assessee is not allowed to claim. Therefore, the expenditure claimed by the assessee is an expenditure for the operation of the society allowable under the Act. Therefore, we direct the Assessing Officer to allow this expenditure as a regular expenditure allowable for this assessment year. With regard to provision for encashment of staff leave which assessee has claimed as the expenditure, we observe that the assessee claims certain expenditure as a period expenditure relevant for the current assessment year and whenever the employee claims the same in the subsequent month or subsequent year it is adjusted against the above said provision. The expenditure claimed by the assessee is an ascertainable liability. Therefore, this expenditure also has to be allowed as the period cost. Accordingly, the Ground No. 1 raised by the assessee is allowed. Alternatively disallowance of any expenditure would increase the total income which is eligible for deduction u/s. 80P(2) - We are in agreement with submissions of the assessee that the deduction claimed u/s. 80P of the Act is after determining the net taxable income and if any disallowance made in determining the above said net taxable income will increase the above said net taxable income which is clearly allowable as the deduction under Chapter VIA. Therefore, there is a merit in claim of the assessee. Since we have already allowed Ground No. 1 of the assessee it leads to only discussion on academic purpose. Therefore, we are inclined to keep the Ground No. 2 as open. CPC has disallowed the Employee Contribution claimed by the assessee as a deduction - Any delay in depositing the contribution received by them is chargeable to tax u/s.28 of the Act. Therefore, the collections/recoveries from the employees are first treated as income of the assessee u/s. 28 of the Act and any payment within the due date of the respective Act is treated as application and however, when the assessee fails to deposits within due dates, the same is not allowable deduction u/s.36 of the Act. Therefore, the recovery from the employees are remain as income of the assessee. Therefore, we are not inclined to allow the ground raised by the assessee in this regard. Moreover, this ground raised by the assessee is not borne out of the order passed u/s.143(3) of the Act. Appeal filed by the assessee is partly allowed.

Summary

Issues:
1. Disallowance of deduction claimed under section 80P of the Income-tax Act, 1961.
2. Disallowance of expenditure towards provision for Special Memento to Members and provision for encashment of staff leave.
3. Disallowance of Employee Contribution of Provident Fund by the Centralized Processing Centre (CPC).

Issue 1: Disallowance of deduction claimed under section 80P of the Income-tax Act, 1961:
The appellant, a cooperative society, filed an appeal against the order of the Learned Commissioner of Income Tax (Appeals) regarding disallowance of deduction claimed under section 80P of the Income-tax Act, 1961. The Assessing Officer initially disallowed the deduction, but the Ld.CIT(A) allowed it. The appellant argued that any disallowance would increase the total income eligible for deduction under section 80P(2) of the Act, resulting in revenue neutrality. The Tribunal acknowledged the merit in the appellant's claim and allowed the deduction under section 80P of the Act.

Issue 2: Disallowance of expenditure towards provision for Special Memento to Members and provision for encashment of staff leave:
The Assessing Officer disallowed the expenditure claimed by the appellant towards provision for Special Memento to Members and provision for encashment of staff leave. The appellant contended that these were regular annual expenditures and should be allowed as they were recurring expenses. The Tribunal found that the expenditure claimed was a recurring one, supported by the appellant's historical expenditure records. The Tribunal directed the Assessing Officer to allow these expenditures as regular expenses for the assessment year.

Issue 3: Disallowance of Employee Contribution of Provident Fund:
The Centralized Processing Centre (CPC) disallowed the Employee Contribution of Provident Fund due to a delay in remittance by the appellant. The appellant argued that all payments were made before the end of the financial year, and thus, the disallowance should be dismissed. However, the Tribunal noted that any delay in depositing the contribution beyond the due date specified in the Act is not allowable as a deduction under section 36 of the Act. The Tribunal upheld the disallowance of the Employee Contribution by the CPC, emphasizing the importance of adhering to due dates to safeguard the interests of employees.

In conclusion, the Tribunal partly allowed the appeal filed by the appellant, allowing certain deductions and expenditures while upholding the disallowance of the Employee Contribution of Provident Fund by the CPC.