2018 (3) TMI 1184 - AT - Income Tax

Disallowance relating to Employees Contribution of Provident Fund - Held that - CIT(A) has correctly expressed the view that the above said payment was not made into PF account before the due date of filing the return for the subject year. The Ld CIT(A) has further observed that various decisions have liberally interpreted the provisions of and have laid down the principle that the employees‟ contribution paid before the due date for filing return of income is allowable as deduction. Since the employees‟ contribution is income of the assessee u/s 2(24(x) of the Act, the Ld CIT(A) held that the same is allowable as deduction only if it is paid before the due date for filing return of income. Accordingly the Ld CIT(A) has rejected the claim of the assessee. A.R took an alternative plea that the impugned amount is allowable as deduction in AY 2004-05 itself, as it has been paid within the extended time limit prescribed for AY 2004-05 u/s 139(1) of the Act. We notice that the assessee is taking this alternative plea for the first time before us. Hence we restore this plea of the assessee to the file of the AO for deciding the same in accordance with the law Rejection of depreciation claimed by the assessee on EDP equipments taken on lease from M/s HCL Infosystems Ltd - Held that - We notice that the CIT(A) has, however, proceeded to examine the terms and condition of the Contract and has given a finding that the assessee was only a lessee and the ownership has remained with lessor only. He has also given a finding that the assessee had got the right to use the equipments only and the lessor continued to have legal possession over the assets. The Ld CIT(A) has also observed that the assessee did not furnish any information about similar claim made in the succeeding years. Under these set of facts, the Ld CIT(A) has confirmed the rejection of claim for depreciation. The assessee did not furnish any document to contradict the interpretation given by the Ld CIT(A). The ld A.R disputed the observations of the AO by stating that the supplier of equipment and lessee were one and the same. What is required to be shown is that the ownership of the equipments has transferred from M/s HCL infosystems ltd to the assessee. In our view, the assessee has failed to show the same. In the absence of relevant agreement, it may not be proper to understand the terms and conditions of the lease on the basis of some other agreement. Hence we are of the view that the Ld CIT(A) was justified in confirming the order passed by the AO on this issue.

Summary

Issues Involved:
1. Disallowance of employees' contribution to Provident Fund for AY 2005-06 and AY 2010-11.
2. Claim of depreciation on EDP equipment taken on lease for AY 2010-11.

Issue-Wise Detailed Analysis:

1. Disallowance of Employees' Contribution to Provident Fund:

Assessment Year 2005-06:
- The AO disallowed ?115.41 lakhs for employees' contribution to the Provident Fund (PF) paid beyond the due date but before the end of the financial year under section 36(1)(va) of the Act. Additionally, ?326.58 lakhs related to FY 2003-04 was disallowed as it was paid in FY 2004-05 and claimed on a payment basis in AY 2005-06.
- The CIT(A) allowed the ?115.41 lakhs deduction by following various judicial decisions but confirmed the disallowance of ?326.58 lakhs.
- The Tribunal upheld the CIT(A)'s decision, noting that the payments were made before the end of the financial year and relied on various High Court decisions that allowed such deductions if payments were made before the due date for filing the return of income. The Tribunal cited cases like Essae Teraoka (P) Ltd. vs. DCIT, CIT vs. Kichha Sugar Co. Ltd., and others to support this view.
- The Tribunal rejected the revenue's reliance on the circular and decisions of the Kerala and Gujarat High Courts, emphasizing the principle of following the view favorable to the assessee in case of divergent views among non-jurisdictional High Courts.

Assessment Year 2010-11:
- The AO disallowed ?69.36 lakhs for employees' contribution to PF paid beyond the due date but before the end of the financial year.
- The CIT(A) deleted the disallowance, following various case laws.
- The Tribunal upheld the CIT(A)'s decision, reiterating the rationale applied in AY 2005-06.

Alternative Plea for AY 2005-06:
- The assessee contended that the ?326.58 lakhs should be allowed in AY 2004-05 as it was paid within the extended time limit for filing the return of income.
- The Tribunal restored this plea to the AO for decision in accordance with the law.

2. Claim of Depreciation on EDP Equipment Taken on Lease:

Assessment Year 2010-11:
- The assessee claimed depreciation on EDP equipment taken on lease from M/s HCL Infosystems Ltd., arguing it was a finance lease.
- The AO and CIT(A) rejected the claim, noting that the ownership of the equipment did not transfer to the assessee as per the agreement terms.
- The Tribunal upheld the CIT(A)'s decision, emphasizing that the relevant agreement with M/s HCL Infosystems Ltd. was not furnished by the assessee. The Tribunal found that the terms indicated the assessee was only a lessee without ownership rights, and the maintenance charges included in the lease payments did not alter this conclusion.

Conclusion:
- Both the revenue's and the assessee's appeals for AY 2005-06 and AY 2010-11 were dismissed.
- The Tribunal confirmed the CIT(A)'s decisions regarding the disallowance of employees' contribution to PF and the rejection of the depreciation claim on leased EDP equipment.