2018 (1) TMI 1227 - AT - Income Tax

Disallowance of delay in payment of employees contribution to ESIC & PF - failure to deposit before due date - applicability of section 43B read with section 2(24)(x) - Held that - he assessee did not deposit the amount of contribution with the PF Department / DSI Department within due date under the PF Act and/or ESI Act - There is no amendment in Section section 36(1)(va) of the Income Tax Act and considering section 36(1)(va) of the Income Tax Act as it stands, with respect to any sum received by the assessee from any of his employees to which the provisions of clause (x) of sub-section (24) of section 2 applies, assessee shall not be entitled to deduction of such amount in computing the income referred to in section 28 if such sum is not credited by the assessee to the employees account in the relevant fund or funds on or before the due date as per explanation to section 36(1)(va) of the Act - See COMMISSIONER OF INCOME TAX II Versus GUJARAT STATE ROAD TRANSPORT CORPORATION 2014 (1) TMI 502 - GUJARAT HIGH COURT - Decided against assessee TDS u/s 194J - disallowance u/s.40(a)(ia) - non deduction of tds payment of consulting service made to BSI management System (I) Pvt. Ltd. - Held that - We are of the opinion that the provision of section 194J of the Act will be applicable. Hence, 20% will be disallowed in the light of proviso sec. 194J and AO is directed to calculate the same. Disallowance of interest as per rule 8D(2)(ii) u/s.14A - Held that - Since company is having ₹ 559.95 lacs i.e. share capital ₹ 6.00 lacs and Free reserve ₹ 553.95 lacs, whereas investment made in shares and mutual funds put together is ₹ 524.32 lacs, no disallowance is warranted. Addition on account of administrative exp. u/s.14A - Held that - In the interest of the justice addition of ₹ 50,000/- made on account of administrative expenses u/s.14A.

Summary

Issues:
1. Disallowance of employees' contribution to P.F. and ESIC under section 36(1)(va) of the IT Act, 1961.
2. Disallowance under section 40(a)(ia) for consulting service payment.
3. Disallowance of interest under section 14A of the IT Act.
4. Addition on account of administrative expenses under section 14A of the IT Act.

Analysis:

Issue 1:
The appellant contested the disallowance of employees' contribution to P.F. and ESIC under section 36(1)(va) of the IT Act. The Assessing Officer disallowed the amount despite payment before the return filing due date. The appellant relied on a Delhi High Court decision but the Gujarat High Court precedent favored the revenue. The Tribunal dismissed the appeal based on the Gujarat High Court judgment.

Issue 2:
Regarding the disallowance under section 40(a)(ia) for consulting service payment, the appellant argued that the payment did not exceed the threshold for TDS deduction. However, the Tribunal found the provision of section 194J applicable and directed 20% disallowance, instructing the AO to calculate the same.

Issue 3:
The disallowance of interest under section 14A of the IT Act was contested by the appellant, claiming sufficient free reserves and capital for investments. The AO disallowed a portion of interest expenses, but the Tribunal, citing a relevant judgment, allowed the appeal in favor of the assessee.

Issue 4:
The addition on account of administrative expenses under section 14A of the IT Act was challenged by the appellant. Despite dividend income and investments, the Tribunal found the administrative expenses reasonable and made a minor addition, ultimately allowing the appeal partly.

Additional Issue (from second appeal):
In the second appeal, the disallowance of employees' contribution to P.F. and ESIC was reiterated, and the Tribunal dismissed the appeal based on the discussion in the first appeal. The Tribunal also dismissed the appeal concerning administrative expenses and excluded the addition from book profit computation under section 115JB based on a Special Bench decision.

In conclusion, the Tribunal partly allowed the first appeal and dismissed the second appeal, emphasizing the application of relevant legal provisions and judicial precedents in determining the disallowances and additions in the assessments.