2013 (5) TMI 79 - AT - Income Tax

Provident Fund and ESI contribution - Allowability of deduction u/s 36(1)(5a) read with S. 2(24)(x) & S. 43(B) - Deduction of provision of gratuity - Grace period u/s.43B - Regarding Employees contribution to P.F. & E.S.I. - Held that - The Hon ble Delhi High Court in the case of CIT-vs- P M Electronics (2008 (11) TMI 3 - DELHI HIGH COURT) following the decision of the Hon ble Supreme Court in the case of Vinay Cement (2007 (3) TMI 346 - Supreme Court of India ), has clearly laid down that no addition under section 36(1)(va) r.w.s. 2(24)(x) can be made in respect of employers/employees contribution towards the provident fund payment and ESI payment. If the assessee makes the payment much before the due date before filing of the income-tax return under section 139(1) - We confirm the order of the CIT(A) on these two grounds - The Revenue s appeal stand dismissed. Regarding claim of Provision of Gratuity - Rule 46A is applicable to additional evidence not to supporting evidence. The assessee filed before AO details of employees giving names, designation, identity and year of retirement in respect of all the employees for which gratuity provisions were made - The computation of details in respect of about 17 employees were enclosed for test check. This clearly denotes that the evidence/details of all 70 employees was filed but how the amount of provisions were calculated, were filed for only 17 employees. The detail calculation in respect of each employees in our opinion is supporting of evidence to the amount of gratuity provided in respect of each employee - No interference is called for in the order of the CIT(A) and we confirm the order of the CIT(A) deleting the addition - Revenue s Appeal is dismissed. Respectfully following our decision in respect of ground nos. 1 and 3 in ITA No.1251/Kol/2010 - We dismiss both the grounds taken in ITA No.1252/Kol/2010 - This appeal of the Revenue is also dismissed - The both the appeals filed by the Revenue are dismissed

Summary

Issues:
- Appeal filed by Revenue against orders of CIT(A) for assessment years 2003-04 and 2004-05.
- Disallowance of employees' contribution to provident fund and ESI not paid within due date.
- Claim of deduction for provision of gratuity.
- Violation of Rule 46A by CIT(A) in allowing additional evidence.
- Interpretation of Section 36(1)(va) and Section 43B of the Income Tax Act.

Analysis:
1. Disallowed Contributions to Provident Fund and ESI:
- AO disallowed contributions as payments were made beyond due dates.
- CIT(A) deleted disallowance based on Supreme Court's decision in Vinay Cement case.
- ITAT upheld CIT(A)'s decision citing Delhi High Court's ruling.

2. Deduction for Provision of Gratuity:
- ITAT directed to allow deduction based on mercantile system of accounting.
- Assessee submitted details of 70 employees' gratuity liability before CIT(A).
- CIT(A) deleted disallowance after verifying records and supporting evidence.

3. Violation of Rule 46A:
- Revenue claimed CIT(A) violated Rule 46A by allowing additional evidence.
- CIT(A) requested evidence from assessee under section 250(4) and assessee provided supporting evidence, not additional evidence.
- ITAT confirmed CIT(A)'s decision, stating Rule 46A applies to additional evidence, not supporting evidence.

4. Interpretation of Income Tax Act Sections:
- Revenue argued for disallowance under Section 36(1)(va) and Section 43B.
- ITAT dismissed Revenue's appeal, following Supreme Court's decision and applying principles from previous cases.

5. Overall Decision:
- ITAT dismissed both appeals by Revenue based on consistent application of legal precedents.
- Rulings were made on disallowed contributions, deduction for gratuity provision, and Rule 46A compliance.
- Order pronounced on 15th February, 2013, upholding CIT(A)'s decisions for the assessment years in question.