2023 (3) TMI 308 - AT - Income Tax

Delayed deposit of employee s contribution to PF ESI - Addition u/s 36(1)(va) - HELD THAT - Assessee fairly submitted that the decision of Hon ble Supreme Court in the case Checkmate Services Pvt. Ltd. 2022 (10) TMI 617 - SUPREME COURT wherein it has been held that employee contribution to PF ESI paid beyond due date and specified under the relevant Act then the same has to be added back to the income of the assessee. On the other hand, ld. DR has not any objection to such prayer made by the ld. AR. We after careful consideration of the submission made by the parties and following the decision rendered by the Hon ble Supreme Court (supra), the issue raised by the assessee are covered. Therefore, ground raised by the assessee i.e. ground no. 1 to 3 are dismissed. Disallowance u/s 37(1) - fees on account of penalty under service tax, interest on account of service tax and late fees under goods and service tax - HELD THAT - CIT(A) already granted relief to the assessee in respect of interest on account of service tax and late fees under goods and service tax by following the decision of Hon ble Supreme Court. However, the sum of Rs. 40,000/- which is on account of penalty under service tax is not covered by the decision of the Hon ble Supreme Court. Therefore, CIT(A) rightly upheld the addition on account of penalty made by the ld. DCIT, CPC. We find that addition made by the authorities below by disallowing the claim of the assessee towards payment made on account of penalty under service tax is in the form of penal in nature and it was levied for violation of law, therefore, the said penalty is not admissible as an expenditure as per Explanation 1 to Section 37(1) of the Act. Consequently, we viewed that the addition made by the authorities below on account of penalty is sustained and ground raised by the assessee is dismissed.

Summary

Issues:
1. Interpretation of provisions of section 43B read with s. 36(1)(va) of the Income Tax Act.
2. Validity of disallowance under s. 2(24)(x) read with s. 36(1)(va) and s. 37(1) of the Act.
3. Application of s. 43B of the Act in relation to disallowance.
4. Legality of disallowance under s. 37(1) of the Act for penalty amount.

Analysis:

1. The appeal was filed against the order of the National Faceless Appeal Centre under section 250 of the Income Tax Act. The assessee challenged the disallowance of Rs. 42,35,172 under s. 36(1)(va) for delayed deposit of employee's contribution to PF & ESI. The Commissioner upheld the disallowance, stating that the amendments by Finance Act, 2021 are clarificatory and retrospective, making the payment after the due date liable to be added to the income of the appellant. The Tribunal dismissed the appeal based on the decision of the Hon'ble Supreme Court in a relevant case.

2. Another ground of appeal was the disallowance of Rs. 77,380 under s. 37 of the Act. The Commissioner partly allowed this ground, granting relief on certain amounts but upholding the penalty under service tax of Rs. 40,000. The Tribunal found that the penalty was not admissible as an expenditure under Explanation 1 to Section 37(1) of the Act, as it was penal in nature and levied for violation of the law. Consequently, the Tribunal dismissed the appeal on this ground.

3. The Tribunal further addressed the legality of the disallowance under s. 37(1) of the Act for the penalty amount. The assessee argued that the disallowance of Rs. 40,000 made by the Deputy Commissioner of Income Tax was against the law. However, the Tribunal upheld the disallowance, stating that the penalty amount was not admissible as an expenditure under the Act. The decision was based on the nature of the penalty being punitive for violating the law.

4. In conclusion, the Tribunal dismissed the appeal of the assessee, upholding the disallowances made under the various sections of the Income Tax Act. The judgment highlighted the importance of adhering to statutory provisions and the consequences of non-compliance with tax laws. The decision was based on legal interpretations, precedents, and the nature of expenses incurred by the assessee.