2016 (5) TMI 925 - AT - Income Tax

Addition on account of alleged delayed payment of PF - Held that - We do not hesitate to hold that the employees contribution to the EPF deposited by the assessee before the due date of filing the return, is an allowable expenses. Since, in the present case, the same is deposited before the due date of filing of the return the ground raised by the assessee is allowed. Payments for expenses in cash in violation of provisions of section 40(A)(3) - Held that - The provisions of section 40A(3) of the Act have been framed in order to curb the transactions to be done in cash and in order to encourage the banking transaction. In fact, these provisions appear to us as in terrorem in nature. We observe from the order of the lower authorities that no aspersion have been cast on the genuineness of these expenses. Therefore, we find ourselves in agreement with the argument of the learned counsel for the assessee that the addition will enhance the income earned from the undertaking, therefore, he is eligible for deduction under section 80-IB of the Act. In view of this, we direct the Assessing Officer to give the assessee the benefit of these additions, if the assessee is eligible for deduction under section 80-IB of the Act, since the issue was not in question before us, we are not aware whether the assessee is eligible for said deduction or not. - Decided in favour of assessee for statistical purposes.

Issues Involved:
1. Addition on account of alleged delayed payment of PF.
2. Addition on account of payments for expenses in cash in violation of provisions of section 40A(3) of the I.T. Act, 1961.

Issue-wise Detailed Analysis:

1. Addition on Account of Alleged Delayed Payment of PF:

The primary issue revolves around the disallowance made by the Assessing Officer (AO) concerning the employees' share of EPF deposited by the assessee after the due date prescribed under the EPF Act. The AO rejected the assessee's contention that the deposits were made before the due date of filing the income tax return, relying on the judgment of Bombay High Court in CIT v. Pamwi Tissues Ltd.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, emphasizing that the 'due date' as per the Explanation to section 36(1)(va) of the Income Tax Act, 1961 refers to the due date under the relevant fund and not the due date of filing the income tax return. The CIT(A) relied on the Supreme Court judgment in Alom Extrusions Ltd.

On appeal, the Tribunal noted that all deposits were made before the due date of filing the income tax return, though after the due date under the EPF Act. The Tribunal examined the provisions of sections 2(24)(x), 36(1)(va), and 43B of the Act, alongside the relevant judicial precedents. It was observed that section 43B allows deductions for sums paid before the due date of filing the return, and the omission of the second proviso to section 43B by the Finance Act, 2003, clarified that employees' contributions are also covered.

The Tribunal referenced various judgments, including those of the Punjab & Haryana High Court and the Delhi High Court, which supported the view that employees' contributions deposited before the return filing due date are allowable. Consequently, the Tribunal held that the employees' contribution to EPF deposited before the due date of filing the return is an allowable expenditure and allowed the assessee's appeal on this ground.

2. Addition on Account of Payments for Expenses in Cash in Violation of Provisions of Section 40A(3) of the I.T. Act, 1961:

The second issue pertains to the disallowance of ?40,400, being 20% of payments made in cash, which violated the provisions of section 40A(3) of the Act. The AO disallowed the amount as the assessee made payments in cash for trailer expenses and hydra crane repairs.

Before the CIT(A), the assessee argued that although the amount might be disallowable, it should be included in the gross income, making it eligible for deduction under section 80-IB of the Act. The CIT(A) rejected this argument, stating that the assessee failed to correlate the cash payments with their respective bills.

At the Tribunal, the assessee limited his argument to claiming that the disallowed expenses should be included in the gross income for deduction under section 80-IB. The Tribunal agreed, noting that section 40A(3) aims to curb cash transactions, but the genuineness of the expenses was not in question. The Tribunal directed the AO to allow the benefit of these additions under section 80-IB if the assessee is eligible for the deduction.

Conclusion:

The Tribunal allowed the appeal concerning the delayed payment of PF, holding that employees' contributions deposited before the due date of filing the return are allowable. Regarding the cash payments, the Tribunal directed the AO to consider the disallowed amount for deduction under section 80-IB, subject to the assessee's eligibility. The appeal in ITA No. 21/Chd/2016 was allowed, and the appeal in ITA No. 22/Chd/2016 was allowed for statistical purposes.

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